Department of Health and Human Services 

OFFICE OF

INSPECTOR GENERAL

MISSOURI CLAIMED UNALLOWABLE 

FEDERAL REIMBURSEMENT 

FOR SOME MEDICAID 

PHYSICIAN-ADMINISTERED DRUGS

 

 

Daniel R. Levinson 

Inspector General 

April 2015 

A-07-14-06051 

Inquiries about this report may be addressed to the Office of Public Affairs at

Public.Affairs@oig.hhs.gov.
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.

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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 OIG’s 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 

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other guidance to the health care industry concerning the anti-kickback statute and other OIG enforcement 

authorities.
Notices

THIS REPORT IS AVAILABLE TO THE PUBLIC

at http://oig.hhs.gov

Section 8M of the Inspector General Act, 5 U.S.C. App., requires 

that OIG post its publicly available reports on the OIG Web site.

OFFICE OF AUDIT SERVICES FINDINGS AND OPINIONS

The designation of financial or management practices as 

questionable, a recommendation for the disallowance of costs 

incurred or claimed, and any other conclusions and 

recommendations in this report represent the findings and 

opinions of OAS. Authorized officials of the HHS operating 

divisions will make final determination on these matters.
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) i

EXECUTIVE SUMMARY

WHY WE DID THIS REVIEW

For a covered outpatient drug to be eligible for Federal reimbursement under the Medicaid

program’s drug rebate requirements, manufacturers must pay rebates to the States, and States 

generally must offset their Federal share of these rebates against their Medicaid expenditures. 

States bill the manufacturers for rebates to reduce the cost of drugs to the program. However, 

recent Office of Inspector General reviews found that States did not always bill and collect all 

rebates due for drugs administered by physicians. For this audit, we reviewed the Missouri 

Department of Social Services (DSS), MO HealthNet Division’s (State agency’s), billing for 

rebates for physician-administered drugs for the period January 1, 2009, through December 31, 

2011.

Our objective was to determine whether the State agency complied with Federal Medicaid 

requirements for billing manufacturers for rebates for physician-administered drugs.

BACKGROUND

The Medicaid drug rebate program became effective in 1991 (the Social Security Act, § 1927).

For a covered outpatient drug to be eligible for Federal reimbursement under the program, the 

manufacturer must enter into a rebate agreement with the Centers for Medicare & Medicaid 

Services (CMS) and pay quarterly rebates to the States. The Deficit Reduction Act of 2005

(DRA) amended section 1927 of the Social Security Act to specifically address the collection of 

rebates on certain physician-administered drugs. To collect these rebates, States submit to the 

manufacturers the drug utilization data containing National Drug Codes (NDCs) for all singlesource physician-administered drugs and for the top 20 multiple-source physician-administered 

drugs. Federal reimbursement for covered outpatient drugs administered by a physician is not 

available to States that do not comply with Federal requirements for capturing NDCs to bill and 

collect rebates. 

The State agency is responsible for paying claims, submitting invoices to manufacturers, and 

collecting Medicaid drug rebates for physician-administered drugs. The State agency uses its 

claim utilization data for physician-administered drugs, which it derives from claims submitted 

by providers, to bill manufacturers quarterly and to maintain a record of rebate accounts 

receivable due from the manufacturers.

WHAT WE FOUND

The State agency did not always comply with Federal Medicaid requirements for billing 

manufacturers for rebates for physician-administered drugs. The State agency did not collect the 

Missouri claimed $34.8 million over 3 years in Federal reimbursement that was 

unallowable and $13.2 million that may have been unallowable because it did not comply 

with Federal Medicaid requirements for billing manufacturers for rebates for physicianadministered drugs. 
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) ii

NDCs (from claims submitted by providers) that were required for it to invoice manufacturers 

for rebates associated with $49,954,190 ($34,837,957 Federal share) in physician-administered 

drugs. Of this amount, $48,993,427 ($34,181,807 Federal share) was for single-source drugs,

and $960,763 ($656,150 Federal share) was for top-20 multiple-source drugs. Because the State 

agency did not obtain NDC-level detail on the claims and did not submit utilization data to the 

manufacturers to collect rebates, the State agency improperly claimed Federal reimbursement for 

these single-source drugs and top-20 multiple-source drugs. 

The State agency did not capture the utilization and coding data necessary to collect rebates for 

all physician-administered drugs. Without the NDCs, we were unable to determine whether the 

State agency improperly claimed Federal reimbursement for an additional $19,166,132

($13,225,151 Federal share) for other physician-administered drug claims that may have 

included single-source drugs.

The State agency required providers to include NDCs on all physician-administered drug claims, 

and the State agency notified providers that it would deny claims that did not include NDCs. 

However, the State agency did not have a system edit in place to reject all of the claims 

submitted without NDCs. As a result, the State agency did not collect the drug utilization data 

necessary to bill the manufacturers for rebates associated with these physician-administered drug 

claims, and the claims were therefore ineligible for Federal reimbursement.

WHAT WE RECOMMEND

We recommend that the State agency:

• refund to the Federal Government $34,181,807 (Federal share) for claims for singlesource physician-administered drugs that were ineligible for Federal reimbursement,

• refund to the Federal Government $656,150 (Federal share) for claims for top-20 

multiple-source physician-administered drugs that were ineligible for Federal 

reimbursement,

• work with CMS to determine the unallowable portion of the $13,225,151 (Federal share) 

for other claims for outpatient physician-administered drugs that were ineligible for 

Federal reimbursement and refund that amount,

• work with CMS to determine and refund the unallowable Federal reimbursement for 

physician-administered drugs claimed without NDCs and not billed for rebates after 

December 31, 2011, and

• update its system edits to reject claims for all physician-administered drugs that do not 

include NDCs in order to improve the State’s ability to ensure that all such drugs eligible 

for drug rebates are invoiced.
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) iii

DEPARTMENT OF SOCIAL SERVICES COMMENTS AND OUR RESPONSE

In written comments on our draft report, DSS did not concur with any of our recommendations. 

DSS said that the requirements for the collection of rebates on physician-administered drugs, 

implemented as part of the DRA, had created “significant administrative and financial” 

difficulties for hospitals in Missouri. 

DSS stated that as a result of these difficulties, it requested and CMS granted a hardship 

extension to give DSS additional time to comply with the NDC reporting requirements. DSS 

also said that, on the basis of CMS guidance, it understood that it could use the Medicare Part B 

crosswalk to link the submitted Healthcare Common Procedure Coding System (HCPCS) codes 

to the appropriate NDCs for single-source drug claims.

On the basis of these statements, DSS disagreed with our first four recommendations. Regarding 

our second recommendation, DSS said that it currently collects rebates from the drugs identified 

on the most recently published list of the top 20 multiple-source physician-administered drugs 

and that it believes that it has collected rebates for all such drugs. With respect to our first, third, 

and fourth recommendations, DSS said that it would like to work with CMS and us to extend the 

State’s hardship exemption and to devise a timeframe within which Missouri hospitals could 

comply with a requirement to submit NDCs. DSS said that it was taking our fifth 

recommendation under advisement.

After reviewing DSS’s comments, we maintain that our findings and recommendations remain 

valid. The State agency applied to CMS for a waiver (the “hardship extension” referred to in 

DSS’s comments) in early 2008; CMS granted the waiver. In so doing, CMS noted that DSS had 

sufficient time to prepare providers to submit physician-administered drug claims with NDCs. 

CMS granted the extension for hospital provider claims only and stated that Federal 

reimbursement would remain available for these claims until June 30, 2008, which was 6 months 

before our audit period began. In fact, the waiver expired more than 6 years ago, but DSS has 

not taken the steps necessary to ensure that providers submit NDCs with physician-administered 

drug claims in keeping with the NDC requirements of the DRA. By contrast, our audits of the 

Medicaid drug rebate program in other States have determined that some other States are 

requiring providers to submit NDCs for physician-administered drugs and have instituted edits to 

deny claims that are submitted without NDCs. 

With respect to our second recommendation, our audit work identified specific claims that had 

HCPCS codes that were on CMS’s published list of top-20 multiple-source physicianadministered drugs. During our audit, we provided the State agency officials this detailed claim 

listing. The State agency reviewed this listing and identified these claims as not having been 

submitted for rebate. Therefore, we maintain that the State agency did not submit for rebate all 

top-20 multiple-source physician-administered drugs during the audit period.
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) iv

TABLE OF CONTENTS

INTRODUCTION .................................................................................................................1

Why We Did This Review.........................................................................................1

Objective ....................................................................................................................1

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

Medicaid Drug Rebate Program ....................................................................1

Physician-Administered Drugs......................................................................2

The State Agency’s Medicaid Drug Rebate Program....................................2

How We Conducted This Review..............................................................................2

FINDINGS.............................................................................................................................3

Federal and State Requirements and State Agency Guidance ...................................4

The State Agency Did Not Bill Manufacturers for Rebates on

 Some Single-Source Physician-Administered Drugs .............................................4

The State Agency Did Not Bill Manufacturers for Rebates on 

 Some Top-20 Multiple-Source Physician-Administered Drugs.............................4

The State Agency Did Not Bill Manufacturers for Rebates on 

 Other Physician-Administered Drugs.....................................................................5

RECOMMENDATIONS.......................................................................................................5

DEPARTMENT OF SOCIAL SERVICES COMMENTS ...................................................6

OFFICE OF INSPECTOR GENERAL RESPONSE ............................................................7

APPENDIXES

A: Related Office of Inspector General Reports.......................................................8

B: Audit Scope and Methodology.............................................................................9

C: Federal and State Requirements and Guidance

 Related to Physician-Administered Drugs ..........................................................11

D: Department of Social Services Comments ..........................................................13
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) 1

INTRODUCTION

WHY WE DID THIS REVIEW

For a covered outpatient drug to be eligible for Federal reimbursement under the Medicaid 

program’s drug rebate requirements, manufacturers must pay rebates to the States, and States 

generally must offset their Federal share of these rebates against their Medicaid expenditures. 

States bill the manufacturers for rebates to reduce the cost of drugs to the program. However, 

recent Office of Inspector General reviews found that States did not always bill and collect all 

rebates due for drugs administered by physicians.

1

 (Appendix A lists previous reviews of the 

Medicaid drug rebate program.) For this audit, we reviewed the Missouri Department of Social 

Services (DSS), MO HealthNet Division’s (State agency’s), billing for rebates for physicianadministered drugs for the period January 1, 2009, through December 31, 2011.

OBJECTIVE

Our objective was to determine whether the State agency complied with Federal Medicaid 

requirements for billing manufacturers for rebates for physician-administered drugs.

BACKGROUND

Medicaid Drug Rebate Program

The Medicaid drug rebate program became effective in 1991 (the Social Security Act (the Act), 

§ 1927). For a covered outpatient drug to be eligible for Federal reimbursement under the 

program, the drug’s manufacturer must enter into a rebate agreement with the Centers for 

Medicare & Medicaid Services (CMS) and pay quarterly rebates to the States. CMS, the States, 

and drug manufacturers each have specific functions under the program. 

Manufacturers are required to submit a list to CMS of all covered outpatient drugs and to report 

each drug’s average manufacturer price and, where applicable, best price.2 On the basis of this 

information, CMS calculates a unit rebate amount for each drug and provides the information to 

the States each quarter. Covered outpatient drugs reported by participating drug manufacturers

are listed in the CMS Medicaid Drug File, which identifies drugs with such fields as National 

Drug Code (NDC), unit type, units per package size, and product name.

Section 1903(i)(10) of the Act prohibits Federal reimbursement for States that do not capture the 

information necessary for billing manufacturers for rebates as described in section 1927 of the 

Act. To bill for rebates, States capture drug utilization data that identifies, by NDC, the number 

of units of each drug for which the States reimbursed Medicaid providers and report the 

information to the manufacturers (the Act, § 1927(b)(2)(A)). The number of units is multiplied 

by the unit rebate amount to determine the actual rebate amount due from each manufacturer.

 1 States’ Collection of Medicaid Rebates for Physician-Administered Drugs (OEI-03-09-00410), issued June 2011.

2 Section 1927(b) of the Act and section II of the Medicaid rebate agreement.
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) 2

States report drug rebate accounts receivable data to CMS on the Medicaid Drug Rebate 

Schedule. This schedule is part of the Quarterly Medicaid Statement of Expenditures for the 

Medical Assistance Program report, which contains a summary of actual Medicaid expenditures 

for each quarter and is used by CMS to reimburse States for the Federal share of Medicaid 

expenditures.

Physician-Administered Drugs

Drugs administered by a physician are typically billed to the Medicaid program on a claim form 

using Healthcare Common Procedure Coding System (HCPCS) codes. For purposes of the 

Medicaid drug rebate program, physician-administered drugs are classified as either singlesource or multiple-source.3

The Deficit Reduction Act of 2005 (DRA) amended section 1927 of the Act to specifically 

address the collection of rebates on physician-administered drugs for all single-source physicianadministered drugs and for the top 20 multiple-source physician-administered drugs.

4

 Beginning 

on January 1, 2007, CMS was responsible for publishing annually the list of the top 20 multiplesource drugs by HCPCS codes that had the highest dollar volume dispensed. Before the DRA, 

many States did not collect rebates on physician-administered drugs if the drug claims did not 

contain NDCs. NDCs enable States to identify the drugs and their manufacturers so that rebates 

can be collected. 

The State Agency’s Medicaid Drug Rebate Program

The State agency is responsible for paying claims, submitting invoices to manufacturers, and 

collecting Medicaid drug rebates for physician-administered drugs. The State agency also 

requires all physician-administered drug claims to be submitted with the “... exact NDC that 

appears on the product dispensed or administered.”5

 The State agency uses its claim utilization 

data for physician-administered drugs, which it derives from claims submitted by providers, to 

bill manufacturers quarterly and to maintain a record of rebate accounts receivable due from the 

manufacturers. The manufacturers then pay the rebates directly to the State agency. 

HOW WE CONDUCTED THIS REVIEW

The State agency claimed $104,500,744 ($72,598,217 Federal share) for physician-administered 

drugs between January 1, 2009, and December 31, 2011. Of this, we reviewed $69,120,321

 3 As specified in CMS’s Medicare Claims Processing Manual, chapter 17, section 20.1.2, a single-source drug is a

drug for which there is not another therapeutically equivalent drug listed in the most recent Food and Drug 

Administration (FDA) Orange Book. Multiple-source drugs, by contrast, are drugs for which there are two or more 

drug products that are rated as therapeutically equivalent in the most recent FDA Orange Book.

4 The term “top-20 multiple-source drugs” is drawn from a CMS classification and describes these drugs in terms of 

highest dollar volume of physician-administered drugs in Medicaid. The Act, section 1927(a)(7)(B)(i).

5 Missouri Provider Bulletin, volume 30, number 29, dated January 8, 2008.
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) 3

($48,063,108 Federal share) that the State agency claimed for physician-administered drugs that 

were submitted with a HCPCS code but without an NDC. 

We used CMS’s Medicare Part B crosswalk to identify, if possible, the NDCs associated with 

each HCPCS code listed on claims from providers. We then used the CMS Medicaid Drug File 

to determine whether the identified NDCs were classified as single-source drugs or multiplesource drugs.

6

 Additionally, we determined whether the HCPCS codes were published in

CMS’s top-20 multiple-source drug listing. 

We conducted this performance audit in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained provides a reasonable basis 

for our findings and conclusions based on our audit objectives.

Appendix B contains the details of our audit scope and methodology. 

FINDINGS

The State agency did not always comply with Federal Medicaid requirements for billing 

manufacturers for rebates for physician-administered drugs. The State agency did not collect the 

NDCs (from claims submitted by providers) that were required for it to invoice manufacturers 

for rebates associated with $49,954,190 ($34,837,957 Federal share) in physician-administered 

drugs. Of this amount, $48,993,427 ($34,181,807 Federal share) was for single-source drugs,

and $960,763 ($656,150 Federal share) was for top-20 multiple-source drugs. Because the State 

agency did not obtain NDC-level detail on the claims and did not submit utilization data to the 

manufacturers to collect rebates, the State agency improperly claimed Federal reimbursement for 

these single-source drugs and top-20 multiple-source drugs. 

The State agency did not capture utilization and coding data necessary to collect rebates for all 

physician-administered drugs. Without the NDCs, we were unable to determine whether the 

State agency improperly claimed Federal reimbursement for an additional $19,166,132

($13,225,151 Federal share) for other physician-administered drug claims that may have 

included single-source drugs. 

The State agency required providers to include NDCs on physician-administered drug claims, 

and the State agency notified providers that it would deny claims that did not include NDCs. 

However, the State agency did not have a system edit in place to reject all of the claims 

submitted without NDCs. As a result, the State agency did not collect the drug utilization data 

 6 The Medicare Part B crosswalk is published quarterly by CMS and is based on published drug and biological 

pricing data and information submitted to CMS by manufacturers. It contains the payment amounts that will be used 

to pay for Part B covered drugs as well as the HCPCS codes associated with those drugs. CMS instructed States that 

they could use the crosswalk as a reference because HCPCS codes and NDCs are standardized codes used across 

health care programs.
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) 4

necessary to bill the manufacturers for rebates associated with these physician-administered drug 

claims, and the claims were therefore ineligible for Federal reimbursement. 

FEDERAL AND STATE REQUIREMENTS AND STATE AGENCY GUIDANCE

The DRA amended section 1927 of the Act to specifically address the collection of rebates on 

physician-administered drugs. States must capture NDCs for single-source and top-20 multiplesource drugs (the Act, § 1927(a)(7)). Federal regulations prohibit Federal reimbursement for 

physician-administered drugs unless the States submit to manufacturers drug utilization data 

containing the NDCs (42 CFR § 447.520).

The Missouri Code of State Regulations (CSR) states that filing instructions for claims are 

provided in provider manuals and provider bulletins.7 Through the Missouri Provider Bulletin,

volume 30, number 29, dated January 8, 2008, the State agency notified providers that it would

“... require the NDC(s), for all medications administered in the clinic or outpatient hospital 

setting.” In addition, “[c]laims submitted with J-Codes only, without the corresponding NDC, 

will be denied.”8

Appendix C contains Federal and State requirements related to physician-administered drugs. 

THE STATE AGENCY DID NOT BILL MANUFACTURERS FOR REBATES ON 

SOME SINGLE-SOURCE PHYSICIAN-ADMINISTERED DRUGS

The State agency improperly claimed Federal reimbursement of $48,993,427 ($34,181,807

Federal share) for single-source physician-administered drug claims for which it did not bill 

manufacturers for rebates. Providers submitted these claims to the State agency without NDCs,

and therefore, the State agency did not provide utilization data to the manufacturers to collect the 

drug rebates.

Because the State agency did not bill for rebates for all single-source physician-administered 

drugs, these claims were not eligible for Federal reimbursement.

THE STATE AGENCY DID NOT BILL MANUFACTURERS FOR REBATES ON 

SOME TOP-20 MULTIPLE-SOURCE PHYSICIAN-ADMINISTERED DRUGS

The State agency improperly claimed Federal reimbursement of $960,763 ($656,150 Federal 

share) for top-20 multiple-source physician-administered drug claims for which it did not collect 

rebates. Providers submitted these claims to the State agency without NDCs and, therefore, the 

State agency did not provide utilization data to the manufacturers to collect rebates.

 7 Missouri Code of State Regulations, division 70, chapter 3, 13 CSR 70-3.100.

8 The HCPCS codes associated with physician-administered drugs generally begin with a “J” and are commonly 

referred to as J-Codes. These physician-administered drugs include injectable drugs that ordinarily cannot be selfadministered, chemotherapy drugs, immunosuppressive drugs and inhalation solutions, and some orally 

administered drugs.
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) 5

During our audit period, CMS provided the State agency, on a yearly basis, with a listing of top20 multiple-source HCPCS codes and their respective NDCs. The State agency said that it had 

configured its automated system to automatically reject any top-20 multiple-source drug claims 

that had been submitted without corresponding NDCs. However, the State agency’s system edits 

did not always reject these claims.

Because the State agency did not bill for rebates for all top-20 multiple-source physicianadministered drugs, the claims that were not billed for rebates were not eligible for Federal 

reimbursement.

THE STATE AGENCY DID NOT BILL MANUFACTURERS FOR REBATES ON 

OTHER PHYSICIAN-ADMINISTERED DRUGS

The State agency did not capture the utilization and coding data necessary to collect rebates for 

all physician-administered drugs. Without the NDCs, we were unable to determine whether the 

State agency improperly claimed Federal reimbursement for an additional $19,166,132

($13,225,151 Federal share) for other physician-administered drug claims that may have 

included single-source drugs.9

The State agency required providers to include NDCs on all physician-administered drug claims. 

However, the State agency did not have an edit in place to reject all of the claims that were 

submitted without NDCs. As a result, the State agency did not collect the drug utilization data 

necessary to bill the manufacturers for rebates associated with these claims and was unable to 

determine whether manufacturers paid rebates for all of the required physician-administered 

drugs.

Accordingly, we set aside the $19,166,132 ($13,225,151 Federal share) for CMS’s adjudication.

RECOMMENDATIONS

We recommend that the State agency:

• refund to the Federal Government $34,181,807 (Federal share) for claims for singlesource physician-administered drugs that were ineligible for Federal reimbursement,

• refund to the Federal Government $656,150 (Federal share) for claims for top-20 

multiple-source physician-administered drugs that were ineligible for Federal 

reimbursement,

• work with CMS to determine the unallowable portion of the $13,225,151 (Federal share) 

for other claims for outpatient physician-administered drugs that were ineligible for 

Federal reimbursement and refund that amount,

 9 HCPCS codes for drugs that are included in this finding have both single-source and multiple-source NDCs 

associated with them.
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) 6

• work with CMS to determine and refund the unallowable Federal reimbursement for 

physician-administered drugs claimed without NDCs and not billed for rebates after 

December 31, 2011, and 

• update its system edits to reject claims for all physician-administered drugs that do not 

include NDCs in order to improve the State’s ability to ensure that all such drugs eligible 

for drug rebates are invoiced.

DEPARTMENT OF SOCIAL SERVICES COMMENTS

In written comments on our draft report, DSS did not concur with any of our recommendations. 

DSS said that the requirements for the collection of rebates on physician-administered drugs, 

implemented as part of the DRA, had created “significant administrative and financial” 

difficulties for hospitals in Missouri. DSS added that the denial of large numbers of claims for 

physician-administered drugs “... created an enormous access problem for Missouri Medicaid 

enrollees. At the time, there was no bigger problem facing the [sic] Missouri’s Medicaid 

program.”

DSS stated that as a result of these difficulties, it requested and CMS granted a hardship 

extension (also referred to in DSS’s comments as a “hardship exemption” and as a “hardship 

waiver”) to give DSS additional time to comply with the NDC reporting requirements. DSS said 

that it later announced that, effective November 3, 2008, (1) hospitals could submit claims for 

single-source physician-administered drugs using only a HCPCS code and did not have to 

include the corresponding NDC, but (2) hospitals were still required to provide NDCs for claims 

for the top 20 multiple-source physician-administered drugs. 

DSS also said that, on the basis of CMS guidance, it understood that it could use the Medicare 

Part B crosswalk to link the submitted HCPCS codes to the appropriate NDCs for single-source 

drug claims. DSS stated: “While not a perfect system, use of the crosswalk to link HCPCS and 

NDC codes was the only feasible way for MO HealthNet to implement the requirement to collect 

rebates for physician-administered single source drugs.” DSS said that the State agency 

expected that the use of the crosswalk would allow it to determine the appropriate NDCs and to 

seek rebates for “most” single-source physician-administered drugs. DSS added that when more 

than one NDC was associated with a single HCPCS code, the State agency could not identify 

“... the specific NDC for the drug administered and therefore could not (in general) seek a 

Medicaid rebate for the drug.”

On the basis of these statements, DSS disagreed with our first four recommendations. DSS 

asked that we reconsider the recommended refund in our first recommendation. DSS also 

disagreed with our second recommendation and said that it currently collects rebates from the 

drugs identified on the most recently published list of the top 20 multiple-source physicianadministered drugs and that it believes that it has collected rebates for all such drugs. With 

respect to our first, third, and fourth recommendations, DSS said that it would like to work with 

CMS and us to extend the State’s hardship exemption and to devise a timeframe within which 

Missouri hospitals could comply with a requirement to submit NDCs. DSS said that it was 

taking our fifth recommendation, to update its system edits, under advisement and was 
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) 7

(1) evaluating the system changes that would be necessary to implement this recommendation 

and (2) reaching out to hospitals “... to determine whether or not and how such providers could 

submit NDC information.”

DSS’s comments appear in their entirety as Appendix D.

OFFICE OF INSPECTOR GENERAL RESPONSE

After reviewing DSS’s comments, we maintain that our findings and recommendations remain 

valid. The State agency applied to CMS for a waiver (the “hardship extension” or “hardship 

exemption” referred to in DSS’s comments) in early 2008; CMS granted the waiver. In its 

written communication granting this waiver to the State agency, CMS stated:

We appreciate the problems your providers have had with the implementation of 

the physician-administered drug provision. While you requested an extension for 

both professional and institutional provider claims, we believe that you have had 

sufficient time to prepare your professional providers to submit claims with 

NDCs. CMS grants you the requested six-month extension for hospital provider 

claims only. FFP [Federal financial participation; also known as Federal 

reimbursement] will remain available to you for these claims until June 30, 2008. 

Our audit period began on January 1, 2009, which was 6 months after the expiration of the 

waiver. In fact, this waiver expired more than 6 years ago, but DSS has not taken the steps 

necessary to ensure that providers submit NDCs with physician-administered drug claims in 

keeping with the NDC requirements of the DRA. By contrast, our audits of the Medicaid drug 

rebate program in other States (Appendix A) have determined that some other States are 

requiring providers to submit NDCs for physician-administered drugs and have instituted edits to 

deny claims that are submitted without NDCs. 

With respect to our second recommendation, our audit work identified specific claims that had 

HCPCS codes that were on CMS’s published list of top-20 multiple-source physicianadministered drugs. During our audit, we provided the State agency officials this detailed claim 

listing. The State agency reviewed this listing and identified these claims as not having been 

submitted for rebate. Therefore, we maintain that the State agency did not submit for rebate all 

top-20 multiple-source physician-administered drugs during the audit period.
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) 8

APPENDIX A: RELATED OFFICE OF INSPECTOR GENERAL REPORTS

Report Title Report Number Date Issued

The District of Columbia Claimed Unallowable 

Federal Reimbursement for Some Medicaid 

Physician-Administered Drugs

A-03-12-00205 August 2014

Nebraska Claimed Unallowable Federal 

Reimbursement for Some Medicaid PhysicianAdministered DrugsA-07-13-06040 August 2014

Idaho Did Not Bill Manufacturers for Rebates 

for Some Medicaid Physician-Administered 

Drugs

A-09-12-02079 April 2014

Oregon Claimed Unallowable Federal Medicaid 

Reimbursement by Not Billing Manufacturers for 

Rebates for Some Physician-Administered Drugs

A-09-12-02080 April 2014

Maryland Claimed Unallowable Federal 

Reimbursement for Some Medicaid PhysicianAdministered DrugsA-03-12-00200 November 2013

Oklahoma Complied With the Federal Medicaid 

Requirements for Billing Manufacturers for 

Rebates for Physician-Administered Drugs

A-06-12-00059 September 2013

Nationwide Rollup Report for Medicaid Drug 

Rebate Collections A-06-10-00011 August 2011

States’ Collection of Medicaid Rebates for 

Physician-Administered Drugs OEI-03-09-00410 June 2011

Follow-Up Audit of the Medicaid Drug Rebate 

Program in Oregon A-09-07-00052 March 2008

Medicaid Rebates for Physician-Administered 

Drugs OEI-03-02-00660 April 2004
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) 9

APPENDIX B: AUDIT SCOPE AND METHODOLOGY

SCOPE

The State agency claimed $104,500,744 ($72,598,217 Federal share) for physician-administered 

drugs between January 1, 2009, and December 31, 2011. Of this, we reviewed $69,120,321

($48,063,108 Federal share) that the State agency claimed for physician-administered drugs that 

were submitted with a HCPCS code but without an NDC.

Our audit objective did not require an understanding or assessment of the complete internal

control structure of the State agency. We limited our internal control review to obtaining an 

understanding of the State agency’s processes for reimbursing physician-administered drug 

claims and its process for claiming and obtaining Medicaid drug rebates for physicianadministered drugs.

We conducted our audit work, which included visiting and contacting the State agency in 

Jefferson City, Missouri, from June 2012 through July 2014.

METHODOLOGY

To accomplish our objective, we took the following steps:

• We reviewed applicable Federal laws, regulations, and guidance pertaining to the 

Medicaid drug rebate program and physician-administered drugs.

• We interviewed CMS officials about the Federal requirements and guidance governing 

physician-administered drugs under the Medicaid drug rebate program.

• We reviewed State agency regulations and guidance to providers, including billing 

instructions for physician-administered drugs.

• We reviewed State agency policies and procedures for rebates for physician-administered 

drugs.

• We interviewed State agency personnel to gain an understanding of the administration of 

and controls over the Medicaid billing and rebate process for physician-administered 

drugs.

• We obtained listings of the CMS top-20 multiple-source physician-administered drugs,

the Medicare Part B crosswalk, and the CMS Medicaid Drug File for our audit period.

• We obtained claim details from the State agency for all drug claims, including physicianadministered drugs, for the period January 1, 2009, through December 31, 2011. 
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) 10

• We obtained the single-source drug listing from the State agency that was used, 

according to State agency officials, to identify the NDCs of single-source drugs by 

HCPCS code.

• We obtained the listing of 340B entities from the State agency.10

• We removed drug claims totaling $35,380,422 ($24,535,109 Federal share) that were not 

eligible for a drug rebate (including the drug claims submitted by 340B entities), 

contained an NDC (which according to State agency officials would already have been 

rebated), were identified by the State agency as having already been rebated, or were 

credits.

• We reviewed the remaining drug claims totaling $69,120,321 ($48,063,108 Federal 

share) to determine whether the State agency complied with Federal Medicaid 

requirements for billing manufacturers for rebates for physician-administered drugs. 

Specifically:

o We identified single-source drugs by matching the HCPCS code on the drug 

claim to the HCPCS code on CMS’s Medicare Part B crosswalk to identify, if 

possible, the NDCs associated with each HCPCS code listed on claims from 

providers. We used the CMS Medicaid Drug File to determine whether these 

NDCs were classified as single-source drugs. (Because there were often multiple 

NDCs associated with a single HCPCS code, we were not always able to identify 

the specific NDC that should have been submitted to the drug manufacturer for 

rebate purposes.)

o We identified the top 20 multiple-source drugs by matching the HCPCS code on

the drug claim to the HCPCS code on CMS’s top-20 multiple-source drug listing

on the basis of the date of service.

o We classified the remaining drugs (ones that were not identified as single-source 

or as top-20 multiple-source drugs) as other outpatient physician-administered 

drugs.

• We discussed the results of our review with State agency officials on July 7, 2014.

We conducted this performance audit in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained provides a reasonable basis 

for our findings and conclusions based on our audit objectives.

 10 Under the 340B drug pricing program (set forth in 42 U.S.C. § 256b), a 340B entity may purchase reduced-price 

covered outpatient drugs from manufacturers; examples of 340B entities are Medicare/Medicaid disproportionate 

share hospitals, which generally serve large numbers of low-income and/or uninsured patients, and State AIDS drug 

assistance programs.
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) 11

APPENDIX C: FEDERAL AND STATE REQUIREMENTS AND GUIDANCE 

RELATED TO PHYSICIAN-ADMINISTERED DRUGS

FEDERAL LAWS

Under the Medicaid program, States may provide coverage for outpatient drugs as an optional 

service (the Act, § 1905(a)(12)). Section 1903(a) of the Act provides for Federal financial 

participation (Federal share) in State expenditures for these drugs. The Medicaid drug rebate 

program, created by the Omnibus Budget Reconciliation Act of 1990 that added section 1927 to 

the Act, became effective on January 1, 1991. Manufacturers must enter into a rebate agreement

with the Secretary of Health and Human Services (HHS) and pay rebates for States to receive 

Federal funding for the manufacturer’s covered outpatient drugs dispensed to Medicaid patients 

(the Act, § 1927(a)). Responsibility for the drug rebate program is shared among the drug 

manufacturers, CMS, and the States.

Section 6002 of the DRA added section 1927(a)(7) to the Act to require that States capture 

information necessary to secure rebates from manufacturers for certain covered outpatient drugs

administered by a physician. In addition, section 6002 of the DRA amended section 1903(i)(10) 

of the Act to prohibit a Medicaid Federal share for covered outpatient drugs administered by a 

physician unless the States submit the utilization and coding data described in section 1927(a)(7)

of the Act. 

Section 1927(a)(7) of the Act requires that States capture utilization and coding data necessary to 

secure rebates for all single-source physician-administered drugs effective January 1, 2006, and 

for the top 20 multiple-source drugs effective January 1, 2008. Section 1927(a)(7)(C) of the Act 

stated that, effective January 1, 2007, the utilization data must be submitted using the NDC. 

Section 1927(a)(7)(D) of the Act allowed HHS to delay any of the above requirements to prevent 

hardship to States that required additional time to implement the physician-administered drug 

reporting requirements. 

FEDERAL REGULATIONS

Federal regulations set conditions for States to obtain a Federal share for covered outpatient 

drugs administered by a physician and specify that no Federal share is available for physicianadministered drugs for which a State has not required the submission of claims using codes that 

identify the drugs sufficiently for the State to bill a manufacturer for rebates (42 CFR § 447.520).

Federal regulations defined a brand-name drug as a single-source or innovator multiple-source 

drug and, in relevant part, a multiple-source drug as a covered outpatient drug for which there is 

at least one other drug product that is rated as therapeutically equivalent (42 CFR § 447.502).11 

 11 On November 15, 2010, CMS amended 42 CFR § 447.502 to remove the definition of multiple-source drug

(75 Fed. Reg. 69591, 69592 (November 15, 2010)). 
Missouri Medicaid Payments Associated With Physician-Administered Drugs (A-07-14-06051) 12

STATE REGULATIONS AND GUIDANCE

The CSR, division 70, chapter 3, 13 CSR 70-3.100, states that filing instructions for claims are 

provided in provider manuals and provider bulletins. 

Through the Missouri Provider Bulletin, volume 30, number 29, dated January 8, 2008, the State 

agency notified providers that:

[t]he Deficit Reduction Act of 2005 (DRA) requires states to collect rebates for 

certain physician-administered drugs. As a result, state agencies must now collect 

the 11-digit National Drug Codes (NDC) on all outpatient drug claims submitted 

to the MO HealthNet program from all providers for rebate purposes. To comply 

with the DRA, effective for dates of service on or after February 1, 2008, MO 

HealthNet will require the NDC(s), for all medications administered in the clinic 

or outpatient hospital setting. Providers will be required to submit their claims 

with the exact NDC that appears on the product dispensed or administered. The 

NDC is found on the medication’s packaging and must be submitted in the 

5 digits-4 digits-2 digits format. If the NDC does not appear in the 5-4-2 digit 

format on the packaging, a zero(s) (0) may be entered in front of the section that 

does not have the required number of digits.

The Missouri Provider Bulletin, volume 30, number 29, also specifies that, for providers 

submitting drug information on an electronic claim transaction or manually entering a claim:

in addition to the NDC, the claim must include the J-code that best represents the 

NDC being billed. Claims submitted with J-codes only, without the

corresponding NDC, will be denied. The system will automatically generate a 

separate claim for the NDC to process as a Pharmacy claim and will appear as a 

separate claim on your Remittance Advice. The corresponding J-code will be 

dropped from the claim unless an NDC is not provided, then it will remain to 

report the denied line.
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APPENDIX D: DEPARTMENT OF SOCIAL SERVICES COMMENTS
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