By Jordan Shapiro
A new audit recommends that Missouri refund more than $34 million to the federal government because the state did not comply with Medicaid regulations.
For at least three years, the state failed to bill drug manufacturers for rebates the companies owed on drugs administered by physicians at a hospital, according to the audit scheduled for release Tuesday by the Office of Inspector General of the U.S. Department of Health and Human Services.
That failure enriched drug companies at the same time it deprived the program of millions of dollars that could have been used to care for Missouri's neediest citizens.
A spokeswoman for the Missouri Department of Social Services said Monday the state disagrees with the audit findings and does not intend to make any repayments.
For a drug to be eligible for reimbursement under the Medicaid program, the drug's manufacturer must agree to pay quarterly rebates to states. But each state has the responsibility to bill the manufacturer -- and that's where Missouri fell short, the audit said.
"If they had been invoiced by the states, the onus would have been on the drug companies to pay the drug rebates as required," said Dan Bittner, one of the federal auditors who worked on the report.
The drugs under scrutiny could be anything from aspirin to antibiotics, so long as they are prescribed by a physician in a hospital setting.
States are supposed to collect rebates for these drugs by submitting utilization data to manufacturers that include National Drug Codes (NDCs) -- specific numbers that are used to identify both the drug and the manufacturer.
The federal government requires states to get the data and codes from the providers who take care of Medicaid patients.
But in Missouri's case, the Department of Social Services, which oversees the Medicaid program, failed to collect the necessary codes in claims it paid to providers totaling more than $50 million from 2009-2011, according to the federal audit.
"The state agency did not collect the drug utilization data necessary to bill the manufacturers for rebates associated with these physician-administered drug claims, and the claims were therefore ineligible for federal reimbursement," the audit said.
As a result, the audit recommends that the federal government -- which pays the bulk of the state-administered Medicaid program -- get a refund from Missouri of more than $34 million because the drug claims were ineligible. Separately, it questions an additional $19.2 million in other payments that may have been ineligible for payment, which it says could result in an additional refund by Missouri totaling $13.2 million.
Missouri officials, in an emailed statement to the Post-Dispatch on Monday, disputed the audit's conclusions and said if the state needs to pay any refund it should be only about $7 million, which is the amount the state says it should have received in rebates from the drug manufacturers.
"The Department of Social Services disagrees with the audit finding and will not make any repayments based on the Office of Inspector General's analysis," Rebecca Woelfel, spokeswoman for the Department of Social Services, said in the email.
But Bittner, the federal auditor, said the amount of a refund would be determined based on the overall drug's cost, not just the rebate amount. He said federal regulations prevent any Medicaid reimbursement for drugs that do not include the proper coding information.
State officials have 30 days to formally respond to the audit.
After that, the Centers for Medicare and Medicaid Services will determine whether the state will need to refund the federal government and how much. Should the state face a fine, CMS would likely deduct the amount from its regular Medicaid payments to Missouri.
State officials were able to review the draft findings and recommendations last year, and in a letter to the auditors dated Nov. 19, 2014, said the state's hospitals were the ones that were unable to comply with the federal reporting requirement.
In the letter, Department of Social Services Director Brian Kinkade disagreed with many of the audit's recommendations and said requiring Missouri to refund the federal government would place an "enormous hardship" on the state.
He wrote that Missouri had required hospitals and clinics to submit the proper information in a provider bulletin published by the department.
"Missouri hospitals encountered significant administrative and financial barriers in attempting to comply with the new NDC submission requirement," Kinkade wrote in his November letter to Patrick J. Cogley, regional HHS inspector general for audit services.
Kinkade's letter continued: "In the months following implementation of the requirement, Missouri denied over 77,000 claims for physician-administered drugs due to hospitals' inability to identify and provide the required NDCs. The denial of such a large volume of claims created an enormous access problem for Missouri Medicaid enrollees. At the time, there was no bigger problem facing Missouri's Medicaid program."
Because of the difficulty the state encountered, it requested and received a waiver from the NDC reporting requirement in 2008 from the federal government. But it wasn't extended and ended six months before the audit period began.
"This waiver expired more than six years ago, but the Department of Social Services has not taken the steps necessary to ensure that providers submit NDCs with physician-administered drug claims," the audit said. It's unclear why Missouri was able to deny 77,000 claims early in the rebate process, but stopped after the waiver expired.
The Missouri Hospital Association said it was operating under the assumption the waiver remained in place and added there was no formal state requirement for them to submit the drug codes in claim information.
Association spokesman Dave Dillon said hospitals face significant administrative burdens in tracking the drug information from the point-of-care. He added that the state's technology infrastructure at the time made reporting even more difficult.
"Even if the hospitals had the capacity, I'm not sure the state had the ability to collect this information," he said.
Federal auditors said Missouri lacked a proper record-management system that could have rejected claims that were missing the relevant drug information.
"The state agency notified providers that it would deny claims that did not include NDCs. However, the state agency did not have a system edit in place to reject all of the claims submitted without NDCs," it said.
Missouri isn't alone in grappling with the rebate issue. During the last few years, the federal government has been aggressively auditing drug claims in many states and is planning more.
Federal auditors found that Oklahoma and Louisiana complied with rebate requirements for a combined $10 million in drug claims during selected time periods over the last few years.
But they asked Maryland, Oregon, Idaho and Nebraska to each refund roughly $3 million for improper drug reimbursements. Missouri could face the largest refund of any state examined so far if the federal government's recommendations hold.
This report was prepared in collaboration with Kaiser Health News, an editorially independent program of the Kaiser Family Foundation.
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