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Audit Critical of State’s Mishandling of Medicaid Rebates


The state Department of Health can do more to control costs and save taxpayers money by making sure it gets the drug rebates that it is entitled to under federal regulations, according to an audit by State Comptroller Thomas P. DiNapoli. DiNapoli’s office has conducted a series of audits on this issue with similar results.

“Medicaid provides vital access to healthcare for millions of New Yorkers, which is why we cannot afford to allow mistakes like these to continue and let tens of millions of dollars slip away,” DiNapoli said. “While I am gratified that DOH is improving its collection procedures, this audit shows that it can certainly do a lot more.”

The Medicaid Drug Rebate Program (MDRP) was created in 1990 to lower government expenses. DOH is supposed to identify claims that are eligible for rebates and provide them to a third party — Magellan Medicaid Administration — that sends rebate invoices to drug manufacturers. Although DOH made notable improvements during the audit period (January 2017 through March 2022), auditors still found that DOH’s continuing errors and weaknesses in following the rebate procedures resulted in the state missing out on $183.7 million.

The largest portion of money left on the table, $109.4 million in rebates, was the result of an error on 490,875 claims that incorrectly showed that no Medicaid payment had been made, making them ineligible for rebates. For example, on one claim where Medicaid actually paid $25,553, DOH could have collected a rebate of $16,149 but instead, the claim was incorrectly excluded from invoices sent to the drug manufacturer.

Rebates are based on the number of drug units that Medicaid paid for. DOH mistakenly underreported units, or reported zero units, on 143,995 claims it sent to Magellan during the audit period, which cost it $9.6 million in rebates.

DOH did improve its policies when it comes to errors in which Managed Care Organizations (MCOs) failed to provide Medicaid with the specific National Drug Code (NDC), which is required to obtain rebates. DiNapoli’s audit found DOH missed out on $26.1 million in rebates from January 2017 to March 2022 because MCOs submitted 463,197 drug claims without including the NDC. DOH took steps during the audit period to help ensure the codes are included on claims.

Among the 12 recommendations DiNapoli made to improve rebate collections, are that DOH:

  • Review the missed rebates and invoice drug manufacturers where appropriate.
  • Improve its system to ensure claims include all the necessary information required for rebates it is due.

In its response to the audit, DOH stated that it is already taking steps to address a number of the findings. The full response is available in the audit.

Comptroller DiNapoli has prioritized identifying opportunities for Medicaid cost savings and eliminating waste. Over the past five years, his audits have identified $11.4 billion in potential savings for the program. On rebates alone, over the past decade, his audits have identified over $1.6 billion in savings.

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