DEPARTMENT OF HEALTH & HUMAN SERVICES  
Centers for Medicare & Medicaid Services  
7500 Security Boulevard, Mail Stop S2-26-12  
Baltimore, Maryland 21244-1850  
  
Center for Medicaid and State Operations  
  
July 11, 2006                    SMDL 06-016  
  
 Dear State Medicaid Director:  
  
The Deficit Reduction Act of 2005 (DRA) includes new provisions regarding State collection and 
submission of data for the purpose of collecting Medicaid drug rebates from manufacturers for physician-
administered drugs.  Section 6002 of the DRA adds section 1927(a)(7) to the Social Security Act (the 
Act) to require States to collect rebates on physician-administered drugs.    
  
This letter provides a brief summary of the new provisions regarding State collection and submission of 
utilization data for certain physician-administered drugs.  In order for Federal financial participation 
(FFP) to be available for these drugs, the new provisions require that States:  
  
   Provide for the collection and submission of utilization data for single source, physician 
administered drugs using codes such as the Healthcare Common Procedure Coding System 
(HCPCS) J-Codes and/or National Drug Code (NDC) numbers, in order to secure rebates for 
such drugs administered on or after January 1, 2006;   
  
   Provide for the submission of utilization data using codes specified by the Secretary to identify 
drugs on the Secretary defined list of multiple source, physician-administered drugs in order to 
secure rebates for such drugs administered on or after January 1, 2008.    
 
States must also provide, not later than January 1, 2007, that utilization data for single source and 
Secretary-specified multiple source physician-administered drugs, be submitted using National Drug 
Code numbers (unless the Secretary specifies an alternative coding system).    
  
Section 1927(a)(7)(B)(i) requires the Secretary to publish, not later than January 1, 2007, a list of the 20 
physician-administered multiple source drugs that the Secretary determines have the highest dollar 
volume of physician-administered drugs dispensed under Medicaid.  The list of top 20 drugs may be 
modified by the Secretary from year to year to reflect changes in volume.    
  
As noted, an alternate coding system may be designated for these drugs.  However, because we believe 
that the use of NDC numbers is critical to correctly identify the manufacturer in order to collect rebates, 
we do not anticipate specifying such an alternative coding system.   
  
Physician-administered drugs are usually billed by providers to Medicaid using HCPCS J-codes.  Many 
States are taking steps to collect rebates by using crosswalks developed to link HCPCS J-codes to NDC 
numbers because the NDC number is necessary for States to bill manufacturers for rebates.  (Internet 
address for crosswalk may be found on the CMS Web site at 
http://new.cms.hhs.gov/McrPartBDrugAvgSalesPrice/02_aspfiles.asp ).  However, States have 
encountered difficulty in linking procedure codes for multiple source physician-administered drugs to a  single NDC number for the purpose of billing for rebates, as there may be several NDC numbers linked 
to a single HCPCS J-code.  The requirements set forth by section 6002 of the DRA will facilitate States 
billing of manufacturers for rebates for multiple source physician-administered drugs.      
  
Section 1927(a)(7)(D) allows the Secretary to delay application of the collections and submission 
requirements discussed above to prevent hardship to States that need additional time to implement the 
reporting systems required by section 6002.  We do not expect States to need additional time to 
implement the provision for single source drugs as many States are already collecting rebates for single 
source, physician-administered drugs.  Nonetheless, any such requests should be sent to me as soon as 
possible.  
  
We intend to publish a rule that is consistent with this letter and would provide additional guidance 
regarding the DRA amendments to section 1927. 
 
If you have any questions regarding these provisions, you may contact Ms. Gale Arden, Director, 
Disabled & Elderly Health Programs Group, at (410) 786-6810, or Deirdre Duzor, Director, Division of 
Pharmacy, at (410) 786-4626.  
  
  
Sincerely,  
  
   /s/  
Dennis G. Smith  
                  Director    
   Page 3  State Medicaid Director  
  
cc:  
  
CMS Regional Administrators  
  
CMS Associate Regional Administrators  
    for Medicaid and State Operations  
  
Martha Roherty      
Director, Health Policy Unit  
American Public Human Services Association  
  
Joy Wilson  
Director, Health Committee  
National Conference of State Legislatures  
  
Matt Salo  
Director of Health Legislation  
National Governors Association  
  
Jacalyn Bryan Carden  
Director of Policy and Programs  
Association of State and Territorial Health Officials  
  
Christie Raniszewski Herrera  
Director, Health and Human Services Task Force  
American Legislative Exchange Council  
  
Lynne Flynn  
Director for Health Policy  
Council of State Governments