DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
 
 
CMCS Informational Bulletin 
  
 
DATE:  July 24, 2014 
 
FROM:  Cindy Mann 
  Director 
  Center for Medicaid and CHIP Services (CMCS) 
 
SUBJECT:   Clarifying Information for Quarterly Reporting of Medicaid Drug Rebates 
in the Medicaid Budget and Expenditure System (MBES) 
 
 
This informational bulletin is to provide information to states on reporting Medicaid drug rebates 
on the Quarterly Medicaid Statement of Expenditures for the Medical Assistance Program (the 
CMS-64) in the Medicaid Budget and Expenditure System (MBES).  The combination of CMS 
reviews of state drug rebate reporting, state requests for clarification, HHS Office of Inspector 
General Audits, and new Medicaid matching rates available through the Affordable Care Act all 
underscore the need for CMS to issue this clarifying information to states.  The following 
information is designed to ensure that states are able to report drug rebates on the CMS-64 
accurately and consistent with federal requirements. 
 
Specifically, we are reiterating the requirement at section 2500.1 of the State Medicaid Manual 
that all state collections, including drug rebates, must be reported on the CMS-64 at the 
applicable Federal Medical Assistance Percentage (FMAP) or other matching rate at which 
related expenditures were originally claimed.  Additionally, we are specifying that states unable 
to tie drug rebate amounts directly to individual drug expenditures may utilize an allocation 
methodology for determining the appropriate Federal share of drug rebate amounts reported 
quarterly.  This information identifies the parameters that states are required to adhere to when 
making such determinations.    
 
Additionally, this information addresses how states must report drug rebates associated with the 
new adult eligibility group described at 42 CFR 435.119.  States that adopt the new adult group 
may be eligible to claim drug expenditures at increased matching rates.  Drug rebate amounts 
associated with these increased matching rates must be reported at the same matching rate as the 
original associated prescription drug expenditures.  We recognize that states are just beginning to 
report expenditures and collections associated with these increased matching rates, so we expect 
this information to provide clarity on associated drug rebate reporting requirements.  
    Page 2  CMCS Informational Bulletin 
Background 
 
The Medicaid Drug Rebate Program  
 
The Medicaid Drug Rebate (MDR) program is a program that includes CMS, state Medicaid 
agencies, and participating drug manufacturers that helps to offset the Federal and state costs of 
most outpatient prescription drugs dispensed to Medicaid patients.  Approximately 600 drug 
manufacturers currently participate in this program.  All fifty states and the District of Columbia 
cover prescription drugs under the MDR program, which is authorized by section 1927 of the 
Social Security Act (the Act). 
 
The program requires drug manufacturers to enter into, and have in effect, a National Medicaid 
Drug Rebate Agreement with the Secretary of the Department of Health and Human Services 
(HHS) in exchange for state Medicaid coverage of most of the manufacturers drugs.  When a 
manufacturer markets a new covered outpatient drug, it must also submit to CMS the product 
and pricing data concerning the drug via the Drug Data Reporting for Medicaid (DDR) system.  
This ensures that states are aware of the newly marketed drug.  Manufacturers are required to 
report all covered outpatient drugs under their labeler code to the MDR program and are 
responsible for paying a rebate on those drugs for which payment was made under the Medicaid 
state plan.  These rebates are paid by drug manufacturers on a quarterly basis to states and are 
shared between the states and the Federal government to offset the overall cost of prescription 
drugs provided under the Medicaid program.  Additional information about the MDR program 
can be found at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-
Topics/Benefits/Prescription-Drugs/Medicaid-Drug-Rebate-Program.html  
 
Quarterly Medicaid Statement of Expenditures for the Medical Assistance Program (CMS-64)     
 
The CMS-64 is the accounting statement that the state agency, in accordance with 42 CFR 
430.30(c), submits each quarter under Title XIX of the Act.  The CMS-64 is a summary of actual 
expenditures derived from source documents including invoices, payment vouchers, 
governmental funds transfers, expenditure certifications, cost reports and settlements, and 
eligibility records.  This form shows the disposition of Medicaid grant funds for the quarter being 
reported and any prior period adjustments.  It also accounts for any overpayments, 
underpayments, refunds received by the state Medicaid agency, and income earned on grant 
funds.  The form is used to reconcile the Medicaid funding advanced to the state for the quarter, 
made on the basis of the Medicaid Program Budget Report (CMS-37), with actual expenditures 
for the quarter.  The state submits this form electronically to CMS 30 days after the end of each 
quarter via the Medicaid and Children's Health Insurance Program Budget and Expenditure 
System (MBES/CBES). 
The amounts reported on the CMS-64 and its attachments must represent actual expenditures for 
which all supporting documentation, in readily reviewable form, has been compiled and which is 
available at the time the claim is filed.  CMS must assure that state expenditures claimed for 
Federal matching under the Medicaid program and associated collections are programmatically 
reasonable, allowable, and allocable in accordance with existing Federal laws, regulations and 
policy guidance.    Page 3  CMCS Informational Bulletin 
Federal Matching Rates 
Section 1903(a) of the Act establishes quarterly payments to states at ...an amount equal to the 
Federal medical assistance percentage...of the total amount expended during such quarter as 
medical assistance under the State plan.  The FMAP is the rate at which the Federal government 
matches state medical assistance program (MAP) expenditures.  The FMAP rates are determined 
annually for each state by a formula that is based upon the relationship of the state's average per 
capita income level to the national per capita income level.  The FMAP is limited to a minimum 
of 50 percent and a maximum of 83 percent.   
In addition, higher Federal matching rates for MAP expenditures are applicable to certain 
expenditures related to Indian Health Facility (100 percent) and family planning (90 percent) 
services.  Childrens Health Insurance Program (CHIP) expenditures and optional breast and 
cervical cancer services also qualify for state-specific higher matching rates.  The Affordable 
Care Act of 2010 established a variety of provider types and services, eligibility groups, and time 
periods that qualify for increased Federal matching rates.  Some state expenditures for 
individuals in the new adult eligibility group may be eligible for 100 percent FMAP.  
CMS-64 Drug Rebate Reporting  
 
All states are responsible for reporting their Medicaid drug expenditures, rebates, and offsets on the 
CMS-64.  States must report Medicaid drug expenditures during the quarter in which the state 
incurs the expenditure.  Any increasing adjustments to the original drug expenditures must be 
claimed at the FMAP or other matching rate at which the original expenditures were claimed.  
Additionally, states must report decreasing adjustments to drug expenditures, drug rebates, and drug 
offsets at the FMAP or matching rate at which the original Medicaid drug expenditure was claimed.    
   
The line items for Medicaid drug expenditures, rebates, and offsets on the CMS-64 include fee-
for-service (FFS) and managed care organization (MCO) and are as follows:  
 
  7  Prescribed drugs  
 
  7A1  Drug rebate offset  National agreement for FFS 7A2  Drug rebate offset  State 
sidebar agreement for FFS (same as state supplemental rebate agreement for FFS)  
 
  7A3  MCO  National rebate agreement (effective March 23, 2010 under the Affordable 
Care Act)  
 
  7A4  MCO  State sidebar agreement (same as state supplemental rebate agreement, 
effective March 23, 2010 under the Affordable Care Act)  
 
  7A5  Increased ACA offset  Fee for Service  100% (effective January 1, 2010 under 
the Affordable Care Act)  
 
  7A6  Increased ACA offset  MCO  100% (effective March 23, 2010 under the 
Affordable Care Act)   Page 4  CMCS Informational Bulletin 
Please note that rebates received under the National Medicaid Drug Rebate Agreement (Lines 
7A1 and 7A3) are separate from rebates received under state supplement rebate agreements 
(Line 7A2 and 7A4).  Please do not combine the state supplement rebates with the national 
rebates when reporting on the CMS-64.  
 
Methods for Determining FMAP for Drug Rebate Amounts 
 
As described in the section 2500.1 of the State Medicaid Manual, we require states to report all state 
collections and recoveries at the matching rate at which the original expenditure was claimed.    
When reporting drug expenditure collections and recoveries, including drug rebates on the CMS-64, 
we require states to employ the most accurate method in determining the correct federal matching 
rate.  The most accurate method for reporting rebate amounts consists of the state identifying each 
rebate amount and tying it to the matching rate of original related drug expenditure that the state 
claimed on the CMS-64.   
However, we recognize that some states and manufacturers may face various challenges that 
provide a barrier to reporting drug rebate amounts that tie directly to an individual original drug 
claim.  Therefore, we are also permitting states to submit report drug rebate amounts on the 
CMS-64 utilizing an allocation methodology to tie aggregate drug rebate amounts each quarter to 
the varying matching rates at which the original drug expenditures were claimed.  This option is 
only available to states that are currently unable to tie drug rebate amounts directly to individual 
drug expenditures.  States that currently report drug rebate amounts on the CMS-64 by tying the 
rebate amounts directly to the original expenditures must continue to utilize this method.      
Acceptable Allocation Methodologies 
Allocation Principles 
If a state is unable to tie drug rebate amounts directly to individual drug expenditures, it may 
elect to utilize an allocation method to identify the different expenditure categories and matching 
rates at which it must report drug rebate amounts.  The allocation method must rely on historical 
drug expenditure data reported on the CMS-64 as a basis to allocate drug rebate amounts to 
various matching rates for purposes of reporting on the CMS-64 quarterly.      
All state allocation methodologies must adhere to the following parameters:   
 
  The methodology must attempt to allocate rebates as accurately as possible to original 
expenditures based on the historical distribution of expenditures and drug rebates.   
 
  The methodology must rely on actual drug expenditures reported on the CMS-64. 
 
  The allocation percentage must be calculated on a quarterly basis. 
 
  The allocation data must be based on the prior four quarters drug expenditure data 
(unless the use of data from fewer quarters is more accurate). 
  Page 5  CMCS Informational Bulletin 
  The state must maintain adequate supporting documentation regarding its allocation 
methodology and its quarterly application of the allocation methodology.     
 
  If the expenditure is eligible for FFP at more than one matching rate, the methodology 
must assign the highest matching rate at which the expenditure was claimed (e.g.  a 
service eligible at the family planning matching rate that is also eligible at the Indian 
Health Services matching rate).   
 
  The methodology must not be designed to minimize federal funds reported to CMS. 
 
  The methodology must be consistent across time periods so as not to decrease the amount 
of federal funds to be returned (e.g.  the state cannot use multiple allocation 
methodologies selectively after determining which method reports the least amount of 
FFP associated with drug rebates).     
 
2014 New Adult Group Drug Rebate Amounts 
 
We expect the quarter ending June 30, 2014 will be the first quarter for which states will report 
significant drug rebate amounts associated with enrollees in the new adult group described in 42 
CFR 435.119.  For states adopting the new adult group, the states allocation methodology must 
account for the limited adult group drug expenditure experience to ensure that drug rebate amounts 
are reported at the appropriate matching rate.  Specifically, these states are required to use drug 
expenditure data from a shorter time period to ensure that drug rebates associated with the new 
adult group are not understated.     
 
For example, if a state adopted the new adult group effective January 1, 2014, the state would only 
have two quarters of drug expenditure data relating to the new adult group when it is required to 
report rebate amounts on the CMS-64 for the quarter ending June 30, 2014.  The parameters above 
require the use of four quarters of data.  However, the allocation methodology would be more 
accurate if the state only uses data from quarters in which it would have new adult group 
expenditure data.  In this example, the state would only utilize drug expenditures from the first two 
calendar quarters of 2014 when allocating drug rebate amounts to various matching rates.  States 
should continue to use data from less than four quarters until such time as four quarters of data 
related to new adult group drug expenditures becomes available.     
 
We look forward to continued efforts and commitment from states in ensuring that drug rebates 
are reported at the appropriate matching rate on the CMS-64.  Should you have any questions 
please contact Rory Howe, Director of the Division of Financial Operation at 410-786-4878 or 
by email at rory.howe@cms.hhs.gov.