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albany2 120The state Department of Health (DOH) failed to collect nearly $120 million in available rebates over a 33-month period from prescription drug makers for the Medicaid program because of ineffective policies and processes, according to an audit released today by New York State Comptroller Thomas P. DiNapoli.

"The Department of Health can do more to maximize rebate collections from drug companies," DiNapoli said. "DOH must be diligent in its pursuit of rebates and do all it can to save money. Thankfully, department officials are working to fix the problems identified by my auditors to improve the rebate collection process. These actions should greatly benefit New York taxpayers."

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).

DiNapoli's auditors determined, however, that DOH can improve its processes to ensure the state received all the rebates it could for drugs dispensed to individuals enrolled in managed care, foregoing an estimated $119.3 million in rebates during the audit period of Oct.1, 2011 to June 30, 2014.

DOH uses information from eMedNY, its claims processing system, to identify drugs that are eligible for rebates. It then calculates the rebates for each drug and submits invoices to the drug manufacturers. During the audit period, DOH collected approximately $3.6 billion in rebates from MCO claims. The eMedNY system rejects MCO encounter claims that are incomplete or incorrect. In such cases, the MCO is notified of the rejection, and is expected to correct any errors and resubmit the encounter claim for reprocessing. Once encounter claims are accepted by eMedNY, DOH calculates the rebates for the drugs and submits invoices to the manufacturers.

Auditors estimate that during the audit period, about one million rejected encounter claims were never resubmitted by MCOs, and the state did not collect an estimated $69 million.

DiNapoli's auditors also evaluated DOH's policies and procedures on rebates for physician-administered drugs, and found that several undermine the department's ability to collect all the rebates to which the state is entitled, accounting for an estimated $50.3 million in uncollected rebates.

DiNapoli made 12 recommendations to DOH to collect the unclaimed rebates and improve its processes to maximize rebate collections on drugs dispensed to individuals enrolled in managed care going forward.

DOH officials generally agreed with the audit's recommendations and indicated they have already taken actions to improve the rebate collection process. The department's response is included in the Medicaid Drug Rebate Program Under Managed Care audit.

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