U.S. Department of Health and Human Services 
Office of Inspector General 
 
 
One Percent of 
Drugs With Medicaid 
Reimbursement 
Were Not  
FDA-Approved
 
 
 
 
OEI-03-17-00120 
 
Suzanne Murrin 
May 2019 
Deputy Inspector General 
 
oig.hhs.gov  Report in Brief  U.S. Department of Health and Human Services 
May 2019 
Office of Inspector General 
OEI- 03-17-00120 
One Percent of Drugs With Medicaid 
Why OIG Did This Review 
Reimbursement Were Not FDA-Approved 
Previous Office of Inspector 
General (OIG) work found that 
What OIG Found 
Ninety-six percent of drugs with Medicaid reimbursement in 2016 were  Medicaid may have paid for drugs 
approved by the Food and Drug Administration (FDA) for safety and  in 2008 that were not 
effectiveness.  However, Medicaid reimbursed for a small percentage of  FDA-approved as safe and effective.  
drugs (1 percent, or 267 drugs) that were not FDA-approved.  For the  To qualify for Federal payments 
remaining drugs, we were unable to determine an FDA approval status.     under Medicaid, drugs must be 
FDA-approved unless they meet the 
Exhibit: Nearly all drugs with Medicaid reimbursement were  
FDA-approved  criteria for an exceptionfor 
example, prescription prenatal 
vitamins or drugs that are 
 
FDA-approved 
prescribed during times of drug 
 
Not FDA-approved  shortages. 
 
Unable to determine  Congress asked OIG to examine 
CMSs oversight of the Medicaid 
Drug Rebate Program and the 
 
Source: OIG analysis of Medicaid and FDA data, 2016.  extent to which CMS relies on FDAs 
In the time since our previous report, FDA has implemented our  drug classifications. 
recommendation to improve the completeness and accuracy of its drug 
How OIG Did This Review 
directory to ensure the directorys integrity for the Centers for Medicare & 
We obtained utilization data for 
Medicaid Services (CMS) and all other stakeholders.  These improvements 
drugs with Medicaid reimbursement 
have strengthened CMSs ability to verify the FDA approval status of 
drugs in the Medicaid Drug Rebate Program.  Since 2014, CMS also has  in 2016.  We used the FDA 
implemented additional oversight activities to verify the FDA approval  marketing categories to determine 
status of drugs.  However, these improvements may not have prevented  whether drugs were FDA-approved.  
potentially inappropriate Medicaid reimbursement for a small number of  We calculated the number and 
drugs that were not FDA-approved.  percentage of (1) drugs that were 
What OIG Recommends        FDA-approved, (2) drugs that were 
We recommend that CMS (1) work with States to recoup any potentially  not FDA-approved, and (3) drugs 
inappropriate Federal reimbursement for drugs that CMS determines  for which we were unable to 
were not FDA-approved and did not meet the criteria for an exception;  determine the FDA approval status.  
(2) continue to improve its reporting system to prevent inappropriate  We also determined the amounts 
reimbursement for drugs that are not FDA-approved, and (3) work with 
that Medicaid reimbursed for each 
States to ensure that they prevent inappropriate reimbursement for drugs 
of these groups of drugs in 2016.  
that are not FDA-approved and do not meet the criteria for an exception.  
Finally, we reviewed CMSs policies 
CMS concurred with all three recommendations. 
and procedures for evaluating the 
 
FDA approval status of drugs in the 
Full report can be found at http://oig.hhs.gov/oei/reports/oei-03-17-00120.asp  
Medicaid Drug Rebate Program.     
TABLE OF CONTENTS
 
BACKGROUND    1 
Methodology    4 
     
FINDINGS     
One percent of drugs with Medicaid reimbursement in 2016 were not FDA-approved    7 
Improvements in CMSs oversight may not have entirely prevented potentially inappropriate    8 
reimbursement for drugs that were not FDA-approved 
     
CONCLUSION AND RECOMMENDATIONS     
CMS should work with States to recoup any potentially inappropriate Federal     10 
reimbursement for drugs that CMS determines were not FDA-approved and did not meet 
the criteria for an exception 
CMS should continue to improve its reporting system to prevent inappropriate    11 
reimbursement for drugs that are not FDA-approved  
CMS should work with States to ensure that they prevent inappropriate reimbursement for    11 
drugs that are not FDA-approved and do not meet the criteria for an exception 
     
AGENCY COMMENTS AND OIG RESPONSE    12 
APPENDICES     
A: FDA Approval Status of Drugs With Medicaid Reimbursement    13 
B: Agency Comments    15 
     
ACKNOWLEDGMENTS  18 
  
 
 
 
 
 
 
 
   
BACKGROUND
 
Objectives 
1.  To determine whether drugs with Medicaid reimbursement in 
2016 were approved by the Food and Drug Administration (FDA).  
2.  To review the policies and procedures that the Centers for 
Medicare & Medicaid Services (CMS) has in place to review the 
FDA approval status of drugs covered under the Medicaid Drug 
Rebate Program.   
A prior Office of Inspector General (OIG) report found that Medicaid may 
have inappropriately reimbursed for drugs in 2008 that were not 
FDA-approved.1  Generally, drugs must be FDA-approved to qualify for 
Federal reimbursement under Medicaid; however, there are some 
exceptions to this requirement.2  FDA is responsible for ensuring that 
drugs marketed in the U.S. are safe and effective for human use.  Drugs 
that are not FDA-approved may pose public health concerns as they may 
not meet modern standards for safety, effectiveness, quality, and 
labeling.3  However, some drugsmostly older productscontinue to be 
marketed illegally in the United States without the required FDA 
approval.4    
 
1 In our prior report, we used FDA application numbers as indicators of drugs FDA approval 
status.  We found that 62 percent of drugs with Medicaid reimbursement in 2008 had 
an approved application number.  Of the remaining 38 percent, 12 percent did not have 
an approved application number, and 26 percent were not listed in the FDA directory that 
we reviewed. OIG, FDAs Approval Status of Drugs Paid for by Medicaid, OEI-03-08-00500, 
November 2010.   
2 Medicaid provides exceptions for covering unapproved drugs on the basis of (1) drug 
shortages; (2) a drugs being commercially used or sold (or identical, similar, or related to 
a drug that was commercially sold) prior to the implementation of current approval 
requirements and that is not considered a new drug, or (3) a compelling justification for 
a drugs medical need.  In addition, States must cover prescription prenatal vitamins and 
fluoride preparations, regardless of their FDA approval status.  However, individual States 
may choose to exclude or restrict coverage for other prescription vitamins and mineral 
products.  Sections 1927(d)(2)(F) and 1927(k)(2)(A) of the Social Security Act (the Act) and 
CMS, Drug Product Data Web File Structure.  Accessed at 
https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-
drugs/downloads/xxx-7-recordspecificationanddefinitionsproductfile.pdf on July 10, 2018. 
3 FDA, Unapproved Prescription Drugs:  Drugs Marketed in the United States That Do Not 
Have Required FDA Approval.  Accessed at 
https://www.fda.gov/drugs/guidancecomplianceregulatoryinformation/enforcementactivitie
sbyfda/selectedenforcementactionsonunapproveddrugs/default.htm on May 15, 2018.  
4 Ibid. 
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   1 
OEI-03-17-00120 
   
In September 2016, Congress requested that OIG examine CMSs 
oversight of the Medicaid Drug Rebate Program.5  In response to the 
request, this study reviews Medicaid reimbursement for drugs in 2016 to 
determine whether Medicaid may have inappropriately reimbursed for 
drugs that were not FDA-approved.   
FDA Approval of Drugs    
FDA is responsible for evaluating drugs for patient safety.  Before 
receiving FDA approval for marketing, pharmaceutical manufacturers 
must test a drug to discover how it works and prove that it is safe and 
effective for its intended use.  Manufacturers then submit an application 
for FDA to review.  If FDA decides that a drugs health benefits outweigh 
its known risks, the agency will approve a drug for sale in the U.S.6   
FDA directories.  Drug manufacturers are generally required to provide 
FDA with a list of all the drugs that they manufacture, repackage, or 
relabel for commercial distribution.7  Manufacturers must update their 
drug product lists at least twice per year, and may also provide updates 
to FDA when changes occur.8  FDA maintains this information in 
two directoriesthe NDC Directory and the NDC Structured Product 
Labeling Data Elements Filethat include drugs names, national drug 
codes (NDCs),9 and manufacturers.10    
The FDA directories include manufacturer-reported information about 
drugs with an assigned NDC.  These directories currently include a field
the marketing categorythat indicates the application type under 
which FDA approved the drug.11  However, when we reviewed FDAs NDC 
Directory for our previous evaluation, it did not include specific 
information about each drugs approval status.  Therefore, in our prior 
 
5 The Medicaid Drug Rebate Program was established under Section 1927 of the Act. 
6 FDA, Development & Approval Process (Drugs).  Accessed at 
https://www.fda.gov/Drugs/DevelopmentApprovalProcess/default.htm on July 10, 2018. 
7 21 CFR  207.41. 
8 21 CFR  207.57. 
9 NDCs are 11-digit identifiers that indicate the manufacturer, product, and package size of 
each drug product.   
10 According to CMS, there are a small number of products (fewer than a dozen) that are 
not listed in the FDA directories, but are Medicaid Drug Rebate Program-eligible drugs.  
CMS has a manual override process to accept those products into the Medicaid rebate drug 
product file.  In addition, in the case of certain multilayer packaged products, only the 
outermost package and the dispensable inner layer package are listed in FDAs NDC 
Directory.  Therefore, the inner layer of a multilayer package that is not dispensable may not 
always be listed separately in the NDC Directory.  FDA, NDC Package File Definitions.  
Accessed at https://www.fda.gov/Drugs/InformationOnDrugs/ucm254528.htm on October 
15, 2018. 
11 If a drug is not FDA-approved, its marketing category will identify it as unapproved. 
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   2 
OEI-03-17-00120 
   
work, we were unable to determine the FDA approval status for 
38 percent of drugs with Medicaid reimbursement in 2008.   
Because in our previous evaluation we were unable to determine the FDA 
approval status for 38 percent of drugs with Medicaid reimbursement, 
we recommended that FDA improve the completeness and accuracy of 
its NDC Directory.  FDA implemented our recommendation, which 
included several quality control and enforcement activities to improve 
the completeness and accuracy of the NDC directory to ensure its 
integrity for CMS and all other stakeholders.   
Medicaid Reimbursement for Drugs  
All 50 States and the District of Columbia (States) offer prescription drug 
coverage as part of their Medicaid benefit packages.  States reimburse 
for drugs dispensed to Medicaid enrollees.  Medicaid reimbursement for 
prescription drugs totaled $60.5 billion in 2016. 
Oversight of Drugs in the Medicaid Drug Rebate Program 
To qualify for Federal reimbursement under Medicaid, drugs must be 
FDA-approved for safety and effectiveness, with certain exceptions.12  In 
addition, manufacturers must provide CMS with information about their 
drugs in the Medicaid Drug Rebate Program, including the covered 
outpatient drug status, pricing information, and drug categories.13  
CMSs covered outpatient drug status field reflects each drugs FDA 
marketing category.  CMS maintains information about covered drugs in 
the Medicaid rebate drug product file (Medicaid drug product file).     
According to CMS, it conducts quarterly reviews of all drugs in the 
Medicaid Drug Rebate Program.  CMS also stated that it reviews drugs 
that are new to the Medicaid Drug Rebate Program as soon as they are 
reported by manufacturers.  As part of these reviews, CMS compares 
each drugs manufacturer-reported covered outpatient drug status to its 
FDA approval status.  States also may independently track the approval 
status of drugs for which their respective Medicaid programs reimburse.   
However, it is ultimately the drug manufacturers responsibility to ensure 
that they accurately report drug information to the Medicaid Drug 
Rebate Program.  When information provided by drug manufacturers is 
incorrect or missing, Medicaid might reimburse inappropriately.   
 
 
 
12 42 CFR  447.502. 
13 42 CFR  447.510 and CMS, National Drug Rebate Agreement.  Accessed at 
https://www.medicaid.gov/medicaid/prescription-drugs/medicaid-drug-rebate-
program/national-drug-rebate-agreement/index.html on November 15, 2017. 
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   3 
OEI-03-17-00120 
   
Methodology  Data Collection  
Medicaid drug data.  We obtained Medicaid drug reimbursement and 
utilization data, which is publicly available on Medicaid.gov, to identify 
NDCs, i.e., drugs, with Medicaid reimbursement in 2016.14   We also 
obtained the 2016 quarterly Medicaid drug product files from 
Medicaid.gov.   
FDA data.  We downloaded the FDA directories from FDAs website.  We 
used the marketing categories in these files to determine each drugs 
FDA approval status.     
CMS procedures.  We requested information from CMS about its 
procedures for reviewing the FDA approval status of drugs in the 
Medicaid Drug Rebate Program. 
Data Analysis 
Approval status of Medicaid drugs.  Medicaid reimbursed for 
30,848 NDCs, i.e., drugs, in 2016.  We used the 2016 Medicaid drug 
product file to identify each drugs covered outpatient drug status, 
including whether an unapproved drug had a Medicaid exception for 
coverage.15  We identified and removed drugs that were (1) classified as 
over-the-counter in the 2016 Medicaid drug product file or the FDA 
directories; (2) listed as a prescription prenatal vitamin or fluoride 
preparation,16 or unapproved with an exception for coverage in the  
 
 
 
14 The Medicaid drug reimbursement and utilization data were extracted from CMSs State 
Drug Utilization Data file.  We determined reimbursement amounts using data from the 
Medicaid Amount Reimbursed field, which represents both Federal and State 
reimbursement.  We did not include amounts from the Non-Medicaid Amount 
Reimbursed field, as these amounts are not eligible for Federal matching funds.   
15 We included in our analysis drugs with covered outpatient drug status codes of 01, 02, 03, 
04, 05, 06 and 08, and we excluded drugs with covered outpatient drug status codes of 07, 
09, 10, 11, 12, and 13.  CMS, Drug Product Data Web File Structure and Definitions.  Accessed 
at https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-
drugs/downloads/xxx-7-recordspecificationanddefinitionsproductfile.pdf on July 10, 2018. 
16 States must cover prescription prenatal vitamins and fluoride preparations, regardless of 
their FDA approval status.  However, individual States may choose to exclude or restrict 
coverage for other prescription vitamins and mineral products.  Prescription vitamin and 
mineral products that are not prenatal vitamins or fluoride preparations are included in 
covered outpatient status code 08.  We included drugs with this covered outpatient status 
code in our analysis because it is not possible to determineusing the datawhich drugs 
each State chose to cover, and we wanted to alert CMS to all potential areas of vulnerability.  
Section 1927(d)(2)(F) of the Act.   
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   4 
OEI-03-17-00120 
   
Medicaid drug product file;17 or (3) listed as dietary supplements in the 
FDA directories.   
For the remaining 26,975 drugs with Medicaid reimbursement in 2016, 
we reviewed the FDA marketing categories to determine whether the 
drugs were FDA-approved.   
We were unable to determine the FDA approval status for drugs that 
were: 
  missing from the FDA directories; 
  listed as approved for export only; 
  listed as devices or medical foods;18 or 
  listed as both approved and unapproved across FDA directories. 
We calculated the number and percentage of the following: drugs for 
which the FDA approval status was approved, drugs for which the FDA 
approval status was not approved, and drugs for which we were unable 
to determine the FDA approval status in 2016.  See Appendix A for our 
analysis determinations of drugs by FDA approval status. 
We then used Medicaid utilization data to calculate Medicaid 
reimbursement for each of the three groups of drugsFDA-approved 
drugs, drugs that were not FDA-approved, and drugs whose status we 
were unable to determine.  We compared drugs using the 11-digit NDCs 
that manufacturers provided to CMS and FDA; therefore, each group of 
drugs could include different package sizes of the same drug product. 
CMS Processes.  We reviewed and summarized CMS information 
regarding its procedures for ensuring that Medicaid reimburses 
appropriately for drugs that are FDA-approved.    
Limitations 
We did not verify the completeness or accuracy of data from the 
Medicaid drug product file, Medicaid utilization data, or the FDA 
 
17 Medicaid provides exceptions for covering unapproved drugs on the basis of (1) drug 
shortages; (2) a drugs being commercially used or sold (or identical, similar, or related to 
a drug that was commercially sold) prior to the implementation of current approval 
requirements and that is not considered a new drug, or (3) a compelling justification for 
a drugs medical need.  Section 1927(k)(2)(A) of the Act and CMS, Drug Product Data Web 
File Structure and Definitions.  Accessed at https://www.medicaid.gov/medicaid-chip-
program-information/by-topics/prescription-drugs/downloads/xxx-7-
recordspecificationanddefinitionsproductfile.pdf on July 10, 2018. 
18 Manufacturers reported to FDA that the marketing categories for these drugs were 
device or medical food, and manual searches identified most of them as solutions, 
tablets, or gels.  Therefore, we were unable to determine whether the marketing categories 
in the FDA directories were correct. 
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   5 
OEI-03-17-00120 
   
directories.19  We used the 2016 Medicaid drug product file and FDA 
directories to identify and remove over-the-counter drugs.  However, if 
a drug was neither included in the 2016 Medicaid drug product file nor 
listed with FDA, we were unable to identify it as over-the-counter.  
Because not all drugs we reviewed were included in the 2016 Medicaid 
drug product files, we could not determine the covered outpatient drug 
status for these drugs in 2016.20  However, all of the drugs in our analysis 
had Medicaid reimbursement data in the 2016 State Drug Utilization 
Data file.   
We were unable to determine the FDA approval status of drugs that were 
not listed in FDA directories.  FDA directories can be updated daily, and 
therefore drug listings are subject to change throughout the year.  We 
downloaded the FDA directories in the first quarter of 2017.   
 
Standards  We conducted this study in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency. 
 
19 According to CMS, it is possible that States may not have claimed Federal reimbursement 
for the total drug reimbursement amount listed in the Medicaid Amount Reimbursed field 
in CMSs 2016 State Drug Utilization Data file.  States report actual payment data for 
prescription drugs to the Medicaid Budget and Expenditure System.  However, we could not 
use this system to identify reimbursement for individual drugs because this system does not 
include NDC-level data.   
20 States report utilization of drugs to CMS whether or not they appear in the Medicaid drug 
product file.  A drug may not be listed in the Medicaid drug product file for a number of 
reasons, including that the manufacturer did not report it to CMS. 
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   6 
OEI-03-17-00120 
   
FINDINGS
 
One percent of  Ninety-six percent of drugs with Medicaid reimbursement in 2016 were 
FDA-approved for safety and effectiveness.  However, Medicaid 
drugs with 
reimbursed for a small percentage of drugs (1 percent, or 267 drugs) that 
Medicaid 
were not FDA-approved, as shown in in Exhibit 1.  Medicaid 
reimbursement in  reimbursement for these 267 drugs totaled $34 million in 2016.21  
According to data in the 2016 Medicaid drug product file, these drugs 
2016 were not 
did not have Medicaid exceptions for coverage.  It is possible that 
FDA-approved  
reimbursement for some of these 267 drugs may not have been 
appropriate.   
Exhibit 1: Nearly all drugs with Medicaid reimbursement were  
FDA-approved1 
 
FDA-approved 
 
Not FDA-approved 
 
Unable to determine 
 
Source: OIG analysis of Medicaid and FDA data, 2016. 
1 We did not include drugs that, based on 2016 Medicaid and FDA data, were identified as 
over-the-counter drugs; drugs that were unapproved with an exception; prescription prenatal 
vitamins or fluoride preparations; or dietary supplements.     
The ability to determine the FDA approval status of drugs has 
improved, making it easier for Medicaid to avoid inappropriate 
reimbursement for unapproved drugs 
We were able to determine the FDA approval status for a greater 
percentage of drugs in 2016 than in 2008.  Since our last review, FDA 
implemented our recommendation to improve the completeness and 
accuracy of its directory to ensure the directorys integrity for CMS and 
all other stakeholders.  As a result, we were able to determine the FDA 
approval statusi.e., FDA-approved or not FDA-approvedfor nearly all 
drugs (97 percent) with Medicaid reimbursement in 2016.  In contrast, 
 
21 Of the 267 non-FDA-approved drugs, 125 were not listed in the Medicaid drug product 
file in 2016.  Therefore, we were unable to determine whether any of these 125 drugs 
qualified for a coverage exception.  Because manufacturers generally are required to report 
their drugs to CMS in order to qualify for coverage under Medicaid, these drugs may also 
have been ineligible for Medicaid reimbursement due to their coverage status.   
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   7 
OEI-03-17-00120 
   
we were able to 
Exhibit 2: OIG was able to determine the 
determine the FDA  FDA approval status for a greater 
approval status of  percentage of drugs in 2016 than in 2008 
only 62 percent of 
OIGanalysis
drugs with Medicaid  97%
of 2016 data
reimbursement in 
2008, as shown in 
OIG analysis
Exhibit 2.22    62% of2008 data
However, Medicaid 
Able to determine Unable to determine
still reimbursed 
approval status approval status
$30 million in 2016 for 
936 drugs for which  Source: OIG analysis of Medicaid and FDA data, 2016. 
we were unable to determine an FDA approval status.23  Specifically, 
Medicaid reimbursed $29 million for 913 drugs that were not listed in the 
FDA directories.24  Of these 913 drugs, 869 (95 percent) may have been 
ineligible for Federal reimbursement because they also were not included 
in the Medicaid drug product file.  Manufacturers generally are required 
to report all of their covered drugs in the Medicaid drug product file to 
qualify for Federal reimbursement under Medicaid. 
For an additional 23 drugs, we were unable to determine whether the 
$1 million in Medicaid reimbursement was appropriate because the 
drugs were potentially miscategorized as devices or medical foods 
(19 drugs); there was conflicting data across FDA directories (1 drug); or 
the drugs were approved for export only (3 drugs).   
Improvements in  Since 2014, CMS has made improvements in its oversight of Medicaid 
drug product data.  CMS stated that it updated its Drug Data Reporting 
CMSs oversight 
for Medicaid System (reporting system) to review drugs FDA listing 
may not have 
status.25  In addition, CMS noted that it reviews drugs that are newly 
entirely prevented 
entered into the reporting system by manufacturers.  As part of these 
potentially 
 inappropriate 
reimbursement for  22 OIG, FDAs Approval Status of Drugs Paid for by Medicaid, OEI-03-08-00500, 
November 2010. 
drugs that were not 
23 The $30 million in reimbursement for the 936 drugs for which we were unable to 
FDA-approved  determine an FDA approval status accounted for less than 1 percent of Medicaid 
reimbursement for all drugs in 2016. 
24 We conducted this analysis using 11-digit NDCs because manufacturers are required to 
report their drugs to CMS and FDA at this level.  CMS verifies drugs FDA approval status at 
the 9-digit NDC level.  We conducted an additional analysis using the 9-digit NDCs after 
removing the 2 digits that represent the drugs package sizes.  The 913 11-digit NDCs that 
were not in the FDA directories were associated with 760 unique 9-digit NDCs.  We found 
that 662 of the unique 9-digit NDCs were not included in the FDA directories or the 
Medicaid drug product file. 
25 The FDA listing status provides information about the application type under which 
a drug was approved. 
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   8 
OEI-03-17-00120 
   
reviews, CMS compares each drugs manufacturer-reported covered 
outpatient drug status to its FDA approval status. 
Although CMS implemented a number of additional oversight activities 
in recent years, our findings demonstrate that improvements to CMSs 
reporting system may not have identified all drugs in need of additional 
review regarding their FDA approval status and appropriateness of 
payment.   
In addition, we identified 869 drugs with Medicaid reimbursement that 
were missing from both the Medicaid drug product file and the FDA 
directories in 2016.  CMSs reporting system cannot determine an FDA 
approval status for drugs that are not listed in these files.  Further, CMS 
would not be able to verify the Medicaid coverage status of these drugs 
during its quarterly reviews of FDA data. 
   
 
   
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   9 
OEI-03-17-00120 
   
CONCLUSION AND RECOMMENDATIONS
 
To qualify for Federal reimbursement under Medicaid, drugs must be 
FDA-approved, with some exceptions.  We found that 96 percent of 
Medicaid-reimbursed drugs in 2016 were FDA-approved.  However, 
Medicaid reimbursed $34 million in 2016 for a small percentage of drugs 
that were not FDA-approved.  In addition, we were unable to determine 
the FDA approval status of 936 drugs for which Medicaid reimbursed 
$30 million in 2016.    
Since our previous review of the FDA approval status of drugs with 
Medicaid reimbursement in 2008, FDA has improved the completeness 
and accuracy of its directories.  These improvements have led to better 
coordination with CMS and strengthened CMSs ability to verify drugs 
FDA approval status.   
However, it is possible that CMS procedures may not have entirely 
prevented potentially inappropriate reimbursement for drugs that were 
not FDA-approved.  As a result, continued improvements are needed to 
ensure that Medicaid does not inappropriately reimburse for drugs that 
are not FDA-approved. 
Therefore, we recommend that CMS: 
Work with States to recoup any potentially inappropriate 
Federal reimbursement for drugs that CMS determines were 
not FDA-approved and did not meet the criteria for an 
exception 
Medicaid reimbursed $34 million in 2016 for 267 drugs that were not 
FDA-approved.  In addition, Medicaid reimbursed $30 million for 
936 drugs for which we were unable to determine the FDA approval 
status.  We have provided CMS with the lists of these drugs, and we 
recommend that CMS review these drugs to determine whether the 
Medicaid drug product file should be updated to reflect the drugs most 
recent FDA approval status.   
In addition, CMS should review reimbursement for these drugs to 
determine whether reimbursement for any unapproved drugs was 
inappropriate.  CMS should work with individual States to recoup any 
inappropriate reimbursement, and CMS should ensure that States repay 
the Federal Government for its share of any potentially inappropriate 
reimbursement for non-FDA-approved drugs that did not meet the 
Federal criteria for an exception.   
 
 
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   10 
OEI-03-17-00120 
   
 
 
Continue to improve its reporting system to prevent 
inappropriate reimbursement for drugs that are not 
FDA-approved  
CMS should continue to improve its reporting system.  CMS stated that it 
is working on a new system that will expand its ability to oversee data for 
all drugs in the Medicaid Drug Rebate Program.  As CMS develops its 
new system, we recommend that CMS include system queries to review 
the FDA approval status of all drugs in the Medicaid Drug Rebate 
Program more often than quarterly. 
If CMS identifies drugs that are not FDA-approved and do not qualify for 
any exceptions, or it cannot determine a drugs FDA approval status, 
CMS should flag these drugs in the Medicaid drug product file to identify 
drugs that may not be eligible for Federal reimbursement under 
Medicaid.   
Work with States to ensure that they prevent inappropriate 
reimbursement for drugs that are not FDA-approved and do 
not meet the criteria for an exception 
CMS should continue to reinforce the need for State oversight to prevent 
Federal reimbursement for drugs that are not FDA-approved when 
Federal exceptions do not apply.  In addition to CMS correcting the 
Medicaid drug product file, CMS should continue to encourage States to 
independently track drugs FDA approval status to avoid requesting 
Federal reimbursement for drugs that are not FDA-approved.  CMS also 
should encourage States tobefore they request Federal 
reimbursementregularly check the Medicaid drug product file to 
ensure that drugs are listed in this file and appropriately covered by 
Medicaid.  To accomplish this, CMS could issue guidance to States, 
e.g., in a State Medicaid Director letter.   
   
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   11 
OEI-03-17-00120 
   
AGENCY COMMENTS AND OIG RESPONSE  
CMS concurred with all three of our recommendations.  
In response to our first recommendation, CMS stated that it will review 
OIGs findings to determine whether reimbursement for any unapproved 
drugs was inappropriate. 
In its response to our second recommendation, CMS said that it 
continually examines its oversight of the Medicaid Drug Rebate Program 
and implements improvements.  Specifically, CMS stated that it has 
implemented improvements to its reporting system to review all 
products on a quarterly basis and to review newly reported products in 
real time, and that its reporting system has flags to identify drugs FDA 
marketing categories, including their approval status.   
In response to our third recommendation, CMS stated that it will review 
OIGs findings to determine whether working with States to prevent 
inappropriate reimbursement is warranted. 
In addition, CMS expressed concern with our analysis, noting that some 
of the drugs included in our analysis may be covered by Medicaid under 
a statutory exception even if they are not FDA-approved.  We 
acknowledge these coverage exceptions throughout the report, and we 
removed from our analysis any drugs that we could determine met the 
exceptions criteria.  However, as CMS acknowledges, indepth reviews are 
needed for some drugs to determine whether they qualify for a coverage 
exception or were reimbursed inappropriately.  
Our recommendation is that CMS conduct these indepth reviews of the 
drugs we identified as not FDA-approved to determine whether they 
qualified for an exception or were reimbursed inappropriately, and then 
take appropriate action.  We encourage CMS to also include in its 
indepth reviews the drugs for which we were unable to determine an 
FDA approval status, due to the completeness or accuracy of the FDA 
directories.  We acknowledge that this likely will require working with 
FDA, given that FDAnot CMSis responsible for the data in those 
directories.  This effort may lead to continued improvements to those 
FDA directories, as will sharing this report with FDA.    
For the full text of CMSs comments, see Appendix B. 
 
 
   
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   12 
OEI-03-17-00120 
   
APPENDIX A:
 FDA Approval Status of Drugs With 
 
Medicaid Reimbursement
Exhibit 3 provides information about OIGs determinations for drugs with Medicaid reimbursement in 
2016 based on their FDA approval status.  
Exhibit 3: Finding Categories for Drugs with Medicaid Reimbursement in 2016  
OIGs Analysis  Number  Medicaid 
FDA Approval Status  Description of FDA Approval Status 
Determination  of Drugs  Reimbursement 
Abbreviated new drug  Product that is approved for marketing as a 
18,6541  $11,309,148,079 
application   generic drug 
Biologic license  Product that is approved for marketing as a 
629  $7,318,152,100 
application  biologic, e.g., gene therapies and allergenics  
FDA-approved 
New drug application  Product that is approved for marketing as a 
5,384  $39,166,485,206 
(NDA)  new drug 
Product approved as a brand-name drug 
NDA authorized generic  that is marketed without the brand-name  1,105  $1,851,644,056 
label 
Not  Product that has not received FDA approval 
Unapproved  267  $34,494,321 
FDA-approved   for marketing 
Conflicting marketing  Product listed as approved in one FDA 
categories across FDA  directory and unapproved in the other FDA  1  $4,644 
directories  directory 
Medical device that does not require FDA 
Exempt device  8  $151,934 
clearance prior to marketing 
Product that is only exported and not 
Export only  3  $3,348 
marketed in the United States 
Unable to 
Product consistent with the definition of 
determine 
Medical food   medical food under section 5(b)(3) of the  8  $610,158 
Orphan Drug Act 
Missing from FDA 
Product not listed in either FDA directory  913  $28,839,992 
directories 
Premarket submission to demonstrate that a 
Premarket notification 
device is at least as safe and effective as a  3  $11,117 
(device)  
legally marketed device 
Total  26,975  $59,709,544,956 
1 One drug was listed with an abbreviated new drug application in one FDA directory, but listed with a new drug application in another 
FDA directory.  We included this drug with those approved under abbreviated new drug applications. 
Note: Because of rounding, numbers in columns may not sum to totals shown. 
Source:  FDA, Data Standards Manual (monograph) Marketing Category.  Accessed at 
https://www.fda.gov/Drugs/DevelopmentApprovalProcess/FormsSubmissionRequirements/ElectronicSubmissions/DataStandardsManual
monographs/ucm071826.htm on January 11, 2018; FDA, Frequently Asked Questions about the FDA Drug Approval Process.  Accessed at 
https://www.fda.gov/Drugs/ResourcesForYou/SpecialFeatures/ucm279676.htm on October 8, 2017; FDA, Learn if a Medical Device Has 
Been Cleared by FDA for Marketing.  Accessed at https://www.fda.gov/medicaldevices/resourcesforyou/consumers/ucm142523.htm on 
September 19, 2017; FDA, Unapproved Prescription Drugs: Drugs Marketed in the United States that do not Have Required FDA Approval.  
Accessed at 
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   13 
OEI-03-17-00120 
   
https://www.fda.gov/drugs/guidancecomplianceregulatoryinformation/enforcementactivitiesbyfda/selectedenforcementactionsonunappr 
oveddrugs/default.htm  on January 11, 2018; FDA, FDA List of Authorized Generic Drugs. Accessed at 
https://www.fda.gov/drugs/developmentapprovalprocess/howdrugsaredevelopedandapproved/approvalapplications/abbreviatednewdru
gapplicationandagenerics/ucm126389.htm  on October 4, 2017; FDA, FAQs about Medical Foods.  Accessed at 
https://www.fda.gov/downloads/Food/GuidanceRegulation/GuidanceDocumentsRegulatoryInformation/UCM500094.pdf  on July 16, 2018;
FDA, Drugs@FDA Glossary of Terms. Accessed at https://www.fda.gov/drugs/informationondrugs/ucm079436.htm  on July  23, 2018; FDA,  
Marketing Category. Accessed at https://www.fda.gov/ForIndustry/DataStandards/StructuredProductLabeling/ucm162528.htm  on 
July 23, 2018.  
 
One Percent of Drugs With Medicaid Reimbursement Were Not FDAApproved   14 
OEI031700120 
   
APPENDIX B: Agency Comments  
( '~  DEPARTMENT OF HEALTH & HUMAN SERVICES  Centers for Medicare & Medicaid Services 
<,,,,:~~ 
kv.r.1n (;.  Arlministrntor 
Washington, DC 20201 
DATE: 
W,R  -4 2019 
TO:  Daniel R. Levinson 
Inspector General 
FROM:  Seema Verma(/\ / 
V 
AdministratorO 
SUBJECT:  Office of Inspector General (OIG) Draft Report: "One Percent of Drugs with 
Medicaid Reimbursement were Not FDA Approved" (OEl-03-17-00120) 
The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 
comment on the Office of Inspector General's (OIG) draft report.  CMS is strongly commilled to 
its oversight of the Medicaid Drug Rebate Program. 
CMS appreciates the work OIG has done to review the Food and Drug Administration (FDA) 
approval status of covered outpatient drugs in the Medicaid Drug Rebate Program and notes OIG 
indicated at least 96 percent of drugs with Medicaid utilization in 2016 were appropriately 
reimbursed. CMS is committed to ensuring covered outpatient drugs are appropriately 
reimbursed and has made several improvements to the Medicaid Brug Rebate Program system to 
review all products on a quarterly basis and newly-reported products in real-time.  CMS also has 
flags in its reporting system to identify FDA marketing status. including approval. 
As CMS indicated to OIG during the course of this audit, Section 1927 of the Social Security Act 
(the Act) allows for reimbursement of certain drugs not approved by FDA.  Such excepted 
products may include prenatal vitamins, fluoride preparations, and alternative treatments 
available during a drug shortage. Because excepted products may be appropriately covered and 
paid for under the Medicaid Drug Rebate Program, CMS would expect that not all drugs that 
received Medicaid reimbursement would be FDA approved.  As a result the fact that a drug is 
not FDA approved does not necessarily mean that reimbursement for the product is 
inappropriate. as suggested by the OIG report. 
As such, CMS continues to have concerns about OIG"s analysis and application of its findings in 
this draft report.  Based on OIG's findings and draft recommendations, CMS believes an in 
depth review ofOIG's findings is required to determine whether working with States to prevent 
and recoup inappropriate Medicaid reimbursement is warranted.  As OIG notes, administering 
the Medicaid Drug Rebate Program requires reporting and coordination between drug 
manufacturers, the FDA. CMS, and State Medicaid programs.  For its in-depth review. CMS will 
examine each aspect of the information reported from various stakeholders to determine the 
correct course of action. 
1 
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   15 
OEI-03-17-00120 
  Specifically, CMS will review the list of drngs OIG provides to determine if the 267 Medicaid 
reimbursed drugs ( one percent of all drugs in the program) that were not FDA approved either 
had an exception or were otherwise appropriately reimbursed.  There are a small number of 
drugs that are not able to be listed in the FDA directory, but are eligible drugs for 
reimbursement.  It is also important to note that 125 of these 267 drugs were not in the CMS 
Medicaid drug product file; therefore, it is unclear how OIG determined these drugs did not have 
Medicaid exceptions that allowed for Medicaid reimbursement.1  CMS maintains that OIG's 
findings continue to include prescription vitamins and minerals that may be appropriately 
covered regardless of their FDA approval status. 
In addition, OIG found that 914 of the 936 drugs for which they were unable to dete1mine an 
FDA-approval status are missing from, or have conflicting marketing categories across, FDA 
directories. CMS cannot fully address the completeness and accuracy of the FDA's directories.2 
Therefore, CMS will ensure FDA is aware of this draft report and its findings. Additionally, 
OIG's inability to determine a drug's FDA approval status does not indicate that the drug is 
necessarily unapproved or inappropriately reimbursed. 
As OIG states in this draft report, improvements made by the FDA resulted in a dran1atic 
increase in the ability to dete1mine the FDA approval status of a product in the Medicaid Drug 
Rebate Program. Since OIG last examined this issue, 3 the percentage of drugs and products OIG 
was able to detem1ine the FDA approval status for rose from 62 percent in 2008 to 97 percent in 
2016. 
OIG's recommendations and CMS's responses are below. 
OIG Recommendation 
Work with States to recoup any potentially inappropriate Federal reimbursement for dmgs that 
CMS detem1ines were not FDA approved and did not meet the exceptions criteria. 
CMS Response 
CMS concurs with this recommendation.  As noted above, CMS continues to have concerns about 
OIG's analysis and application of its findings in this draft report.  However, CMS will review OIG's 
findings to determine whether reimbursement for any unapproved drugs was inappropriate. 
OIG Recommendation 
Continue to improve its reporting system to prevent inappropriate reimbursement for drugs that 
are not FDA approved. 
1 CMS clarifies that of the 267 drugs in this finding, OIG determined 142 (or 0.5 percent) of drugs that States report 
utilization and Medicaid reimbursement for were not FDA approved and did not meet an exception that allowed 
coverage despite its unapproved status. 
2 CMS notes that 76 percent of OIG's findings in this draft report are due to missing or conflicting information in the 
FDA directories. 
3 https://oig.hhs.g ov /oei/reports/oei-03-08-00500.pdf 
2 
One Percent of Drugs With Medicaid Reimbursement Were Not FDAApproved  16 
OEI031700120   
CMS Response 
CMS concurs with this recommendation. CMS continually examines its oversight of the 
Medicaid Drug Rebate Program and implements improvements. As stated above, CMS 
implemented improvements to the Medicaid Drug Rebate Program system to review all products 
on a quarterly basis and newly-reported products in real-time. CMS also has flags in its 
reporting system to identify FDA marketing status, including approval. 
OIG Recommendation 
Work with States to ensure they prevent inappropriate reimbursement for drugs that are not FDA 
approved and do not meet the exceptions criteria. 
CMS Response 
CMS concurs with this recommendation. As noted above, CMS continues to have concerns about 
OIG's analysis and application of its findings in this draft report. However, CMS will review OIG's 
findings to detennine whether work with States to prevent inappropriate reimbursement is warranted. 
3 
 
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   17 
OEI-03-17-00120 
   
ACKNOWLEDGMENTS 
Stefanie Rosen Vance served as the team leader for this study.  Others in 
the Office of Evaluation and Inspections who conducted the study 
include Emily Dieckman, Craig Diena, Greg Mayers, Jenelle Birchmeier, 
and Aisha Davis.  Office of Evaluation and Inspections staff who provided 
support include Clarence Arnold, Adam Freeman, Christine Moritz, and 
Meghan Riggs.    
This report was prepared under the direction of Linda Ragone, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office, and Edward K. Burley, Deputy Regional Inspector General.  
 
One Percent of Drugs With Medicaid Reimbursement Were Not FDA-Approved   18 
OEI-03-17-00120