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  
  
  
March 22, 2006                      SDM 06-005  
 
Dear State Medicaid Director:  
  
This letter provides guidance concerning State Medicaid responsibility with regard to the redistribution 
of unused prescription medicines paid for by Medicaid for nursing facility (NF) residents.  States must 
ensure that NFs are properly crediting the Medicaid program for the return of unused prescription 
medicines upon discontinuance of the prescription or transfer, discharge, or death of a Medicaid 
beneficiary.    
  
In accordance with section 1903(i)(10) of the Social Security Act as amended by section 6033 of the 
Deficit Reduction Act of 2005, effective April 1, 2006, FFP is not available to States for the ingredient 
cost of a covered outpatient drug for which the pharmacy has already received payment (other than with 
respect to a reasonable restocking fee for such drug).    
  
State Medicaid agencies should have a policy in place to require that unused prescription medicines 
paid by Medicaid are properly returned and payment credited.  
  
In certain situations, unused drugs may be returned to NF pharmacies and resold by them, provided such 
returns and resales are consistent with provisions of Federal and State law.  Certain States permit 
pharmacies to resell, reuse, or redistribute certain medications after being dispensed to a NF if the 
medication has been properly stored, returned unopened, and dispensed in the original packaging.  
When redistribution is permitted, the NF should adhere to State policy guidelines in place, which should 
include maintaining documentation of the quantity of medicines dispensed and consumed by the 
beneficiary, and showing a credit to the State Medicaid Agency when the medication is returned to the 
pharmacy.  The NF and the State may be subject to a financial review to ensure drugs are being returned 
whenever permitted under State and Federal law, that the Medicaid program receives proper credit, and 
that no double billing and payment occurs.    
  
States also may have policies in place that limit the amount of drugs a pharmacy can provide to a 
nursing facility at one given time.  Such provisions help to curtail prescription drug waste.    
  
 
 
  Page 2-State Medicaid Director   
  
  
These policies will help ensure that scarce State and Federal resources will better be used to serve the 
Medicaid population.  If you have additional questions, please contact Deirdre Duzor, Director of the 
Division of Pharmacy at (410) 786-4626.    
  
                   Sincerely,  
  
               
   /s/  
  
                   Dennis G. Smith  
                   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