Department of Health and Human Services 

OFFICE OF 

 
INSPECTOR GENERAL 

 
 
 
 
 
 
S  C
T  ATES   OLLECTION OF 

 
R D P
E  BATES FOR  RUGS  AID 

 
T M
HROUGH  EDICAID 

 
 
M C
ANAGED  ARE 

O  
RGANIZATIONS
 
 
Daniel R. Levinson 
  
Inspector General
  
 
September 2012 

OEI-03-11-00480 
  
   
EXECUTIVE SUMMARY:    STATES COLLECTION OF REBATES FOR 
DRUGS PAID THROUGH MEDICAID MANAGED CARE ORGANIZATIONS 
OEI-03-11-00480 
 
WHY WE DID THIS STUDY 
 
In general, drug manufacturers must pay rebates for covered outpatient drugs reimbursed 
under Medicaid for States to receive Federal matching funds.  Drugs dispensed by 
Medicaid Managed Care Organizations (MCO) were excluded from this requirement 
until March 23, 2010, when section 2501(c) of the Patient Protection and Affordable Care 
Act (ACA) expanded the rebate requirement to include these drugs.  To realize the full 
savings under this expansion, it is important  that States collect accurate drug utilization 
data from MCOs and that States invoice and collect rebate payments from manufacturers.    
 
HOW WE DID THIS STUDY  
 
In October 2011, we sent surveys about rebate collections involving MCOs to all           
50 States and the District of Columbia (hereinafter referred to as States) and received 
responses from all but 1 State.  States that paid for drugs through their MCOs              
(the carve-in approach) were asked about the drug utilization data collected from MCOs, 
their processes for invoicing and collecting rebates from manufacturers using these data, 
and the amounts of rebates collected between the second quarter of 2010 and the second 
quarter of 2011.  We asked States that did not pay for drugs through their MCOs (the 
carve-out approach) or did not contract with MCOs about potential changes to their drug 
programs structures as a result of the rebate expansion.  
 
WHAT WE FOUND 
 
Between April 1, 2010, and June 30, 2011, 18 of the 22 States using a carve-in approach 
collected all the data needed to invoice manufacturers for rebates from their MCOs,         
3 collected data from a portion of their MCOs, and 1 never collected any drug utilization 
data. All but one State that used a carve-in approach performed some type of data 
verification check. Twelve of the twenty-two States using a carve-in approach invoiced 
manufacturers and collected $1.6 billion in rebates for utilization in the second quarter of 
2010 through the second quarter of 2011. However, 10 of the 22 States did not invoice 
manufacturers and collect rebates because, for example, they had to complete 
programming changes to the systems that process MCO claims.  Additionally, the rebate 
expansion has prompted five States that used the carve-out approach to change to a   
carve-in approach. 
 
WHAT WE RECOMMEND 
 
We recommend that the Centers for Medicare & Medicaid Services (CMS) follow up 
with the 10 States that had not collected rebates for drugs dispensed to Medicaid MCO 
beneficiaries and take action to enforce rebate collection if necessary.  CMS concurred. 
       
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................6 

Findings......................................................................................................11 
 
Eighteen of the twenty-two States using the carve-in approach 

obtained the Medicaid MCO utilization data needed to collect 

rebates in all of the quarters under review .....................................11 
 
In the five quarters after the rebate expansion, 12 of the 22 

States using the carve-in approach invoiced manufacturers and 

collected $1.6 billion in rebates for Medicaid MCO drug   

utilization .......................................................................................14 

As of October 1, 2011, 10 of the 22 States using a carve-in 

approach had not invoiced manufacturers and collected rebates   

for Medicaid MCO drug utilization ...............................................16 

Five States that did not pay for drugs through Medicaid         

MCOs changed the structures of their drug programs as a result      

of the rebate expansion ..................................................................17 

Conclusion and Recommendation .............................................................18 

Agency Comments and Office of Inspector General Response .....20 

Appendixes ................................................................................................21 

A: Percentage of Medicaid Managed Care Organizations That 

Provided Drug Utilization Data to States for the Second Quarter   

of 2011 ...........................................................................................21 

B: Total Amount of Medicaid Managed Care Organization   

Rebates That 12 States Using a Carve-In Approach Collected  

From Second Quarter 2010 to Second Quarter 2011 .....................22 

C: Ten States Using a Carve-In Approach That Had Not     

Invoiced or Collected Medicaid Managed Care Organization 

Rebates as of October 1, 2011 .......................................................23 

D: Agency Comments ...................................................................24 

Acknowledgments......................................................................................26 

 
   
   
OBJECTIVES 
1. 	  To determine whether State Medicaid agencies (States) have collected 
drug utilization data from Medicaid Managed Care Organizations 
(MCO), as required by the Patient Protection and Affordable Care Act 
(ACA). 
2. 	  To examine the processes States used to invoice and collect rebates 
from manufacturers for drugs dispensed to beneficiaries enrolled in 
MCOs. 
3. 	  To determine how many States invoiced manufacturers for rebates for 
drugs dispensed to MCO beneficiaries. 
4. 	  To calculate the amount States collected in rebates from manufacturers 
for drugs dispensed to MCO beneficiaries, as well as how much went 
uncollected. 
5. 	  To determine whether States that do not currently pay for drugs 
through MCOs will change the structures of their drug programs as a 
result of the new rebate requirements.  
BACKGROUND 
In general, drug manufacturers must pay rebates for covered outpatient 
drugs reimbursed under Medicaid for a State to receive Federal matching 
funds.1  However, until the March 23, 2010, enactment of the ACA, P.L. 
111-148, drugs dispensed by Medicaid MCOs were excluded from the 
rebate requirements.2  Section 2501(c) of the ACA expanded the rebate 
requirements to include drugs dispensed to beneficiaries who receive care 
from MCOs if the organizations are responsible for coverage of such 
drugs, effective March 23, 2010.  To facilitate rebate collection, States 
must include the utilization data collected from MCOs in their rebate 
invoices to manufacturers.3   The Congressional Budget Office (CBO) 
estimated that this provision will result in savings of $3.7 billion between 
2010 and 2014.4    
To realize these potential savings under the ACA, it is important that  
States collect accurate and timely drug utilization data from MCOs, 
implement procedures to invoice manufacturers, and collect these rebates.  
If States do not invoice promptly following the rebate expansion, they still 
 
1 
 Social Security Act (the Act),  1903(i)(10)(A), 42 U.S.C.  1396b(i)(10)(A). 
2 
 The Act,  1927(j), 42 U.S.C.  1396r-8(j) (2009 GPO FDsys). 
3 
 Section 2501(c) of the ACA.  
4 
 CBO, Budget Options Volume 1 Health Care, December 2008, pp. 141142.  Accessed at 
http://www.cbo.gov on April 19, 2011.  
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   1 
   
   
have the opportunity to retroactively invoice manufacturers and collect 
rebates for utilization dating back to March 23, 2010.  However, prior 
Office of Inspector General (OIG) reports have found that States have not 
collected all non-MCO rebates owed by manufacturers because of various 
procedural issues and manufacturer disputes.5    
Medicaid Prescription Drug Coverage 
Medicaid provides health coverage for certain low-income and medically 
needy people, jointly funded by Federal and State governments.  
Individual States establish eligibility requirements, benefit packages, and 
payment rates for their Medicaid programs under broad Federal standards.  
Currently, all 50 States and the District of Columbia (referred to as States) 
offer prescription drug coverage as part of their Medicaid benefit 
packages.   Medicaid expenditures for prescription drugs totaled 
approximately $29 billion in 2010.6    
Medicaid Drug Rebate Program 
To reduce State and Federal expenditures for prescription drugs, Congress 
created the Medicaid drug rebate program in 1990.7  Between 2006 and 
2010, the rebate program has saved Medicaid an average of about           
$9 billion annually. 
Drug manufacturers are required to enter into rebate agreements with the 
Secretary of Health and Human Services (the Secretary) and pay quarterly 
rebates to States for Federal payment to be available for covered 
outpatient drugs provided under Medicaid.8,  9   As of December 2011, the 
States and approximately 600 pharmaceutical companies participated in 
the rebate program.10  
Under these rebate agreements and pursuant to section 1927(b)(3) of the 
Act, manufacturers must provide CMS with the average manufacturer 
price (AMP) by national drug code (NDC) for each of their covered 
 
5 
 OIG, States Collection of Medicaid Rebates for Physician-Administered Drugs (OEI-03-09-
00410), June 2011; Medicaid Rebates for Physician-Administered Drugs (OEI-03-02-00660), 

April 2004; and  Multistate Review of Medicaid Drug Rebate Programs (A-06-03-00048), July
  
2005.
   
6 
 Medicaid expenditures were calculated using data from the Centers for Medicare & 

Medicaid Services (CMS) Medicaid Budget and Expenditures System.  This total does not 

reflect rebates collected through the Medicaid drug rebate program. 
  
7 
 The Omnibus Budget Reconciliation Act of 1990, P.L. 101-508,  4401; the Act,  1927;    

42 U.S.C.  1396r-8. 

8 
 The Act,  1927(a)(1) and (b)(1).
  
9 
 Federal payment refers to the matching funds provided to States by the Federal Government 

for certain social services, including Medicaid. 

10 
 CMS, Medicaid  &  CHIP Program Information. Accessed at http://www.medicaid.gov/ on 

February 15, 2012. 
 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   2 
   
   
drugs.11,  12   AMP is defined as the average price paid to a manufacturer of 
a drug in the United States by a wholesaler for drugs distributed to retail 
community pharmacies and by retail community pharmacies that purchase 
drugs directly from the manufacturer, with certain exclusions.13   
Manufacturers must report the AMPs no later than 30 days after the end of 
each quarter.14  
Medicaid Drug Rebate Process 
CMS uses the AMP and best price data to calculate the unit rebate amount 
(URA) for each NDC included in the Medicaid drug rebate program.  The 
URA varies depending on whether the drug is brand-name or generic.  
CMS calculates a URA for each NDC and transmits this information to the 
States. States then calculate the total quarterly rebates that participating  
manufacturers owe by multiplying the URA for a specific drug by the 
number of units of that drug for which the State reimbursed providers in 
that quarter.  Within 60 days of the end of the quarter, States must invoice 
the manufacturers for the units reimbursed and indicate the total rebate 
due for each NDC.  The manufacturers process the invoices and pay the 
rebates to the States within 30 days of receipt of the invoices.15, 16   
Effective January 1, 2010, section 2501 of the ACA revised the rebate 
calculation and increased the minimum rebate percentage manufacturers 
are required to pay for brand-name and generic drugs.  The basic URA for 
brand-name drugs was increased to the greater of 23.1 percent of the AMP  
or the difference between the AMP and the best price.17, 18  In addition to 
the basic URA, manufacturers are required to pay an additional rebate if 
 
11 
 Section 1927(b)(3) of the Act requires manufacturers provide CMS, in addition to the 

AMP, with the best price available for each of their brand-name drugs.  Best price is defined 

in  1927(c)(1)(C)(i) of the Act as the lowest price available from the manufacturer during the 

rebate period to any purchaser in the United States, with certain exceptions. 
 
12 
 An NDC is an 11-digit identifier that represents a specific manufacturer, product, and 

package size for a drug. 

13
 Section 1927(k)(1) of the Act as amended by  2503(a)(2) of the ACA.  

14
 Section 1927(b)(3) of the Act.  Manufacturers also report AMPs on a monthly basis; 

however, only the quarterly AMPs are used for rebate purposes. 

15 
 Section 1927(b)(1)(A) of the Act. 
 
16
 If the manufacturer does not pay the invoice within 30 days, interest will accrue beginning 

with the 38th day  from the invoices postmark date.  CMS, Medicaid &  CHIP Program
  
Information. Accessed at http://www.medicaid.gov/ on February 15, 2012.
  
17
 Section 1927(c)(1) of the Act as amended by  2501(a) of the ACA.
  
18 
 From 1996 to 2009, the basic URA for a brand-name drug was either 15.1 percent of the 

AMP or the difference between the AMP and best price (whichever was greater). 
 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   3 
   
   
the AMP for a brand-name drug has risen at a rate greater than inflation.19   
The URA for generic drugs was increased to 13 percent of the AMP.20,  21   
The ACA also requires that the additional amounts attributed to these 
increased rebate percentages (e.g., the amount between 15.1 and           
23.1 percent of AMP for brand-name drugs) be remitted to the Federal 
Government.  Therefore, States are prohibited from keeping the additional 
money that results from the ACA changes to the rebate calculation.   
Because of changes to the definition of AMP, rebate percentages, and 
Federal share rules under the ACA, CMS was not able to modify its 
systems to calculate URAs during 2010.  As a result, the States invoices 
to manufacturers included the number of units reimbursed for the drugs 
but did not contain URAs.22  Instead, CMS reminded manufacturers to 
calculate the URAs and make the appropriate 2010 quarterly rebate 
payments directly to States in accordance with the rebate changes for that 
year.23  In May 2011, CMS calculated URAs for each quarter of 2010 and 
provided those data to States as a prior period adjustment. 
Medicaid MCOs and Drug RebatesCarve-In and Carve-Out 
Approaches 
Managed care plans aim to maximize efficiency by negotiating rates, 
coordinating care, and managing the use of services.  MCOs differ from  
the traditional fee-for-service (FFS) system in that States prospectively 
pay MCOs a fixed monthly amount (i.e., capitation payment) for each 
Medicaid enrollee, regardless of whether that beneficiary seeks care 
during the month. A State may provide its Medicaid beneficiaries with the 
option to voluntarily enroll in MCOs or may mandate that all or certain 
categories of its Medicaid beneficiaries enroll in MCOs.24    
States may pay for drugs dispensed through MCOs using either the    
carve-in or the carve-out approach. To use the carve-in approach, States 
include payment for the drugs dispensed to beneficiaries in the MCOs   
 
19
 Section 1927(c)(2) of the Act.  To determine whether manufacturers owe an additional 

rebate for a drug, its base date AMP is updated for the current quarter using the consumer 

price index. If the resulting figure is greater than or equal to the reported AMP in the quarter, 

no additional rebate is owed.  If the resulting figure is less than the reported AMP in the 

quarter, then the additional URA is equal to the difference between the reported AMP and the 

inflation-adjusted base date AMP. 

20
 Section 1927(c)(3) of the Act as amended by  2501(b) of the ACA.
  
21 
 From 1996 to 2009, the basic URA for a generic drug was 11 percent of the AMP. 
 
22
 CMS instructed States to report each URA as $0 on the rebate invoice.    

23
 CMS,  Medicaid Drug Rebate Program Release No. 155, August 11, 2010. 
 
24 
 Section 1903(m)(1)(A) of the Act defines a Medicaid MCO as a health maintenance 

organization that contracts with a State Medicaid agency to provide or arrange for health 

services to eligible individuals. 
   
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   4 
   
   
fixed monthly payment amounts.  In the carve-out approach, States 
exclude payment for the drugs dispensed to beneficiaries from the MCOs  
fixed monthly payment amounts and instead pay for these drugs using the 
traditional FFS system.  
MCO Rebate Collections Prior to March 23, 2010.  Before the 
enactment of the ACA, manufacturers were not required to pay rebates for 
drugs dispensed to beneficiaries by Medicaid MCOs.  For that reason, a 
number of States carved out some  or all prescription drugs from the 
Medicaid MCOs fixed payments.  In other words, beneficiaries would 
receive most of their care through MCOs, but the State instead paid for 
drugs dispensed through MCOs on an FFS basis.  Carving out prescription 
drugs from the MCOs fixed payment amounts enabled these States to 
invoice manufacturers for rebates for these drugs before the ACA was 
enacted. 
MCO Rebate Collections on or After March 23, 2010. As of 
March 23, 2010, section 2501(c) of the ACA expanded the rebate 
requirements to include prescription drugs provided to Medicaid 
beneficiaries enrolled in MCOs.25   To facilitate the States collection of 
these rebates from manufacturers, MCOs are required to report utilization  
data to each State by NDC for each covered outpatient drug dispensed to 
Medicaid enrollees. In April and September 2010, CMS sent letters to 
States that provided guidance about the changes to the rebate program  
under the ACA, including the new MCO provisions.26    
States are to include MCO utilization data in their quarterly rebate 
invoices to manufacturers.  As previously mentioned, because CMS did 
not calculate URAs in 2010, States were unable to invoice manufacturers 
using the established process in that year.  Instead, States provided 
manufacturers with the utilization data collected from MCOs and 
instructed manufacturers to calculate the rebate amounts and remit the 
amounts owed each quarter.   
The rebate expansion does not directly affect States that do not include 
prescription drugs in their MCOs  payment rates (i.e., the carve-out 
approach) or that do not contract with MCOs.  However, industry reports 
indicate that the ACA expansion may prompt these States to contract with 
 
25 
 Section 340B of the Public Health Service Act established the 340B Drug Pricing Program, 
which requires pharmaceutical manufacturers to charge at or below the statutorily defined 
prices for sales to certain qualified entities (e.g., community health centers).  Drug purchases 
by MCOs that qualify for discounted 340B rates are not subject to the Medicaid rebate 
because this would result in duplicate discounts from  manufacturers. 
26 
 CMS, Letter to State Medicaid Directors, SMDL #10-006 and SMDL #10-019. Accessed at 
http://www.cms.gov/ on August 8, 2011.  
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   5 
   
   
MCOs using a carve-in approach. According to industry reports, this is 
because the prior rebate advantage to carving out no longer exists and 
because industry research has found that MCOs manage the pharmacy 
benefit more efficiently than would otherwise occur in an FFS setting.27    
METHODOLOGY 
Data Collection 
In October 2011, we sent online surveys to the 51 State pharmacy 
directors. We followed up with nonresponding States in November and 
December 2011.  As of January 2012, we had received responses from            
50 States.28  
First, we asked States whether they contracted with Medicaid MCOs to 
provide medical care to beneficiaries as of October 1, 2011.  If they 
answered yes, we asked them to provide the number of Medicaid 
beneficiaries in the State, the number enrolled in MCOs, and the number 
of MCOs that had contracts with the State from the second quarter of  
2010 until the second quarter of 2011 (i.e., from  April 1, 2010, to          
June 30, 2011).  Next, we asked whether the States maintained a carve-out 
approach, a carve-in approach, or a combination of the both approaches or 
had changed their payment approach since March 23, 2010 (i.e., switched 
from a carve-out to a carve-in approach or vice versa).   
Among responding States, half carved in prescription drugs and half either 
carved out prescription drugs or did not have MCO contracts.  See Table 1 
for the number of States with different approaches to MCO drug coverage.  
The survey then asked States different questions based on whether they 
had MCO contracts and used a carve-in approach, had MCO contracts and 
used a carve-out approach, or did not have MCO contracts.   
 
 
 
 
 
 
 
27 
 For example, see the Lewin Group, Projected Impacts of Adopting a Pharmacy Carve-In 
Approach Within Medicaid Capitation Programs.  Accessed at http://www.mhpa.org on 
February 17, 2012.  
28 
 We made multiple attempts to obtain a response from Rhode Island; however, the State did 
not respond.   
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   6 
   
   
Table 1: States Approaches to Drug Coverage Through Medicaid MCOs 
From March 23, 2010, to October 1, 2011  
 
Number of  
Approach    States  
 Total States That Paid for Drugs Through MCOs (Carve-In Approach)                  25 
     Maintained only a carve-in approach  16 
     Changed from a carve-out to a carve-in approach  3 
29
     Used a combination of carve-out and carve-in approaches   6 
Total States With MCOs That Maintained Only  a Carve-Out Approach                             10 
Total States That Did Not Have  MCO Contracts   15 
Source:  OIG analysis of State survey  responses, 2012. 
Questions for Medicaid MCO States Using a Carve-In Approach. We  
asked these 25 States to describe  the quality and timeliness of the 
utilization data provided by Medicaid MCOs and any followup action the 
States took in relation to flaws in these data.  We asked States whether 
they verified (1) the completeness of the utilization data (e.g., that they 
included utilization for all covered drugs), (2) that the data did not include 
utilization for drugs paid through the 340B program, and (3) the datas  
accuracy.  
We also asked whether, as of October 1, 2011, States invoiced 
manufacturers or collected rebates from manufacturers for drugs dispensed 
through Medicaid MCOs. We asked States that had invoiced 
manufacturers to describe the invoicing method used (e.g., sent 
manufacturers one invoice for Medicaid MCO utilization and a separate 
invoice for FFS utilization), whether they tracked the collection of the 
amounts invoiced, and whether manufacturers disputed the amounts 
invoiced. 
We asked that States provide the dollar amounts invoiced (both 
retroactively and nonretroactively) and collected from the second quarter 
of 2010 to the second quarter of 2011.  We asked States that had not 
invoiced manufacturers during this time whether they intended to 
retroactively invoice. We also asked for the reasons for the delay, an 
estimated start date, and the method they anticipated using (e.g., send 
manufacturers one invoice for Medicaid MCO utilization and a separate 
invoice for FFS utilization). 
 
29 
 Six States used a combination of carve-out and carve-in approaches.  In general, the drugs 
that these States carved out include those used to treat HIV/AIDS and depression and other 
mental health disorders.  
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   7 
   
   
Questions for Medicaid MCO States Using a Carve-Out Approach. We  
asked these 10 States whether they intended to continue this approach now 
that rebates are available for drugs provided to beneficiaries enrolled in 
MCOs. If a State intended to no longer carve out, we asked that it 
describe any plans related to changing its rebate collection process. 
Questions for States Without Medicaid MCO Contracts. We asked these      
15 States whether they had plans to change the current structures of their 
drug programs because of the ACA.  We asked these States whether 
section 2501(c) of the ACA had prompted them to consider such contracts 
in the future and, if so, to describe their course of action and provide 
possible implementation dates.30   
Data Analysis  
Medicaid MCO Drug Utilization Data. We reviewed the States survey 
responses to determine whether and when Medicaid MCOs provided     
drug utilization data in the five quarters after March 23, 2010               
(i.e., second quarter 2010 through second quarter 2011).  For this portion 
of the review, we included 22 of the 25 States that had carved in all or a 
portion of their prescription drugs since the rebate expansion became 
effective on March 23, 2010; we excluded the 3 States that had switched 
from a carve-out to a carve-in approach.31   We calculated the number of 
States that: 
	   collected data for all five quarters from every MCO for which they 
had contracts (collected either within 60 days after the quarter or 
more than 60 days after the quarter), 
	   collected data from a portion of their MCOs in at least one of the 
five quarters, and 
	   did not collect data from any of their MCOs in all five quarters.     
States Verification of Medicaid MCO Data. We calculated the number    
of States that verify that the Medicaid MCOs drug utilization data:          
(1) include utilization for all covered outpatient drugs, (2) exclude 
utilization for drugs paid through the 340B program, and (3) include data 
that are accurate and correct.  We  summarized how States perform these 
verification checks and the reasons why other States decided not to 
perform them.  For this portion of the review, we included the three States 
 
30 
 Section 2501(c) of the ACA extended the Medicaid rebate requirements to include drugs 

dispensed by MCOs. 
 
31 
 These three States did not switch to a carve-in method until mid- to late 2011 (one State 

switched in the third quarter and two switched on October 1, 2011).  When these States 
 
received our survey, there had not been enough time to fully evaluate the timeliness of MCOs 

data submissions. 
 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   8 
   
   
that switched from a carve-out to a carve-in approach.  Therefore, this 
portion of the analysis includes 25 States.  
Invoice and Collection of Rebates for Medicaid MCO Utilization.  Of the 
22 States that have carved in all or a portion of their prescription drugs 
since the rebate expansion, we identified States that did and did not 
invoice manufacturers for these rebates as of October 1, 2011.   
For the States that invoiced manufacturers, we calculated the total rebate 
amounts collected for each quarter between the second quarter of 2010 
and the second quarter of 2011.  We also calculated the total amount of 
rebates that were uncollected because of unresolved disputes with 
manufacturers and determined whether States had methods to track unpaid 
rebates. Next, we summarized the methods used to invoice manufacturers, 
calculated the number of States that retroactively invoiced, and calculated 
the total amount retroactively invoiced.  Lastly, we calculated the total 
amount that States invoiced manufacturers in the first and second quarters 
of 2011.  Because CMS had not provided States with URAs in 2010, 
States were unable to invoice manufacturers for specific rebate amounts in 
that year and therefore could not provide invoice totals for 2010.32    
For the States that did not invoice, we summarized why they had not 
invoiced, when they intended to start, and the method they planned to use.  
We also calculated the total number of  beneficiaries enrolled in MCOs for 
these States.    
States That Carve Out or Do Not Have Medicaid MCO Contracts.  We  
reviewed survey responses for the 25 States that carve out prescription 
drugs from their Medicaid MCO payments or that did not have MCO 
contracts. We determined whether the MCO rebate expansion had 
influenced these States to change their payment policies for prescription 
drugs. 
Limitations 
The findings are based on survey responses provided by State Medicaid 
agencies. We did not independently verify their accuracy.  We also did not 
attempt to verify the accuracy of the rebate amounts manufacturers paid to 
the States. The rebate amounts that States invoiced and collected from  
manufacturers were current at the time we received their responses.  If a 
State invoiced and collected rebates after we received its response, then 
these rebate amounts would not be reflected in our totals.  
 
32 
 For drugs without URAs, CMS instructs States to provide utilization data to manufacturers, 
which are then responsible for determining the  correct URAs to be used in calculating total 
rebates owed (enabling States to collect these rebates without actually invoicing for specific 
rebate amounts).  
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   9 
   
   
In addition, we reviewed only the rebate collections and rebate processes 
related to Medicaid MCOs and did not focus on the effect these may have 
had on the capitation rates States pay to MCOs.  We also did not review 
the effect the rebate expansion may have had on beneficiary services or 
provider payments. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency. 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   10 
   
   
FINDINGS 
Eighteen of the twenty-two States using the carve-in 
approach obtained the Medicaid MCO utilization data
needed to collect rebates in all of the quarters under 
review  
Among the 22 States that paid for prescription drugs through Medicaid 
MCOs (i.e., carved in), 18 obtained all the drug utilization data necessary 
for rebate collection between the second quarter of 2010 and the second 
quarter of 2011.33  In addition to these 22 States, 3 States (Illinois, New 
York, and Ohio) switched from a carve-out to a carve-in approach in   
mid- to late 2011.  Because they switched after the second quarter of 2011, 
we did not include them in this portion of our analysis. 
Of the remaining four States, one (Nevada) did not collect data in the 
quarter after the rebate expansion but did so for all its MCOs in all four 
subsequent quarters.  Two additional States (California and West 
Virginia)34 collected the data from only a portion of their MCOs in each of 
the five quarters.  California estimated that the majority of its MCOs 
would report the data by December 2011, and West Virginia reported that 
it would not take action to collect the data until data validation procedures 
were in place. The District of Columbia was the only State that never 
collected any of the utilization data needed from its MCOs to invoice 
manufacturers in all of the five quarters. It did not project a date when it 
would collect the data.35    
States must include data about each drugs utilization on the rebate 
invoices they send to manufacturers within 60 days after a quarter ends, 
meaning that the timely collection of MCOs data is imperative for the 
completeness of these invoices.  As shown in Table 2, the majority of 
States that collected utilization data generally received it from MCOs 
within 60 days after the quarters end.  None of the States (including those 
that never collected utilization data) took action to encourage timelier 
 
33 
 One of the 18 States, Mississippi, did not contract with MCOs in 2010 and therefore did not 
need to collect utilization data in that year.  However, Mississippi collected utilization data 
from all its MCOs in 2011.  
34 
 California and West Virginia use a combination of carve-in and carve-out approaches.  
35 
 However, the District of Columbia estimated that it would begin invoicing for these rebates 
in the first quarter of 2012.  To do so, it would first need to collect utilization data from its 
MCOs.  
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   11 
   
   
submission from MCOs. 36  See Appendix A for a State-by-State depiction 
of when MCOs provided utilization data in the second quarter of 2011. 
Table 2: Collection of Drug Utilization Data:  Characteristics of States Using the Carve-In 
Approach  
     
Second   Third  Fourth  First  Second  
Quarter   Quarter   Quarter   Quarter   Quarter  
Data Collected   2010   2010  2010   2011   2011  
Collected All Data From MCOs  17*  18*  18*  19  19 
     All data collected within 60 days   11  13  14  15  16 
All data collected more than 60 days  after the  3  2  2  1  1 
quarter 
3  3  2  3  2 
    Some data collected within and some data more      
    than 60 days after the quarter  
Collected Data From Portion of MCOs   2  2  2  2  2 
Did Not Collect Data From Any MCOs   2  1  1  1  1 
     Total Number of States   21  21  21  22  22 
Source:  OIG analysis of State survey  responses, 2012. 
* Mississippi did not contract with MCOs in 2010.  Therefore, the  total number of States in the 2010 quarters is 21.  
 
All but one State using a carve-in approach performed at least 
some type of verification check on the Medicaid MCOs  
utilization data 
Among the 25 States that used a carve-in approach by the end of 2011, the 
District of Columbia had not implemented any checks to verify Medicaid 
MCOs utilization data because it had not yet collected any data.  The 
21 States that had collected data and the 3 States that recently switched 
from a carve-out to a carve-in approach reported having methods to ensure 
that the utilization data (1) were complete, (2) did not include 340B 
utilization, or (3) were accurate.  In addition, States that followed up with 
MCOs about the data thought that MCOs were readily available and 
helpful with answering their questions. 
Eighteen of Twenty-Five States Verified That the MCO Data Are Complete. 
These 18  States reported that they verified that the data included 
utilization for all covered drugs by performing checks, such as requiring 
the MCO to certify the data, comparing the data to other sources         
(e.g., financial statements), or validating the data through a series of edits.  
For example, one of the verification checks Pennsylvania performed 
 
36 
 We did not ask about specific actions taken.  Instead,  States were generally asked to 
describe any action taken if the MCO did not provide the utilization data in a timely  manner.   
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   12 
   
   
included running queries that target missing or questionable data from  
MCOs. These queries have helped the State identify a lower-than-
expected submission of claims for certain drug groups, which the State 
then addressed with the MCOs. 
Among the seven States that did not verify the completeness of the data, 
four are in the process of implementing these checks and the other three 
did not mention having data-verification plans (although one mentioned 
that the MCOs agreement with the State requires it to provide complete 
data).37   All of these States, except the District of Columbia, performed at 
least one of the other two data verification checks we specifically asked 
about in our survey (i.e., that the data exclude 340B utilization and that the 
data are correct).  
Twenty-One of Twenty-Five States Verified That the MCO Data Exclude 
340B Utilization.   To verify that the MCO drug utilization data excluded 
340B utilization, these States either requested that the MCOs include a 
340B-entity indicator on the claims or matched the utilization data to a 
database identifying 340B entities and then removed the 340B entities  
utilization from the MCO data.38,  39    
Twenty-Three of Twenty-Five States Verified That the MCO Data Are 
Accurate.   The primary tools these States used to verify that the data are 
accurate are claim edits and audit reports.40,  41  For example, New York 
completes a series of control and validation edits when a claim is first 
processed and then produces reports to verify the accuracy of the data 
submission once the claim is paid.  The State uses these reports to      
follow up with the MCOs when necessary.  New Jersey created an 
encounter-monitoring unit whose responsibility is to perform quality 
control checks of the data submitted by MCOs.   
 
 
37 
 The seven States are California, the District of Columbia, Florida, Kansas, Massachusetts, 

New Jersey, and South Carolina.   

38 
 States are prohibited from collecting rebates on drugs purchased under the 340B program.  

Section 340B of the Public Health Service Act requires States to establish a mechanism to 
 
exclude 340B-purchased drugs from Medicaid rebate requests to prevent subjecting 

manufacturers to duplicate discounts.   42 U.S.C.  256b(a)(5). 

39 
 The four States that did not have a 340B check are the District of Columbia, New Jersey, 

Ohio, and West Virginia. 
 
40 
 In addition to the District of Columbia, Ohio reported that it does not verify the accuracy of 

the MCO data. However, Ohio reported that it employs several methods to monitor data 

quality.
   
41 
 Although New Mexico reported that it verified that data were accurate, it was unsure of 

how it verified this information. 
 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   13 
   
   
In the five quarters after the rebate expansion, 12 of 
the 22 States using the carve-in approach invoiced 
manufacturers and collected $1.6 billion in rebates for 
Medicaid MCO drug utilization  
At the time of our survey, 12 of the 22 States using the carve-in approach  
invoiced manufacturers and collected $1.6 billion in rebates for Medicaid 
MCO utilization for the second quarter of 2010 through the second quarter 
of 2011.42,  43   This amount will likely grow because three of these States 
reported that they were waiting for additional rebate payments from prior 
quarters at the time of our request.  These 12 States had a total of             
8.8 million beneficiaries enrolled in MCOs at the time of our survey.44   
See Table 3 for the amount of rebates collected in each quarter and 
Appendix B for a list of the 12 States that invoiced manufacturers and the 
total amount of rebates collected by each State.  
Table 3: Amounts That 12 States Invoiced and Collected Between Second Quarter 2010 
and Second Quarter 2011 for Medicaid MCO Rebates  
Rebate Quarter   Amount Invoiced   Amount Retroactively   Amount Collected  
Invoiced  
Second quarter 2010  State did not have URAs;  $116 million  $273 million  
manufacturer calculated 
invoice amounts 
Third quarter 2010   State did not have URAs;  $101 million  $317 million  
manufacturer calculated 
invoice amounts 
Fourth quarter 2010  State did not have URAs;  $110 million  $278 million 
manufacturer calculated 
invoice amounts 
First quarter 2011  $390 million*  $40 million  $413 million  
Second quarter 2011  $396 million*   $39 million   $337 million  
     Total   Cannot determine total   $406 million   $1.6 billion**  
  
Source:  OIG analysis of State survey  responses, 2012. 
* Massachusetts was unable to determine the amounts invoiced for MCO rebates; therefore, these amounts are not included in  first and 

second quarter 2011 invoice totals. 

** Three States  reported that they expect to collect additional rebate payments.  

 
42 
 Although the rebate expansion was effective on March 23, 2010, we asked States to provide 
rebate data for the first full quarter (i.e., second-quarter 2010) after that date.   
43 
 Illinois, New York, and Ohio were excluded from this count because they had switched  
from a carve-out to a carve-in approach (Illinois on July 1 and New York and Ohio on 
October 1, 2011). Typically, States invoice manufacturers for rebates 60 days after the close 
of a quarter, meaning that not enough time had passed to enable these States to invoice the 
manufacturers when they completed our survey.   
44 
 Enrollment figures were approximations provided by each State in late 2011.  
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   14 
   
   
As previously mentioned, States could not provide the URAs or exact 
dollar amounts on the rebate invoices sent to manufacturers in 2010.45   
Instead, States provided manufacturers with the drugs utilization data and  
relied on them to calculate and pay the amounts of rebates owed for each 
quarter in 2010. In the first and second quarters of 2011, the 12 States had 
invoiced manufacturers for $390 million and $396 million, respectively.   
In addition, 10 of the 12 States retroactively invoiced manufacturers    
$406 million in rebates for the second quarter of 2010 through the second  
quarter of 2011.  Retroactive invoices for utilization in 2010 averaged 
$109 million per quarter, but dropped in the first half of 2011 to an 
average of $40 million per quarter (when CMS resumed providing URAs).   
The majority of the 12 States invoiced manufacturers by sending 1 invoice 
for the MCO data and a separate invoice for the FFS data (10 States).  Of 
the remaining two States, one sent manufacturers individual invoices for 
each of its four MCOs and a separate invoice for FFS data (a total of five 
separate invoices) and the other sent one invoice that combined all MCO 
and FFS data. 
Additionally, all 12 States reported that they have processes to ensure that 
manufacturers pay the rebate amounts owed for MCO drug utilization.  
The process States used to collect unpaid invoiced amounts that were not 
disputed ranged from sending out prior period adjustments with the 
subsequent quarters invoice to taking a multistep approach to collecting 
the payments.  For example, Massachusetts sends collection notices, 
produces a report identifying manufacturers with amounts past due, and 
provides details of past due amounts on the quarterly invoices.   
Eleven of the twelve States had $33 million in rebates that 
were uncollected at the time of our survey because of 
unresolved disputes with manufacturers 
The 11 States reported that the disputes with manufacturers involved 
potentially incorrect claim information provided by the Medicaid MCOs 
(e.g., invalid drug codes, incorrect units of measure, incorrect quantities 
listed on the claim), provider reimbursement issues, and manufacturer 
requests for more details about information on the invoices.  
Pennsylvania46 and Georgia accounted for the majority (70 percent) of the  
 
45 
 Two of the 12 States reported amounts invoiced in 2010 that were not retroactive. 
46 
 Pennsylvania included unpaid invoices in its total amount of dollars not collected because 
of unresolved disputes.  
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   15 
   
   
$33 million in rebates that were uncollected because of unresolved 
disputes with manufacturers.47, 48    
As of October 1, 2011, 10 of the 22 States using a 
carve-in approach had not invoiced manufacturers 
and collected rebates for Medicaid MCO drug 
utilization 
Ten of the twenty-two States49 that carved in prescription drugs did not 
invoice and collect rebates for Medicaid MCO utilization as of        
October 1, 2011.  Combined, these 10 States have 8.3 million Medicaid 
beneficiaries enrolled in MCOs, which is comparable to the enrollment of  
the 12 States that have invoiced and collected rebates for MCO drug 
utilization.50  See Appendix C for a list of the 10 States that did not invoice 
manufacturers and collect rebates. 
Nine of the ten States reported that they intended to begin invoicing 
manufacturers in the fourth quarter of 2011 or the first quarter of 2012, 
with just one State planning to do so by the end of 2012 (approximately     
2 years after the MCO rebate expansion was enacted). 51  However, all of 
the 10 States that had not sent rebate invoices to manufacturers planned to 
make invoice amounts retroactive, in most cases back to March 23, 2010, 
when the related ACA provision became effective.   
Seven of the ten noninvoicing States had collected all the drug 
utilization data needed to invoice manufacturers from all their 
Medicaid MCOs 
Seven of the ten noninvoicing States had collected all the drug utilization 
data necessary to invoice manufacturers for rebates.  According to these 
seven States, they had not invoiced because they had to complete 
programming changes to the systems that process MCO claims and 
 
47 
 CMS had developed and implemented the Medicaid Drug Rebate Dispute Resolution 
program to address the problem of unpaid and disputed drug rebates.  
48 
 Massachusetts  reported that manufacturers did not owe money  for unresolved disputes.    
49 
 Illinois, New York, and Ohio were excluded from this count because they had switched  
from a carve-out to a carve-in approach (Illinois on July 1 and New York and Ohio on 
October 1, 2011). Typically, States invoice manufacturers for rebates 60 days after the close 
of a quarter, meaning that not enough time had passed to enable these States to invoice the 
manufacturers when they completed our survey.   
50 
 Enrollment figures were approximations provided by each State in late 2011.   
51  When these 10 States invoice manufacturers, 7 plan to send one invoice for MCO data and 
another for FFS data, 2 plan to send individual invoices for each MCOs data and another for 
FFS data, and 1 plans to send a single invoice that combines data for all 5 of its MCOs with 
the FFS data.  
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   16 
   
   
invoice manufacturers for these claims, were still receiving claims data, or 
had to finalize contractual changes with the States rebate contractors.    
Two States (California and West Virginia) that had not collected all 
utilization data from their MCOs52 were waiting to invoice manufacturers 
for rebates after programming changes to accommodate the new invoicing 
process were complete.  The District of Columbia could not invoice 
manufacturers because it had not collected any utilization data from its 
MCOs. 
Five States that did not pay for drugs through 
Medicaid MCOs changed the structures of their drug 
programs as a result of the rebate expansion  
The ACA rebate expansion does not directly affect States that carve out 
prescription drugs or that do not contract with Medicaid MCOs.  However,  
this rebate expansion prompted three States to switch from a carve-out 
approach to a carve-in approach in mid- to late 2011.  According to these 
States, switching to a carve-in approach creates efficiencies by allowing 
them to consolidate care within an MCO and to take advantage of the new 
rebate inclusion. In addition, 2 of the 10 States that carved out 
prescription drugs at the time of our survey (Texas and Utah) reported that 
they have filed legislative changes to carve in at least a portion of their 
MCO utilization as a result of the rebate expansion.  The expected 
implementation date for Texas was March 2012 and for Utah was July 
2012.53    
As of October 1, 2011, 15 States did not contract with MCOs to provide 
medical care to beneficiaries.  The inclusion of MCOs in the rebate 
agreement has not prompted any of these States to consider contracting 
with MCOs. 
 
 
 
 
 
 
52 
 Four States (California, the District of Columbia, Nevada, and West Virginia) did not 
collect all the quarterly drug utilization data from their MCOs.  Of these States, only Nevada 
invoiced manufacturers using the drug utilization data it had collected from its MCOs.  
53 
 According to its survey response, Utah filed a waiver to carve in some prescription drugs 
and was waiting for its approval at the time of our survey. 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   17 
   
   
CONCLUSION AND RECOMMENDATION 
Effective March 23, 2010, section 2501(c) of the ACA expanded the 
Medicaid rebate requirements to include drugs dispensed to beneficiaries 
by a Medicaid MCO. As a result, States contracting with MCOs that carve 
prescription drugs into the MCOs fixed payments are now required to 
collect rebates. The rebate expansion has the potential to provide these 
States with a significant source of additional funds.  This is evident in the 
fact that the 12 States that collected these rebates received $1.6 billion 
collectively for just over 1 years utilization.  However, not all eligible 
States had invoiced manufacturers for these rebatesmoney that these 
States are clearly entitled to collect. 
In addition, the Federal Government is potentially losing a significant 
source of funds as a result of States  not collecting MCO rebates.  Section 
2501 of the ACA increased the rebate amounts manufacturers pay and 
required manufacturers to remit the entire portion of this increase to the 
Federal Government.  However, the Federal Government is unable to 
obtain these dollars if the States do not collect rebates.  
Therefore, we recommend that CMS: 
Follow Up With the 10 States That Had Not Collected Rebates 
for Drugs Dispensed to Medicaid MCO Beneficiaries and Take 
Action To Enforce Rebate Collection If Necessary 
Even though nearly 2 years had passed since the March 23, 2010, rebate 
expansion went into effect, 10 States were not meeting the ACAs 
requirement to invoice and collect rebates from manufacturers for drugs 
dispensed to MCO beneficiaries. At a time when many States are facing 
financial difficulties, this new requirement enables them to pursue the 
collection of these additional rebates and further reduce Medicaid 
spending on prescription drugs. Furthermore, all but one State had 
obtained at least a portion of the MCO utilization data necessary for 
invoicing. Therefore, the factors that hinder rebate invoicing are mostly 
within the States control.   
Responses from these 10 States indicated that they intended to invoice 
manufacturers for drugs dispensed to MCO beneficiaries, generally 
starting in early 2012. CMS should follow up with these 10 States to 
verify that they have begun to invoice manufacturers and collect these 
rebates. CMS should also verify that States are invoicing manufacturers 
retroactively to the effective date of this provision (i.e., March 23, 2010).  
During its followup, if CMS finds that any of these 10 States have not sent 
invoices for the entire period since the rebate expansion, it should enforce 
the rebate collection requirements.  CMS could consider denying Federal 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   18 
   
   
matching funds to these States until they comply with the ACA rebate 
requirements.   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   19 
   
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS concurred with our recommendation.  CMS noted that it has 
continuously undertaken such actions for all States.  In regard to the 
10 States we had identified as not collecting rebates for drugs dispensed to 
Medicaid MCO beneficiaries, CMS conducted further followup and found 
that 2 had taken steps that indicate they are now collecting these rebates.   
CMS believes the remaining eight States will come into compliance, thereby 
negating the need for enforcement actions.  
We did not make any changes to the report based on CMSs comments.  For 
the full text of CMSs comments, see Appendix D.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   20 
   
   
APPENDIX A 
 
Percentage of Medicaid Managed Care Organizations That Provided Drug Utilization Data to 
States for the Second Quarter of 2011  
   
  Percentage That  
Number of Medicaid  Percentage That   Provided Data  More   Percentage That  
MCOs* in Second  Provided Data  Than 60 Days  After  Did Not Provide  
State  Quarter 2011  Within 60 Days     the Quarter   Data  
Arizona  21  100%   - -
California  29  17%   - 83%1  
District of Columbia  3  - - 100%  
Florida   25  100%   - -
Georgia   3  100%   - -
Hawaii  5  - 100%   -
Kansas  2  100%   - -
Kentucky  1  100%   - -
Maryland   7  100%   - -
Massachusetts  5  100%   - -
Michigan  14  100%   - -
Minnesota  8  88%   13%2   -
Mississippi   2  100%   - -
Nevada  2  100%   - -
New Jersey   4  100%   - -
New Mexico  7  100%   - -
Oregon   15  100%   - -
Pennsylvania  7  100%   - -
South Carolina   4  100%   - -
Virginia   5  100%   - -
Washington  7  86%   14%   -
West Virginia   3  - 33%   67%3  
Source:  Office of  Inspector General analysis of State survey responses, 2012. 
* Managed care organizations. 

1 California estimated that 53 percent  of the Medicaid population  was covered by the MCOs that did not provide the utilization data. 
  
2  Totals do not add to 100 percent because of rounding. 
 
3  West Virginia estimated that 50 percent of the Medicaid  population was covered by the  MCOs that did not provide the utilization data.  

 
 
 
 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   21 
   
   
APPENDIX B 
 
Total Amount of Medicaid Managed Care Organization Rebates That 12 States Using a 
Carve-In Approach Collected From Second Quarter 2010 to Second Quarter 2011  
   
     
    Total MCO Rebates 
    Collected Between Second 
Approach to Prescription Drug  Population Enrolled in   Quarter 2010 and Second 
State  Payment in Medicaid MCOs*   MCOs   Quarter 2011   
Arizona  Carve-in  1,255,500  $304,922,162  
Georgia   Carve-in  1,118,978   $126,146,641  
Kentucky  Carve-in  115,000   $56,500,258  
Combination of carve-out and 
Maryland   carve-in  747,000   $116,987,931  
Massachusetts  Carve-in  487,180   $87,195,855  
Combination of carve-out and 
Michigan  carve-in  1,300,000   $160,529,095  
Minnesota  Carve-in  400,000   $01  
Nevada  Carve-in  260,0002   $12,203,599  
Combination of carve-out and 
New Jersey   carve-in  1,004,000   $62,796,646  
Combination of carve-out and 
Oregon   carve-in  503,000   $35,227,390  
Pennsylvania  Carve-in  1,200,000   $590,541,831  
South Carolina   Carve-in  442,000   $64,252,200  
     Total     8,832,658   $1,617,303,608  
Source:  Office of  Inspector General analysis of State survey responses, 2012. 

Note: Rebate collection figures were current at  the time the States responded to our  survey (i.e., late 2011 until  January 2012).  

* Managed care organizations. 

1 At the time of our survey, Minnesota had collected $1.1  million in rebates for the week following March 23, 2010, but had not collected
  
rebates  for  second quarter 2010 and  subsequent quarters.  However, when we followed up with the States for clarification in  January 2012, 

Minnesota had collected an  additional $800,000 for the  week following March 23, 2010, and $18 million for the second quarter of 2010.  

2 Nevada did not provide its population enrolled in MCOs.  We obtained  the 2009 population figure (the most recent  available) from 

 
http://www.Medicaid.gov on February 10, 2012. 

 
 
 
 
 
 
 
 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   22 
   
   
APPENDIX C 
 
Ten States Using a Carve-In Approach That Had Not Invoiced or Collected  
Medicaid Managed Care Organization Rebates as of October 1, 2011 
     
   
     
Approach to Prescription Drug   
  State  Payment  Population Enrolled  
California  Combination of carve-out and carve-in  4,008,547  
 
District of Columbia  Carve-in  145,000  
 
Florida   Carve-in   1,800,000  
  Hawaii  Carve-in  283,000  
Kansas  Carve-in  231,506  
 
Mississippi   Carve-in  51,500  
 
New Mexico  Carve-in  370,000  
  Virginia   Carve-in  530,000  
Washington  Carve-in  685,000  
 
West Virginia   Combination of carve-out and carve-in  166,373 
 
 Total     8,270,926  
                    Source:  Office of Inspector General analysis of State survey responses, 2012.  
 
 
 
 
 
 
 
 
 
 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   23 
   
   
APPENDIX D 
Agency Comments  
 
 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   24 
   
   
 
 
 
 
 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   25 
   
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Robert A. Vito, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office, and David E. Tawes, Regional Inspector General in the 
Baltimore regional office.   
Stephanie Yeager served as the team leader for this study.  Other Office of 
Evaluation and Inspections staff from the Philadelphia regional office who 
conducted the study include Eric Merron.  Central office staff who 
provided support include Tasha Trusty, Kevin Manley, and Debra Roush.  
 
 
Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480)   26 
   
Office of Inspector General

http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as  
amended, is  to protect the integrity of the Department of  Health and Human Services  
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components: 
Office of Audit Services 
The Office  of  Audit Services  (OAS) provides auditing services  for HHS, either by  conducting  
audits  with its own audit resources or by  overseeing  audit work done by others.  Audits  
examine the performance of HHS programs and/or its grantees and contractors in carrying  
out their respective responsibilities and are intended  to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and  
mismanagement and promote economy and efficiency  throughout  HHS. 
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The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
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reports also present practical recommendations for improving program operations.  
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The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of  fraud and misconduct  related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/or  civil monetary  penalties.  
Office of Counsel to the Inspector General 
The Office of Counsel to the  Inspector  General (OCIG) provides general legal services to 
OIG, rendering  advice and opinions on HHS programs and operations and  providing all  
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enforcement authorities.