The recent release of a New York State Office of the State Comptroller audit report serves as an example of state Medicaid programs that may not be maximizing their collection of revenue from drug rebates for Medicaid managed care enrollees. This report indicated that the New York Medicaid program did not collect as much as $119.3 million in drug rebates due to managed care organizations’ (MCOs’) failure to resubmit nearly one million rejected encounter claims between October 1, 2011 and June 30, 2014.

The DOH administers the New York Medicaid program and pays the MCOs a per enrollee monthly amount for Medicaid recipients who are enrolled in MCOs. Encounter claims, which are not tied to payment, allow the Medicaid agency to track services received by members enrolled in managed care. The New York Medicaid claims processing system (eMedNY) has edits to reject MCO encounter claims that contain incomplete information or are erroneous, including missing National Drug Codes (NDCs). The MCO is then expected to correct and resubmit encounter claims for reprocessing. The DOH uses NDC information from encounter claims to identify drugs that are eligible for rebate, and the claims processing system is only able to extract NDC information from the encounter claim if the claim contains accurate information for the required data elements (i.e., NDC code, valid referring provider ID number, etc.).

The New York State Comptroller took the position that the failure to fully collect rebates was the result of issues associated with the New York Medicaid claims processing system, including ineffective policies and processes, lack of proper monitoring controls and risk assessments to ensure rejected encounter claims were successfully resubmitted and failure to seek rebates on drug encounter claims from all categories of Medicaid services.

It is also noted that under the Affordable Care Act (ACA), Medicaid MCOs were added to the requirement that MCO contracts must specify that the state will collect rebates from drug manufacturers for covered outpatient drugs dispensed to Medicaid MCO beneficiaries. A state Medicaid program’s failure to enforce this contract provision on participating Medicaid MCOs may be a violation of this expanded requirement under 42 U.S.C. 1396b(m)(2)(A).

Concerns regarding Medicaid MCO claims processing systems are not new. In its 2012 Audit Report, the OIG identified system failures at a number of state Medicaid programs that were similar to those found recently by the New York State Comptroller. In any event, even if the New York State Comptroller’s rebate estimate is overstated, in the wake of strapped state budgets and squeezed Medicaid programs, it is critical that accurate drug utilization data is collected from MCOs and rebates are fully collected from drug manufacturers in order for state Medicaid programs to maximize savings under this statutory expansion. Thus, the release of the New York audit report should serve as a wakeup call to other state Medicaid programs to ensure that effective policies, procedures and processes are in place to maximize drug rebate revenue and avoid any potential violations of the applicable ACA provision.