Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
M D R
 EDICAID  RUG  EBATE 
 
D R C
ISP  UTE  ESOLUTION  OULD 
 
B I  
E  MPROVED 
 
Suzanne Murrin  
Deputy Inspector General for 
Evaluation and Inspections 
 
August 2014 
OEI-05-11-00580   
   
EXECUTIVE SUMMARY:  Medicaid Drug Rebate Dispute Resolution Could Be 
Improved 
OEI-05-11-00580 
 
WHY WE DID THIS STUDY 
 
The Medicaid drug rebate program is a significant source of savings for States and the Federal 
government.  Between 2011 and 2013, the rebate program saved Medicaid an average of 
$17.5 billion annuallyan amount that will grow as a result of changes made by the Affordable 
Care Act. Sometimes, however, States and drug manufacturers do not agree on the amount of 
money that manufacturers owe in rebates.  In such cases, the manufacturer and the State may 
enter into a dispute. Disputes are a matter of concern because they can lead to inefficient use of 
resources and lost money for States and the Federal Government. 
 
HOW WE DID THIS STUDY  
 
We requested data from 31 States to determine the extent to which rebate amounts were 
disputed. We also surveyed 12 States (including 6 from the group of 31) in more depth to 
determine the causes of the most frequent types of disputes and the challenges associated with 
resolving them.  We interviewed relevant staff  from these States, five manufacturers, and the 
Centers for Medicare & Medicaid Services (CMS) to determine the measures that each has taken 
to prevent and resolve disputes. 
 
WHAT WE FOUND 
 
Twenty-nine of thirty-one States that could provide data estimated that only a small percentage 
of rebate dollars were disputed. The 12 selected States indicated that within this small 
percentage, certain types of disputes occur frequently.  These States reported that poor-quality 
claims data lead to disputes regarding unit-of-measure conversions and physician-administered 
drugs.  In addition, States reported that poor-quality data regarding ineligible drugs lead to 
disputes about drugs purchased at a discount under the 340B Drug Pricing Program and 
terminated drugs.  
 
The 12 selected States reported that once disputes are initiated, they struggle to provide the data 
necessary to resolve them.  States reported difficulties in providing claims data or source data to 
help resolve disputes. Finally, the selected States and manufacturers expressed interest in greater 
CMS involvement in preventing and resolving disputes.     
 
WHAT WE RECOMMEND  
 
We recommend that to help prevent and resolve drug rebate disputes, CMS (1) work with States 
to improve the quality of claims data submitted by providers and pharmacies, (2) help States 
obtain better data on ineligible drugs, (3) facilitate States submission of standardized claims  
data, and (4) establish a stronger role in dispute resolution.  CMS concurred with our 
first three recommendations and partially concurred with our fourth recommendation.   
     
   
 
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 

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

Methodology................................................................................................5 

Findings........................................................................................................7 

Twenty-nine of thirty-one States  that could provide data estimated 

that only a small percentage of rebate dollars were disputed ..........7 

Poor-quality data is a primary cause of frequent rebate disputes in 

12 selected States .............................................................................7 

Selected States struggle to provide the data necessary to resolve 

disputes ..........................................................................................10 

Selected States and manufacturers are interested in greater CMS 

involvement in preventing and resolving disputes.........................11 
 
Conclusion and Recommendations ............................................................14 

Agency Comments and Office of Inspector General Response .....16 

Appendixes ................................................................................................18 

A: Detailed Methodology .............................................................18 

B: Agency Comments  ...................................................................20 

Acknowledgments......................................................................................23 

 
     
   
OBJECTIVES 
To determine:  
1. 	  the extent to which rebates are disputed under the Medicaid drug 
rebate program,  
2. 	  the causes of frequently occurring types of disputes,  
3. 	  challenges that States face in resolving disputes,  
4. 	  the measures that States and drug manufacturers believe will help 
prevent or resolve disputes. 
BACKGROUND 
The Medicaid drug rebate program is a significant source of savings for 
States and the Federal government.  Between 2011 and 2013, the rebate 
program saved Medicaid an average of $17.5 billion annually.   This 
amount is likely to grow due to changes made by the Affordable Care Act 
(ACA). 
Drug manufacturers (hereinafter referred to as manufacturers) may dispute 
the number of prescription drug units for which States are requesting 
rebates. Disputes are a matter of concern because they can lead to 
inefficient use of resources and lost money for States and the Federal 
Government.  In some cases, States and manufacturers spend significant 
time investigating and addressing disputes.  In addition, States may not be 
receiving all of the rebates they are owed because of vulnerabilities in the 
dispute-resolution process. Previous Office of Inspector General (OIG) 
reports have found that some States were not resolving disputes in a timely 
manner, potentially leading to a loss of rebate revenue.1  
Medicaid Drug Rebate Program 
Congress created the Medicaid drug rebate program to reduce State and 
Federal Medicaid expenditures for prescription drugs.2 Manufacturers of 
covered outpatient drugs (i.e., rebate-eligible drugs) are generally required 
 
1 OIG,  Multistate Review of Medicaid Drug Rebate Programs, A-06-03-00048, 
July 2005; OIG, Nationwide Rollup  Report for Medicaid Drug Rebate Collections, 
A-06-10-00011, August 2011. 
2  The Omnibus Budget Reconciliation  Act of 1990,  4401, codified  at 42 U.S.C. 
  1396r-8.  Social Security Act   1927. 
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   1 
     
   
to enter into rebate agreements with the Secretary of Health and Human 
Services and pay quarterly rebates to States.3    
Most drugs covered under Medicaid are self-administered products (e.g., 
tablets) dispensed by pharmacies.  However, Medicaid also covers 
physician-administered drugs, which include both injectable and 
noninjectable drugs that are typically administered by medical 
professionals in physicians offices, clinics, or hospitals.4    
Medicaid Drug Rebate Process 
Rebates are calculated using two kinds of data:  (1) pricing data submitted  
by manufacturers and (2) utilization data (i.e., the total number of 
rebate-eligible units for each drug) compiled by States.5  Each quarter, 
manufacturers send pricing data to the Centers for Medicare & Medicaid 
Services (CMS), which then calculates an unofficial unit rebate amount 
(URA).  CMS makes a URA for each national drug code (NDC) available 
to States in the Drug Data Reporting (DDR) system for Medicaid.6,  7 Each 
State determines the rebate amount that a manufacturer owes by 
multiplying the URA for each of the manufacturers NDCs by the 
corresponding number of rebate-eligible units.  Manufacturers are 
ultimately responsible for calculating  an official URA and paying rebates 
to States.  
Rebate collection for physician-administered drugs. In contrast to drugs 
dispensed by pharmacies, which are billed for using NDCs, 
physician-administered drugs are typically billed for using Healthcare 
Common Procedure Coding System (HCPCS) codes.8 Unlike NDCs, 
HCPCS codes do not identify the manufacturer responsible for paying a 
rebate. To assist States in collecting rebates for physician-administered 
drugs, the DRA essentially required the States to provide for the gathering 
of data (including NDCs) necessary to collect rebates for all single-source 
 
3 Generally speaking, to  be eligible to receive Federal payment for covered outpatient 
drugs provided under Medicaid, manufacturers must enter into  rebate agreements and pay  
rebates to the State Medicaid programs.  Sections 1927(a)(1)  and (b)(1) of the Social 
Security Act .   
4 See, e.g.,   1927(k)(2) and  (a)(7) of the Social Security Act (as added by the Deficit 
Reduction Act of  2005 (DRA), P.L. No. 109-171). 
5 See, generally, Social Security Act   1927(b)(3)(A) and 1927(c)(1).  
6 An  NDC is an 11-digit identifier for prescription drugs that represents a specific 
manufacturer, product, and package size. 
7 The DDR is a  Web-based application for all drug  data collection.  Manufacturers must  
submit information on their drugs to the DDR.  States can request access to  view select 
Medicaid drug rebate data.  
8 A HCPCS code identifies the drugs name, route of administration, and dosage size.  
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   2 
     
   
physician-administered drugs and the 20 multiple-source 
physician-administered drugs with the highest dollar volume.9    
Rebate exception for 340B-purchased drugs. Drugs purchased through the 
340B Drug Pricing Program (340B program) are not subject to rebates 
under the Medicaid drug rebate program.  The 340B program requires 
manufacturers to sell covered outpatient drugs to eligible health care 
organizations, known as covered entities, at significantly reduced prices.10   
Drugs purchased under the 340B program (340B-purchased drugs) are not 
subject to Medicaid rebates because to do so would subject manufacturers 
to a duplicate discount on these drugs.11   
However, covered entities may choose to purchase drugs outside of the 
340B program for their Medicaid patients.  States may invoice 
manufacturers for rebates for such drugs.    
The Medicaid Exclusion File, maintained by the Health Resources and 
Services Administration (HRSA), indicates whether covered entities 
dispense 340B-purchased drugs to their Medicaid patients.  States use this 
information to exclude 340B-purchased drugs from the invoices they use 
to collect rebates. 
Drug Rebate Disputes 
When a manufacturer, in good faith, does not believe that a States 
utilization data for a particular NDC  accurately represent the total number 
of rebate-eligible units, the manufacturer may dispute the invoiced 
amount.12  To initiate a rebate dispute, the manufacturer communicates the 
number of units for each NDC that it is disputing (i.e., the number of units 
that it believes not to be rebate-eligible) to the State and indicates the 
reason it believes this number is incorrect.  When a manufacturer initiates  
a dispute, it can withhold payment only for the disputed numbers of units; 
for all nondisputed numbers of units, the manufacturer is expected to pay 
rebates in a timely manner.    
Manufacturers may initiate disputes at any point in the process.  In fact, 
some manufacturers review old data and initiate disputes on previously 
 
9 Section 1927(a)(7) of the Social Security Act (as added  by the DRA, P.L. No. 109-171). 

10 See http://www.hrsa.gov/opa/index.html. The 340B  program was established by the 

Veterans Health  Care  Act of 1992, P.L. No. 102-585  602 and  codifed at 42  U.S.C. 
 
 256b. 

11  42 U.S.C.  256b(a)(5).   See also 58  Fed.  Reg. 27293 (May 7, 1993). 

12 CMS, Sample Drug Rebate Agreement,  V(b).  Accessed at  http://www.medicaid.gov/  

Medicaid-CHIP-Program-Information/By-Topics/Benefits/Prescription-Drugs/ 
 
Downloads/SampleRebateAgreement.pdf on April 23, 2014. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   3 
     
   
paid rebates.13   As of fiscal year (FY) 2014, there was no Federal 
requirement establishing a time limit to prevent manufacturers from  
initiating disputes on claims that were paid years ago.  However, the 
Presidents budget for FY 2015 includes a proposal to limit to 12 quarters 
the timeframe for which manufacturers can dispute drug rebate amounts. 
Resolving Drug Rebate Disputes 
To resolve a dispute, States and manufacturers must come to an agreement 
on the disputed units. If States can prove to manufacturers satisfaction 
that the utilization data they invoiced was correct, manufacturers should 
pay rebates for any disputed units.14  If States find errors in the utilization 
data that they invoiced, they should adjust the number of units 
accordingly.15  If States cannot provide evidence to manufacturers, it is 
possible that the dispute will remain unresolved and manufacturers will 
not pay rebates for the disputed units. 
No time limit exists for resolving disputes.  In fact, previous OIG reports 
indicated that States may have disputes dating back many years.16   
Although the rebate agreement says that States and manufacturers should 
strive to resolve disputes within 60 days, this does not always happen.17   
States have indicated that they generally try to resolve disputes within 
1 year of paying providers  claims for disputed units. 
CMS involvement in dispute resolution. CMS has a voluntary 
dispute-resolution program that provides facilitation and mediation 
assistance to States and manufacturers during rebate disputes.  CMS 
previously sponsored conferences at which manufacturers and States could 
meet to resolve disputes, but has not done so since 2009.  States can 
contact the regional CMS staff member assigned to dispute resolution or 
submit questions by email.    
 
13 States can also review old data and previous invoices.  If a State finds that it was 
underpaid  because a drug  was invoiced using the wrong type of  unit, resulting in an  
incorrect number of units, the State can request an adjustment from the manufacturer. 
14 CMS, Best Practices for States,   II6, and Best Practices for Drug Manufacturers, 
 II5.  Accessed at  http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-
Topics/Benefits/Prescription-Drugs/Medicaid-Drug-Rebate-Program-Dispute-
Resolution.html on April 29, 2014. 
15 Ibid. 

16 OIG,  Review of  the Medicaid Drug Rebate Program in  California, A-09-03-00038, 

December 2003; OIG, Follow-Up Review of the Medicaid Drug Rebate Program  in 
 
Florida, A-04-07-00022, April 2008; OIG, Review of the  Medicaid Drug Rebate 

Program in  Illinois, A-05-08-00011, July 2008;  OIG,  Follow-up Review of the Medicaid 

Drug  Rebate Program in Michigan, A-05-08-00014, July 2008. 

17 CMS, Sample Drug Rebate Agreement,  V(c).  See footnote 12  for  URL. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   4 
     
   
In addition to having the voluntary dispute-resolution program, CMS has  
issued documents to assist States and manufacturers with dispute 
resolution. Among these documents are several program releases on the 
topic, as well as documents with best practices for resolving disputes.   
Related Reports 
Previous OIG reports have indicated concerns about States ability to 
properly invoice manufacturers, resolve disputes, and collect all rebates 
owed to them. In 2005, OIG found that many States lacked adequate 
assurance that all drug rebates owed to them were properly recorded or 
collected, and that CMS did not have reliable billing and collection 
information to properly monitor the drug rebate program.18  Specifically, 
this study found that 15 States had inadequate processes for dispute 
resolution and rebate collection.19  A 2011 followup study found that 
6 States (including 2 of the original 15) had inadequate processes for 
dispute resolution and rebate collection.20    
METHODOLOGY 
This review presents information collected from selected States and 
manufacturers related to preventing and resolving disputes.  In addition, 
we collected information from CMS on its role in helping States prevent 
and resolve disputes. See Appendix A for a detailed methodology.  
Sample 
State selection. To determine the extent to which rebates are disputed 
under the Medicaid drug rebate program, we collected data from 31 States. 
These States indicated that they had the capability to provide all of the 
data that the OIG planned to request. 
Initially, we surveyed all States and the District of Columbia (hereinafter 
referred to as States) about their ability to provide data such as the amount 
of money ever in dispute, the amount of money currently in dispute, and 
the total amount of money invoiced since the rebate program began.  
Thirty-one States indicated that they could provide all of the requested 
information, and 20 States indicated that they could not. 
To address the other evaluation objectives, we purposively selected a 
sample of 12 States for more in-depth review.  We selected 6 States from  
 
18 OIG,  Multistate Review of Medicaid Drug Rebate Programs, A-06-03-00048, 

July 2005. 

19 Ibid. 

20 OIG,  Nationwide Rollup Report for Medicaid  Drug  Rebate Collections, 

A-06-10-00011, August 2011. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   5 
     
   
the 31 States that indicated they could provide the requested data and 
6 States from the 20 States that indicated they could not.  We purposively 
selected States this way to include States with different levels of 
sophistication in their dispute-tracking systems, so as to represent 
variation among States in their capacity to track and address disputes.  In 
addition, to maximize our coverage of Federal funds invested in the rebate 
program, we selected these 12 States from those with the highest drug 
expenditures. 
Manufacturer selection. To determine which manufacturers to select, we 
used information provided from all States as to which manufacturers 
worked more cooperatively to resolve disputes in a timely manner and 
which did not. We purposively selected manufacturers using these criteria 
to obtain a broad perspective of how manufacturers handle dispute 
resolution. The five manufacturers we interviewed included two that 
States most often reported as more cooperative and three that States most 
often reported as less cooperative. 
Data Collection 
Data request. In May 2013, we sent a data request to the 31 States that 
indicated they could provide OIGs requested data.  We received 
responses from all 31 States.  The data request focused on quantifying the 
amount of money that States had in dispute at the time of our data request. 
State survey and structured interviews. Also in May 2013, we sent a 
survey to the 12 selected States.  We received survey responses from all 
12 States. In June 2013, we conducted followup structured interviews 
with each of these States.21   
Limitations 
The results of this report cannot be extrapolated nationally (i.e., across all 
States), nor can they be extrapolated across all manufacturers.   
All data were self-reported by States and manufacturers and represent their 
perspectives on Medicaid drug disputes. 
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.   
 
21 In some cases, States use a contractor for drug rebate functions.  Some  States invited  
their contractors to attend the interviews. 
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   6 
     
   
FINDINGS 
Twenty-nine of thirty-one States that could provide 
data estimated that only a small percentage of rebate 
dollars were disputed 
Twenty-nine of thirty-one States that  could provide data estimated that, of 
the amount of money they invoiced for rebates in calendar year 
(CY) 2012, 6 percent or less was in dispute.  Specifically, 24 of these 
29 States reported 2 percent or less of the money from CY 2012 rebate 
invoices in dispute. Of the two States that reported that more than 
6 percent was in dispute, one reported that 14 percent of the money it 
invoiced was in dispute, and the other reported 25 percent.22    
While the percentage of money in dispute appears to be small, it still 
represents millions of dollars.  Six of the thirty-one States provided dollar 
amounts for their estimated percentages of money in dispute from  
CY 2012 rebate invoices; these disputed amounts totaled $5.2 million.  
This represents 2 percent or less of the money invoiced in these States.  
The remaining 25 States could not provide estimates that distinguished 
between invoice amounts that were disputed and those that were unpaid 
for other reasons. 
Because disputes can be resolved in favor of the State or manufacturer, the 
entirety of the estimated money in dispute is likely not owed to the State 
or Federal government.  However, the entirety of the money represents 
unresolved disputes that parties are expending resources to monitor and 
resolve.  
Poor-quality data is a primary cause of frequent rebate 
disputes in 12 selected States 
Within the small percentage of money in dispute, certain types of disputes 
occur frequently. These disputes are typically associated with (1) drugs 
with complicated unit-of-measure conversions, (2) physician-administered 
drugs, (3) 340B-purchased drugs, and (4) terminated drugs.23    
 
22 The State that reported the figure of 14  percent indicated that this percentage was 
associated with  retroactive rebate  invoices for drugs  dispensed by  Medicaid managed  
care organizations.  These invoices dated back  to 2010, and the State found that disputes 
were higher  for those retroactive rebate invoices.  The State that reported a figure of  
25 percent indicated that  only 2 percent  was for mandated Medicaid rebates.  The 
remaining 23  percent in  dispute was for additional rebates that the State negotiated  with 
manufacturers.  
23 A terminated drug is a drug that is no longer manufactured. 
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   7 
     
   
States struggle with preventing these disputes because of poor-quality 
data. States reported receiving poor-quality claims data from providers 
and pharmacies.  In addition, States reported challenges in obtaining 
accurate data from other sources to remove drugs that are ineligible for 
rebates. See Table 1 for the relationship between the type of dispute and 
the related data problems that States reported. 
Table 1: Causes of Frequent Types of Rebate Disputes  
Type of Dispute   Cause Reported by States   Number of States 
Unit-of-measure conversions 
Poor-quality claims data from 
10 
providers and pharmacies 
Physician-administered drugs  
340B-purchased drugs  
Poor-quality  data as to which 
7 
drugs are ineligible for rebates  
Terminated drugs 
Source:  OIG analysis of  survey responses, 2013. 
Ten of the twelve selected States reported that poor-quality 
claims data lead to disputes regarding unit-of-measure 
conversions and physician-administered drugs 
Ten of the twelve selected States  reported that poor-quality Medicaid 
claims data from providers and pharmacies can result in disputes regarding 
drugs with complex unit-of-measure conversions (i.e., drugs delivered as 
liquids, creams, or aerosols) and physician-administered drugs.  The 
five selected manufacturers also said that these types of disputes were 
frequent. 
Unit-of-measure conversions. Nine of the ten States reported that one way 
they receive inaccurate claims data is when providers or pharmacies 
submit the wrong number of units.  Three of these ten States reported that 
physician-administered drugs, which are typically liquid injectable drugs, 
are especially prone to unit-of-measure mistakes.  The five selected 
manufacturers also indicated that unit-of-measure issues continue to cause 
frequent disputes. 
Determining the correct units to bill is not always straightforward, 
particularly for drugs in nontablet form (e.g., liquid-filled syringes or 
creams).  For example, 1 dose of albumin is 12.5 grams per 240 milliliters.  
Solutions, injectable liquids, and drugs measured by volume should be 
billed as the number of milliliters, not grams.  With such drugs, the 
provider or pharmacy would have to calculate the correct number of 
milliliters and include that number of units on the claim.  For example, if  
2 doses of albumin were administered, the units to be billed to Medicaid 
would be 480 units, not 25 units. 
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   8 
     
   
Physician-administered drugs. Three of the ten States reported that 
another way they receive inaccurate data is when providers include the 
wrong NDC on claims for physician-administered drugs.  One State noted 
that it sometimes receives NDCs for a completely different drug or for a 
different drug within the same product line.  In some cases, the HCPCS 
codes that providers use to bill for physician-administered drugs cover 
many NDCs representing different manufacturers.  
States have limited ability to determine whether the NDC listed on the 
claim from the provider is correct.  In the case of an NDC for a completely 
different drug, States may be able to catch this error if they have access to 
a crosswalk that indicates which NDCs are linked to the HCPCS code 
on the claim. In the case of an NDC for a different drug within the same  
product linei.e., one of the NDCs associated with a given HCPCS 
codethere is little States can do to determine whether the provider billed 
for the correct NDC, short of requesting medical records or talking 
directly to the provider.  Because of these limitations, States may invoice 
manufacturers for the wrong drug, leading to disputes.   
Seven of the twelve selected States reported that poor-quality 
data regarding ineligible drugs lead to disputes associated 
with 340B-purchased drugs and terminated drugs 
Seven of the twelve selected States reported that the data they need to 
exclude ineligible drugs from rebate invoices are of poor quality.  This 
occurs primarily with 340B-purchased drugs and terminated drugs.   
340B-purchased drugs. States reported that it can be difficult to ensure 
that all drugs that receive an upfront discount under the 340B program are 
excluded from the rebate invoice. Four of the twelve selected States 
reported that disputes related to 340B-purchased drugs occurred 
frequently.  Four of the five selected manufacturers agreed.  
States reported problems with the Medicaid Exclusion File, the official list 
of covered entities that dispense 340B-purchased drugs to Medicaid 
patients. Specifically, States noted that the file sometimes was not up to 
date or was inaccurate. Without accurate data on which covered entities 
dispense 340B-purchased drugs to Medicaid patients, States cannot 
effectively program their systems to identify claims for 340B-purchased 
drugs and exclude them from rebate invoices.   
Terminated drugs. Three States reported that another way that ineligible 
drugs are invoiced for rebates is when States lack updated or complete 
information needed to remove terminated drugs from rebate invoices.  
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   9 
     
   
One State noted that it receives updated information about terminations 
from CMS only on a quarterly basis.24   Another State reported that the 
information from CMS may not indicate all terminated drugs because 
manufacturers do not always report drug terminations in a timely way.   
This State reported that some manufacturers do not report a drugs 
termination until years after the fact.   
Selected States Struggle To Provide the Data 
Necessary To Resolve Disputes 
All 12 selected States reported that they struggle to provide data needed to 
resolve disputes.  First, States had difficulties providing claims data to 
manufacturers.  Second, when claims data are insufficient to resolve 
disputes, States struggle to provide source data, particularly if the disputes 
are about old claims.25   
Four of the twelve selected States reported difficulties in 
providing claims data to manufacturers 
Four of the twelve selected States reported that it was difficult to provide 
claims data to manufacturers.  States and manufacturers agreed that, 
despite potential inaccuracies with claims data, reviewing these data is a 
helpful first step in pinpointing the cause of disagreement.   
States reported that providing claims data is time consuming, especially if 
records are on paper or require manual review.  One State reported that it 
has a spreadsheet with multiple pages and thousands of lines to review 
prior to sending claims data to manufacturers.  Another mentioned that it 
had to review claims data to remove confidential beneficiary information 
before sharing with manufacturers.      
In addition, all five selected manufacturers reported problems in 
efficiently using claims data received from States, which delays dispute 
resolution. For example, two manufacturers reported that necessary 
information, such as provider number or provider name, is missing from  
some States claims data.  As a result, manufacturers must go back to the 
States for the additional information, which delays resolution.  
Additionally, all five manufacturers reported that receiving 
nonstandardized data from States is a problem.  Manufacturers must 
reformat nonstandardized data, which also delays resolution. 
 
24 CMS staff reported that if they choose, all States have the ability to access the DDR  
system, which provides real-time drug status.   

25 Source data is documentation of the drug  provided, maintained in the records of  

providers and pharmacies. 
 
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   10 
     
   
Four of the twelve selected States reported difficulties in 
obtaining source data when claims data are insufficient to 
resolve disputes 
Four of the twelve selected States reported difficulties in obtaining source 
data to resolve disputes. States need source data when manufacturers 
suspect that claims data are inaccurate and request further proof to resolve 
disputes. 
However, source data can be challenging for States to obtain because it 
can be hard to reach providers and pharmacies.  For example, three States 
reported that when they contact a provider or pharmacy, the person they 
reach may be an administrative or billing staff member who does not 
know specifics as to what drugs were used or why they were used.  Such 
an individual would be able only to provide information listed on a 
medical record, and would not be able to tell if there was an error in a 
record. Further, because of providers clinical responsibilities, reaching 
the provider can be difficult or time consuming.   
All of the 12 selected States reported difficulties in obtaining 
data for disputes about old claims 
The 12 selected States reported difficulties in obtaining information for 
disputes about old claims.  Two States reported that they have trouble 
reviewing their own claims data before a certain year because system  
upgrades have made accessing old data difficult or impossible.  
Additionally, States reported that they have trouble verifying the accuracy  
of older claims with providers or pharmacies.  Providers or pharmacies 
may no longer be enrolled in Medicaid when States attempt to contact 
them, in which case States cannot compel them to provide the source data 
needed to resolve the dispute.  Even when States are able to contact 
providers or pharmacies, data needed may be past the statute of limitations 
for medical records retention and therefore unavailable.26   
Selected States and Manufacturers Are Interested In 
Greater CMS Involvement in Preventing and Resolving 
Disputes 
According to the 12 selected States and 5 selected manufacturers, greater 
CMS involvement in preventing and resolving disputes could be helpful.  
States reported that they want more general involvement from CMS in 
both preventing and resolving disputes. 
 
26 Among the 12 selected States, the statute of  limitations for medical records retention  
ranged between 3  and 10  years.   
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   11 
     
   
All 12 selected States would like help from CMS in preventing 
disputes 
All 12 selected States wanted help from CMS in preventing disputes. 
Five of them suggested additional guidance that CMS could provide.  
Nine of them had specific suggestions as to how CMS could help with 
disputes related to drugs that are ineligible for rebates.  
Five of the twelve selected States suggested that additional guidance from  
CMS could help prevent a variety of disputes.  For example, one State 
requested that CMS issue guidance defining when it is acceptable for a 
manufacturer to initiate a dispute.  The State noted that there is no 
disincentive for a manufacturer to initiate a dispute, because the burden is  
on the State to prove the dispute is not valid.  This State recounted 
difficulties with a manufacturer that disputed any prescription dosage over  
the average dose, even for doses within the manufacturers own 
recommended dosage range (listed on the drugs package insert).  Another 
State also faced this problem and suggested that to avoid this type of 
dispute, CMS should establish a range of reasonable values to be used 
when manufacturers review invoices.   
Nine States also made suggestions as to how CMS could assist with 
frequent disputes related to drugs that are ineligible for rebates.  States 
said that to help them exclude 340B-purchased drugs, CMS should 
(1) work with HRSA to improve the accuracy of the Medicaid Exclusion 
File and (2) encourage States to require pharmacies to identify 
340B-purchased drugs on claims.  States said that to help them exclude 
terminated drugs, CMS should (1) require manufacturers to report 
termination dates in a timely manner and (2) update termination 
information weekly, not quarterly.   
Eleven of the twelve selected States suggested that active 
CMS involvement could help resolve disputes 
States suggested that greater CMS involvement could assist in dispute 
resolution. States noted that CMS is the legal party to the rebate 
agreement with manufacturers and has more influence over manufacturers 
than they do.27  For example, eight States reported that when CMS became  
involved, formerly nonresponsive manufacturers became responsive.  
Four States suggested that greater CMS involvement would increase 
efficiency for all parties.  For example, if multiple States have the same  
 
27 Technically, the Secretary is the legal party to the rebate agreement with  
manufacturers.  However, CMS has been  designated by the Secretary to  administer the 
Medicaid drug rebate program.  
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   12 
     
   
type of dispute with the same  manufacturer, CMS could facilitate a single 
conversation between the manufacturer and the group of States, 
eliminating the need for multiple separate conversations.     
Additionally, three States noted that the past CMS-sponsored conferences 
on dispute resolution were helpful and two of the three specifically 
suggested that CMS resume these conferences.  One of the three States 
reported that these conferences were helpful because (1) a State could talk 
to many manufacturers over the course of the conference, and (2) the 
conferences helped reveal to CMS and manufacturers that multiple States 
were having the same problems.   Two manufacturers agreed that previous 
CMS-sponsored meetings had been helpful.   
Two of the twelve selected States and all five of the selected 
manufacturers suggested that CMS could improve dispute 
resolution by helping States provide standardized data 
Two of the twelve selected States and all five of the selected 
manufacturers suggested that to improve dispute resolution, CMS could 
help States resolve their problems in providing claims data.  First, States 
and manufacturers said that they would like help from CMS in facilitating  
the electronic transmission of claims datafor example, by developing a 
central repository for States and manufacturers to use to transmit claims  
data. They suggested that a central repository in one format would reduce 
the time it takes to request and reformat data from States.  Second, 
manufacturers would like CMS to encourage that claims data be 
standardized. Some suggested that CMS could specify what data elements 
should be provided and require that the data be in a universal format.   
Nine of the twelve selected States suggested that CMS 
establish a statute of limitations for initiating disputes 
Nine states suggested that CMS could minimize disputes that are 
challenging to resolve by establishing a statute of limitations regarding 
manufacturers ability to initiate a dispute (e.g., manufacturers could not 
open a dispute more than 3 years after an invoice was submitted).  This 
would increase the likelihood that States would have access to the data 
needed to verify the accuracy of the claims data.  
   
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CONCLUSION AND RECOMMENDATIONS 
Within the small percentage of rebate money in dispute, certain types of 
disputes occur frequently in the 12 selected States.  These States struggle 
with preventing these disputes because of poor-quality data, including 
claims data from providers and pharmacies and data needed to effectively 
remove drugs that are ineligible for rebates.   
States and manufacturers reported that disputes can be difficult to resolve.  
To resolve a dispute, a State must prove that a rebate is owed for the 
disputed number of units. This typically involves providing claims data to 
manufacturers and may also require obtaining source data from providers 
and pharmacies.  Both activities are time consuming for States and are 
particularly difficult for disputes about old claims.   
We recommend that to help prevent and resolve drug rebate disputes, 
CMS: 
Work with States to improve the quality of claims data 
submitted by providers and pharmacies 
CMS should work with States to improve data that States receive from  
providers and pharmacies.  CMS should work with States to educate 
providers and pharmacies on (1) how to accurately calculate units on 
claims for drugs with complicated unit-of-measure conversions and (2) the 
importance of submitting the correct NDC on claims for 
physician-administered drugs.  Improving the quality of claims data will 
increase the accuracy of rebate invoices that States send to manufacturers, 
thus reducing disputes. 
Help States obtain better data on ineligible drugs 
CMS should help States obtain accurate and up-to-date data on ineligible 
drugs. CMS should inform States of the option for them to identify, at the 
claim level, 340B-purchased drugs that are ineligible for rebates.  States 
can instruct covered entities to use the industry-accepted standard to 
identify Medicaid claims for 340B-purchased drugs.  However, when OIG 
asked States about this method in 2010, only nine States reported that they 
instruct covered entities to identify 340B-purchased drugs on Medicaid 
claims.28    
CMS should also work to ensure that data about terminated drugs are 
accurate and up to date.  CMS could accomplish this by working with 
 
28 OIG,  State Medicaid Policies and Oversight Activities Related to  340B-Purchased 
Drugs, OEI-05-09-00321, June 2011. 
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   14 
     
   
States to learn which manufacturers may be delayed in submitting 
termination data.  Then, CMS could conduct one-one-one outreach to 
these manufacturers or send a targeted reminder to these manufacturers 
about their responsibility to report termination dates in a timely manner.    
Facilitate States submission of standardized claims data 
Although it is not mandatory for States to submit claims data to 
manufacturers, some States do so to help resolve disputes and clarify 
manufacturers questions.  To make this data exchange more useful and 
efficient, CMS could work with States and manufacturers to develop a 
core set of variables that States could transmit to manufacturers.  
Additionally, CMS could work with States and manufacturers to develop a 
recommended standardized format for this core set of variables.  
Establish a stronger role in dispute resolution 
CMS, as the delegate of the Secretary (who is the legal party to the rebate 
agreement), should be more engaged in dispute resolution.  CMS 
involvement could help States and manufacturers reach agreement more 
quickly, enforce agreements, or bring multiple issues to the forefront at  
once. 
CMS should provide more opportunities for States and manufacturers to 
interact and work on dispute resolution.  For example, CMS could 
reestablish the CMS-sponsored conferences on dispute resolution.  
Alternatively, CMS could consider regional conferences, or the agency 
could host a videoconference or teleconference with a different 
manufacturer each quarter.   
In addition, CMS should provide additional opportunities for States to 
collaborate on dispute resolution. CMS could do this by creating an 
online forum for States to obtain technical assistance, either from CMS or 
from each other.     
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   15 
     
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS concurred with our first three recommendations and partially 
concurred with our fourth recommendation.  CMS described ongoing 
activities in support of our recommendations, and it listed topics for which 
it is considering issuing additional guidance.  OIG acknowledges CMSs 
planned activities and encourages CMS to take the additional steps 
necessary to address our recommendations. 
For the first recommendation, CMS stated that it will consider issuing 
additional guidance to States and manufacturers about accurately 
calculating units on claims for drugs with complicated unit-of-measure 
conversions and about the importance of submitting the correct NDC on 
claims for physician-administered drugs.  OIG encourages CMS to issue 
this guidance and suggests that CMS guidance to States also address 
improving the quality of Medicaid claims data submitted by providers and  
pharmacies. 
For the second recommendation, CMS addressed ineligible 
340B-purchased drugs and terminated drugs.  For 340B-purchased drugs, 
CMS indicated that it is working with HRSA regarding guidance on such 
drugs. OIG encourages CMS to continue working with HRSA to finalize 
the guidance and ensure that the guidance addresses how to flag claims for 
340B-purchased drugs. Regarding terminated drugs, CMS reiterated that 
States can view current drug data in the Drug Data Reporting (DDR) 
system for Medicaid and indicated that it has added a new field for 
identifying when a termination date was reported.  CMS also indicated 
that it is considering issuing additional guidance to manufacturers about 
the need to provide accurate information to the DDR regarding a drugs  
termination date.  OIG encourages CMS to take the steps necessary to 
issue this guidance.  
For the third recommendation, CMS stated that it will offer technical 
assistance to States that require help in identifying methods to improve the 
quality of claims data, and that it will consider additional guidance to 
States on best practices for submitting claims data.  The actions to which 
CMS commits are excellent steps to respond to our first recommendation, 
and we encourage CMS to implement them.  However, we wish to clarify 
that the third OIG recommendation refers to the claims data that States 
submit to manufacturers to help resolve rebate disputes, not the claims  
data that providers and pharmacies send to States to be reimbursed for 
dispensing drugs to Medicaid patients. To respond to the third 
recommendation, CMS should work with States to develop a standard set 
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   16 
     
   
of variables that States could transmit to manufacturers to help resolve 
disputes more efficiently.  
For the fourth recommendation, CMS indicated that it would take some  
actions to reinforce dispute resolution, but it did not agree to take a more 
active role.  CMS indicated that it plans to issue dispute-resolution 
guidance to reiterate best practices both for States and manufacturers.  
CMS also indicated that its staff, including regional office coordinators of 
the dispute resolution program, will continue to respond to State and 
manufacturer inquiries.  These efforts will be helpful and OIG encourages 
them, but we continue to believe that disputes could be resolved more 
efficiently and quickly if CMS took a more active role.  For example, 
CMS could identify areas of common concern and attempt to resolve 
them.  OIG appreciates CMSs resource constraints and urges CMS to 
consider low-cost solutions for involvement, such as videoconferences or 
teleconferences, for a more active role in dispute resolution.  
We did not make any changes to the report as a result of CMSs 
comments. For the full text of CMSs comments, see Appendix B. 
   
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   17 
     
   
APPENDIX A 
Detailed Methodology 
Sample 
State selection. The 31 States indicating that they could fully respond to 
OIGs data request were Alabama, Arkansas, Colorado, Florida, Georgia, 
Hawaii, Idaho, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, 
Massachusetts, Mississippi, Montana, Nevada, New Jersey, New Mexico, 
New York, Ohio, Oregon, South Dakota, Texas, Utah, Vermont, Virginia, 
Washington, West Virginia, Wisconsin, and Wyoming. 
The 12 States we selected for more in-depth review were California, 
Florida, Indiana, Illinois, Louisiana, Michigan, Missouri, New York, 
North Carolina, Ohio, Tennessee, and Texas.29   Together, these States 
represented 68 percent of total Medicaid drug expenditures in FY 2011.  
To determine States drug expenditures, we analyzed the data that States 
report to CMS on a quarterly basis.30   We obtained these data from CMSs  
Medicaid Budget and Expenditure System for each State in FY 2011.   
Manufacturer selection. We purposively selected seven manufacturers to 
include in our review.  We selected three manufacturers that States most 
often reported as more cooperative and three manufacturers that States 
most often reported as less cooperative.  We also selected one 
manufacturer that an equal number of States reported as more cooperative 
and less cooperative.  After selecting the sample, we excluded 
two manufacturers because of ongoing OIG investigations.  The final 
five manufacturers included two that States most often reported as more 
cooperative and three that States most often reported as less cooperative.   
Data Collection 
Data request. Specifically, we asked States to provide the amount of 
money in dispute for rebates invoiced in CY 2012 and to determine the 
percentage that this represented from all money invoiced for rebates for 
the same period.  We asked States to include (if possible) national and 
supplemental rebates and to exclude uncollected money resulting from  
URA changes.     
 
29 The sample of 12 States included 6 States (Florida, Indiana, Louisiana, New York, 
Ohio, and Texas) that were in the group of  31 States and 6 States (California, Illinois, 
Michigan, Missouri, North Carolina, and Tennessee) that were not. 
30 States report these data using Form CMS-64, Quarterly Expense Report.  This form  
tracks expenditures for which States are entitled to  Federal reimbursement and the share 
of rebates that States must remit to the Federal government. 
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   18 
     
   
State survey and structured interviews. The survey focused on the types 
of disputes that States receive from manufacturers and how States resolve 
disputes. Specifically, we asked States about the types of disputes that 
occurred frequently, what they believed caused those disputes, the 
methods they use to resolve disputes, suggestions they had for changes to 
the rebate program that would enhance their ability to prevent and resolve 
disputes, and about CMSs involvement in the dispute-resolution process.   
In the followup interviews, we asked States to clarify their responses to 
the survey and to provide additional context about their responses.  
Primarily, we asked each State to provide more information about the 
reasons for disputes in its State and for more detailed descriptions of its 
dispute-resolution methods.  
Structured interviews with selected manufacturers. In June 2013, we also 
conducted structured interviews with the five selected manufacturers.  We  
asked them about the reasons they dispute rebate invoices, the steps they 
take to prevent and resolve disputes, and the factors that facilitate or 
hinder dispute resolution. 
Structured interview with CMS. In July 2013, we also conducted a 
structured interview with the CMS staff responsible for the drug rebate 
dispute-resolution program.  We asked questions about the status of the 
program and how CMS assists States and manufacturers in resolving 
disputes. 
Data Analysis  
To determine the extent to which rebates were disputed, we analyzed the 
31 States responses to our data request.  We grouped States by the 
percentage of money in dispute that they reported, and we counted the 
number of States in each group.  In addition, for the States that could 
provide precise estimates of money in dispute, we summed the figures 
they provided to obtain a total amount of money in dispute. 
To identify which types of disputes States reported as occurring more 
frequently, the challenges that States face, and States suggestions for 
improvements, we analyzed the 12 States survey responses by theme.   
   
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   19 
    APPENDIX B 
Agency Comments 
./~'"""'<, 
( E.. 
,, 
DEPARTMENT OF HEALTH & HUMAN SERVICES  Centers tor Medicare & Medicaid Services 
"'"<~aa  Administrator 
Washington, DC 20201 
DATE:  JUL -8 2014 
TO:  Daniel R. Levinson 
Inspector General 
FROM:  .Manryn TaVnner 
Administrat011 
SUBJECT:  Office oflnspector General (OIG) Draft Report: "Medicaid Drug Rebate Dispute 
Resolution Could Be Improved" (OEI-05-11-00580) 
Thank you for the opportunity to review and comment on the above-referenced OIG draft report. 
The Centers for Medicare & Medicaid Services (CMS) appreciates the information presented in 
the report and offers the following comments. 
The Medicaid Drug Rebate (MDR) Dispute Resolution Program (DRP) is an alternative dispute 
resolution process developed and administered by CMS that provides assistance to 
manufacturers and states when MDR amounts are in dispute. The purpose of the report was to 
determine the extent to which rebates are disputed under the MDR program, the causes of 
frequently occurring dispute types, challenges states face in resolving disputes, and what 
measures states and drug manufacturers believe will help prevent or resolve disputes. 
The OIG recommendations and CMS responses to the recommendations are discussed below. 
OIG Recommendation 
The OIG recommends that CMS work with States to improve the quality of claims data 
submitted by providers and pharmacies. 
CMS Response 
The CMS concurs with OIG's recommendation. CMS has issued guidance (State Release No. 
162 and State Medicaid Directors Release No. 151) to assist with reporting physician
administered drugs. Additionally, we will consider issuing further guidance to states and 
manufacturers on how to accurately calculate units on claims for drugs with complicated unit of 
measure conversions, and the importance of submitting the correct national drug code on claims 
for physician-administered drugs. CMS also continues to issue sub-regulatory guidance to assist 
states and manufacturers regarding unit type and units per package size reporting for covered 
outpatient drugs. 
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)  20   
   
 
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   21 
     
   
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   22 
     
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Ann Maxwell, Regional 
Inspector General for Evaluation and Inspections in the Chicago regional 
office; Thomas F. Komaniecki, Deputy Regional Inspector General; and 
Laura Kordish, Deputy Regional Inspector General.  
Nicole Hrycyk served as the team leader for this study, and 
Carolyn Pichert served as the project lead.  Other Office of Evaluation and 
Inspections staff from the Chicago regional office who conducted the 
study include Poppy Coleman and Cassie Yarbrough.  Central office staff 
who provided support include Althea Hosein, Kevin Manley, and 
Christine Moritz.  
Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580)   23 
     
   
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. 
Office of Evaluation and Inspections 
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  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
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 
legal support for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and abuse cases involving HHS programs,  including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.