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NEWS from the Office of the New York State Comptroller
Contact: Press Office 518-474-4015


DiNapoli: DOH Needs to Improve Drug Rebate Collections

Audits Find Millions in Medicaid Processing Errors
January 7, 2016

The state Department of Health (DOH) did not collect an estimated $95.1 million in rebates from drug makers, according to an audit released today by State Comptroller Thomas P. DiNapoli. As a result of the findings, DOH invoiced $9.3 million of rebates by the end of the audit’s fieldwork and changed policies that would allow for the collection of additional rebates.

DiNapoli’s auditors also found another $4.3 million in inappropriate payments in an audit of Medicaid claims processing from Oct. 1, 2014 through March 31, 2015.

“The state is still missing out on millions in savings to taxpayers and wasting millions more in processing errors,” DiNapoli said. “The state Department of Health needs to review the issues identified in our reports released today and last February and fix the problems found by my auditors. Thankfully, DOH has already been able to recoup some of the millions owed to New York.”

In 1990, Congress created the Medicaid Drug Rebate Program to reduce state and federal expenditures for Medicaid prescription costs. Since January 1991, New York state has been able to recover a portion of Medicaid prescription drug costs by requesting rebates from drug manufacturers. The Affordable Care Act, enacted in 2010, extended prescription drug rebates to cover medications dispensed to enrollees of Medicaid managed care organizations (MCOs).

Under the managed care method, an MCO receives a monthly payment for each Medicaid recipient enrolled in the plan and is responsible for ensuring the enrollees have access to a comprehensive range of medical services, including pharmacy benefits. MCOs submit claims to DOH’s Medicaid claims processing system (eMedNY) to inform DOH of each medical service provided to recipients enrolled in the MCO.

DOH uses information from eMedNY to identify drugs that are eligible for rebates and calculates the quarterly rebates for each drug and submits invoices to the drug manufacturers.

DiNapoli’s auditors determined, however, that DOH has not taken steps to maximize rebate collections.

For example, DOH did not seek as much as $35 million in rebates on physician-administered drug claims because of internal decisions to exclude certain procedure codes from invoicing. It also failed to include information during processing that could have led to bigger rebates.

Among the auditors' findings were:

  • $14.3 million in uncollected rebates for drugs provided by emergency departments, hospital outpatient departments, and providers in clinical settings;
  • $13.7 million in rebates that were missed because of inaccurate claim information; and
  • $8.7 million in rebates were uncollected because of errors in the invoicing process that prevented the DOH from properly identifying rebate-eligible claims.

The findings in today’s audit mirror those of a report released last February that found DOH did not collect nearly $120 million in available rebates over a 33-month period because of ineffective policies and processes.

DiNapoli recommended DOH:

  • Review the rebate policies identified in this report and revise as appropriate to ensure all rebate-eligible drugs are identified for invoicing;
  • Review the rebate processing errors identified in this report and take action as appropriate to ensure all rebate-eligible drugs are identified for invoicing;
  • Where appropriate, issue retroactive rebate invoices for the fee-for-service and encounter claims identified in this audit; and
  • Regularly reassess policy decisions, and maintain supporting documentation of the entire invoicing process.

In the claims processing audit, DiNapoli’s auditors identified about $4.3 million in inappropriate Medicaid payments, including nearly $2 million in overpayments for newborn claims that were submitted with incorrect birth weights.

Auditors also found $1.06 million in overpayments for inpatient claims that were either billed at a higher level of care than what was actually provided or were billed with incorrect patient status codes; $590,000 in overpayments for claims billed with incorrect information pertaining to other health insurance coverage that recipients had; $477,000 in improper payments for pharmacy claims that were not in compliance with State Medicaid policies; and $167,000 for claims with improper payments for duplicate billings and for clinic and durable medical equipment services.

By the end of the audit fieldwork, about $3.7 million of the overpayments were recovered.

DOH indicated that certain actions have been and will be taken to address each audit’s recommendations. The department’s full responses are included in the audits.

Read the audit, Optimizing Medicaid Drug Rebates, or go to:

Read the audit, Medicaid Claims Processing Activity: Oct. 1, 2014 through March 31, 2015, or go to:

Watch Comptroller DiNapoli’s message on the Medicaid program, or go to: