On Wednesday, August 20, 2014, the Office of Inspector General (OIG) of the U.S. Department of Health & Human Services (HHS) released areport discussing the extent to which rebates are disputed under the Medicaid drug rebate program (MDRP) and the causes of frequently occurring types of disputes.

Manufacturers who have entered into rebate agreements submit quarterly pricing data for their covered outpatient drugs to the Centers for Medicare and Medicaid Services (CMS). CMS computes a unit rebate amount (URA) for each drug and makes that number available to state Medicaid programs. Each state determines the rebate amount a manufacturer owes by multiplying the URA for each drug with the number of rebate-eligible dispensed units, which includes fee-for-service (FFS) Medicaid utilization as well as Medicaid managed care organization (MCO) utilization, and invoices the manufacturer for that amount. A manufacturer may dispute the invoiced amount if it believes in good faith that the number of rebate-eligible units claimed by the state is inaccurate.

The OIG report is based on data from 31 states and an in-depth review of 12 states (including six from the 31-state group). The OIG also collected data from five manufacturers, including two that states “most often reported as more cooperative” and three that states “most often reported as less cooperative.”

The OIG report addresses the following areas that may be of particular interest to manufacturers.

340B duplicate discount prohibition

The so-called “duplicate discount prohibition” provides that drugs sold at the 340B ceiling price are not subject to MDRP rebates. The Medicaid Exclusion File lists those 340B covered entities that dispense 340B-purchased drugs to Medicaid patients. States must exclude utilization by 340B covered entities listed on the Medicaid Exclusion File when computing the rebate amount a manufacturer is due.

According to the OIG report, seven of the 12 states that were reviewed in depth reported that the data needed to exclude 340B-purchased drugs from MDRP rebate invoices are of poor quality. Four of the 12 states reported that disputes related to 340B-purchased drugs occurred frequently, and four of the five selected manufacturers agreed. States reported that the Medicaid Exclusion File sometimes was not up-to-date or was inaccurate.

The OIG report recommends that CMS should help states obtain accurate and up-to-date data to identify utilization related to drugs purchased through the 340B program. The OIG encourages states to instruct 340B covered entities to use industry-accepted standards to identify Medicaid claims for 340B-purchased drugs, which would allow states to identify at the claim level those 340B-purchased drugs that are ineligible for Medicaid rebates. In the response by CMS described in the OIG report, CMS indicated that it is “working with” the Health Resources and Services Administration (HRSA), the agency that administers the 340B program, regarding guidance on the treatment of 340B-purchased drugs.

Time limitation on raising disputes

The OIG report notes that there currently is no time limit after which a manufacturer is no longer permitted to dispute a rebate invoice. Nine of the 12 states that were reviewed in depth suggested that CMS establish a “statute of limitations regarding manufacturers’ ability to initiate a dispute,” such as three years after submission of the invoice. The OIG report makes reference to the President’s budget for fiscal year 2015, which proposes to limit “to 12 quarters the timeframe for which manufacturers can dispute drug rebate amounts.”

Difficulty obtaining claims-level data

All 12 states reviewed in depth reported that they had difficulty providing claims-level data to manufacturers for various reasons, including the need to remove confidential beneficiary information before sharing data with manufacturers. All 12 states also indicated that it was difficult to provide claims-level data related to older disputed invoices, in part because data from providers were no longer available after the relevant state’s statute of limitations for medical records retention had expired. All five manufacturers reported problems with claims-level data provided by states, such as missing provider numbers or names, or receiving non-standardized data from states.

Two of the 12 states and all five manufacturers suggested that CMS help states provide claims-level data by facilitating the electronic transmission of claims-level data between states and manufacturers through a central repository or by specifying the data elements that should be included in claims-level data, as well as the applicable format.

The OIG report recommends that CMS work with states and manufacturers to make exchanging claims-level data more efficient by developing a core set of variables that states could transmit to manufacturers and recommending a standardized format for these core variables.