Department of Health and Human Services
 

OFFICE OF 

INSPECTOR GENERAL 

STATES’ COLLECTION OF 

REBATES FOR DRUGS PAID 

THROUGH MEDICAID 

MANAGED CARE 

ORGANIZATIONS
 

Daniel R. Levinson
 

Inspector General
 

September 2012 

OEI-03-11-00480 
 

 

 

  

EXECUTIVE SUMMARY: STATES’ COLLECTION OF REBATES FOR 

DRUGS PAID THROUGH MEDICAID MANAGED CARE ORGANIZATIONS 

OEI-03-11-00480 

WHY WE DID THIS STUDY 

In general, drug manufacturers must pay rebates for covered outpatient drugs reimbursed 

under Medicaid for States to receive Federal matching funds. Drugs dispensed by 

Medicaid Managed Care Organizations (MCO) were excluded from this requirement 

until March 23, 2010, when section 2501(c) of the Patient Protection and Affordable Care 

Act (ACA) expanded the rebate requirement to include these drugs. To realize the full 

savings under this expansion, it is important that States collect accurate drug utilization 

data from MCOs and that States invoice and collect rebate payments from manufacturers. 

HOW WE DID THIS STUDY 

In October 2011, we sent surveys about rebate collections involving MCOs to all 

50 States and the District of Columbia (hereinafter referred to as States) and received 

responses from all but 1 State. States that paid for drugs through their MCOs 

(the carve-in approach) were asked about the drug utilization data collected from MCOs, 

their processes for invoicing and collecting rebates from manufacturers using these data, 

and the amounts of rebates collected between the second quarter of 2010 and the second 

quarter of 2011. We asked States that did not pay for drugs through their MCOs (the 

carve-out approach) or did not contract with MCOs about potential changes to their drug 

programs’ structures as a result of the rebate expansion. 

WHAT WE FOUND 

Between April 1, 2010, and June 30, 2011, 18 of the 22 States using a carve-in approach 

collected all the data needed to invoice manufacturers for rebates from their MCOs, 

3 collected data from a portion of their MCOs, and 1 never collected any drug utilization 

data. All but one State that used a carve-in approach performed some type of data 

verification check. Twelve of the twenty-two States using a carve-in approach invoiced 

manufacturers and collected $1.6 billion in rebates for utilization in the second quarter of 

2010 through the second quarter of 2011. However, 10 of the 22 States did not invoice 

manufacturers and collect rebates because, for example, they had to complete 

programming changes to the systems that process MCO claims. Additionally, the rebate 

expansion has prompted five States that used the carve-out approach to change to a 

carve-in approach. 

WHAT WE RECOMMEND 

We recommend that the Centers for Medicare & Medicaid Services (CMS) follow up 

with the 10 States that had not collected rebates for drugs dispensed to Medicaid MCO 

beneficiaries and take action to enforce rebate collection if necessary. CMS concurred. 
TABLE OF CONTENTS 

Objectives ....................................................................................................1 

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

Methodology................................................................................................6 

Findings......................................................................................................11
 

Eighteen of the twenty-two States using the carve-in approach 

obtained the Medicaid MCO utilization data needed to collect 

rebates in all of the quarters under review .....................................11
 

In the five quarters after the rebate expansion, 12 of the 22 

States using the carve-in approach invoiced manufacturers and 

collected $1.6 billion in rebates for Medicaid MCO drug 

utilization .......................................................................................14 

As of October 1, 2011, 10 of the 22 States using a carve-in 

approach had not invoiced manufacturers and collected rebates 

for Medicaid MCO drug utilization ...............................................16 

Five States that did not pay for drugs through Medicaid 

MCOs changed the structures of their drug programs as a result 

of the rebate expansion ..................................................................17 

Conclusion and Recommendation .............................................................18 

Agency Comments and Office of Inspector General Response .....20 

Appendixes ................................................................................................21 

A: Percentage of Medicaid Managed Care Organizations That 

Provided Drug Utilization Data to States for the Second Quarter 

of 2011 ...........................................................................................21 

B: Total Amount of Medicaid Managed Care Organization 

Rebates That 12 States Using a Carve-In Approach Collected 

From Second Quarter 2010 to Second Quarter 2011.....................22 

C: Ten States Using a Carve-In Approach That Had Not 

Invoiced or Collected Medicaid Managed Care Organization 

Rebates as of October 1, 2011 .......................................................23 

D: Agency Comments...................................................................24 

Acknowledgments......................................................................................26 
 

 

 

OBJECTIVES 

1.	 To determine whether State Medicaid agencies (States) have collected 

drug utilization data from Medicaid Managed Care Organizations 

(MCO), as required by the Patient Protection and Affordable Care Act 

(ACA). 

2.	 To examine the processes States used to invoice and collect rebates 

from manufacturers for drugs dispensed to beneficiaries enrolled in 

MCOs. 

3.	 To determine how many States invoiced manufacturers for rebates for 

drugs dispensed to MCO beneficiaries. 

4.	 To calculate the amount States collected in rebates from manufacturers 

for drugs dispensed to MCO beneficiaries, as well as how much went 

uncollected. 

5.	 To determine whether States that do not currently pay for drugs 

through MCOs will change the structures of their drug programs as a 

result of the new rebate requirements. 

BACKGROUND 

In general, drug manufacturers must pay rebates for covered outpatient 

drugs reimbursed under Medicaid for a State to receive Federal matching 

funds.1 However, until the March 23, 2010, enactment of the ACA, P.L. 

111-148, drugs dispensed by Medicaid MCOs were excluded from the 

rebate requirements.2 Section 2501(c) of the ACA expanded the rebate 

requirements to include drugs dispensed to beneficiaries who receive care 

from MCOs if the organizations are responsible for coverage of such 

drugs, effective March 23, 2010. To facilitate rebate collection, States 

must include the utilization data collected from MCOs in their rebate 

invoices to manufacturers.3 The Congressional Budget Office (CBO) 

estimated that this provision will result in savings of $3.7 billion between 

2010 and 2014.4 

To realize these potential savings under the ACA, it is important that 

States collect accurate and timely drug utilization data from MCOs, 

implement procedures to invoice manufacturers, and collect these rebates. 

If States do not invoice promptly following the rebate expansion, they still 

1 Social Security Act (the Act), § 1903(i)(10)(A), 42 U.S.C. § 1396b(i)(10)(A). 

2 The Act, § 1927(j), 42 U.S.C. § 1396r-8(j) (2009 GPO FDsys). 

3 Section 2501(c) of the ACA. 

4 CBO, Budget Options Volume 1 Health Care, December 2008, pp. 141–142. Accessed at 

http://www.cbo.gov on April 19, 2011. 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 1 
 

 

 

 

 

 

 

 

have the opportunity to retroactively invoice manufacturers and collect 

rebates for utilization dating back to March 23, 2010. However, prior 

Office of Inspector General (OIG) reports have found that States have not 

collected all non-MCO rebates owed by manufacturers because of various 

procedural issues and manufacturer disputes.5 

Medicaid Prescription Drug Coverage 

Medicaid provides health coverage for certain low-income and medically 

needy people, jointly funded by Federal and State governments. 

Individual States establish eligibility requirements, benefit packages, and 

payment rates for their Medicaid programs under broad Federal standards. 

Currently, all 50 States and the District of Columbia (referred to as States) 

offer prescription drug coverage as part of their Medicaid benefit 

packages. Medicaid expenditures for prescription drugs totaled 

approximately $29 billion in 2010.6 

Medicaid Drug Rebate Program 

To reduce State and Federal expenditures for prescription drugs, Congress 

created the Medicaid drug rebate program in 1990.7 Between 2006 and 

2010, the rebate program has saved Medicaid an average of about 

$9 billion annually. 

Drug manufacturers are required to enter into rebate agreements with the 

Secretary of Health and Human Services (the Secretary) and pay quarterly 

rebates to States for Federal payment to be available for covered 

outpatient drugs provided under Medicaid.8, 9 As of December 2011, the 

States and approximately 600 pharmaceutical companies participated in 

the rebate program.10 

Under these rebate agreements and pursuant to section 1927(b)(3) of the 

Act, manufacturers must provide CMS with the average manufacturer 

price (AMP) by national drug code (NDC) for each of their covered 

5 OIG, States’ Collection of Medicaid Rebates for Physician-Administered Drugs (OEI-03-09-

00410), June 2011; Medicaid Rebates for Physician-Administered Drugs (OEI-03-02-00660), 

April 2004; and Multistate Review of Medicaid Drug Rebate Programs (A-06-03-00048), July
 

2005.
 6 Medicaid expenditures were calculated using data from the Centers for Medicare & 

Medicaid Services’ (CMS) Medicaid Budget and Expenditures System. This total does not 

reflect rebates collected through the Medicaid drug rebate program.

7 The Omnibus Budget Reconciliation Act of 1990, P.L. 101-508, § 4401; the Act, § 1927; 

42 U.S.C. § 1396r-8. 

8 The Act, §§ 1927(a)(1) and (b)(1).

9 Federal payment refers to the matching funds provided to States by the Federal Government 

for certain social services, including Medicaid.

10 CMS, Medicaid & CHIP Program Information. Accessed at http://www.medicaid.gov/ on 

February 15, 2012.
 

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drugs.11, 12 AMP is defined as the average price paid to a manufacturer of 

a drug in the United States by a wholesaler for drugs distributed to retail 

community pharmacies and by retail community pharmacies that purchase 

drugs directly from the manufacturer, with certain exclusions.13 

Manufacturers must report the AMPs no later than 30 days after the end of 

each quarter.14 

Medicaid Drug Rebate Process 

CMS uses the AMP and best price data to calculate the unit rebate amount 

(URA) for each NDC included in the Medicaid drug rebate program. The 

URA varies depending on whether the drug is brand-name or generic. 

CMS calculates a URA for each NDC and transmits this information to the 

States. States then calculate the total quarterly rebates that participating 

manufacturers owe by multiplying the URA for a specific drug by the 

number of units of that drug for which the State reimbursed providers in 

that quarter. Within 60 days of the end of the quarter, States must invoice 

the manufacturers for the units reimbursed and indicate the total rebate 

due for each NDC. The manufacturers process the invoices and pay the 

rebates to the States within 30 days of receipt of the invoices.15, 16 

Effective January 1, 2010, section 2501 of the ACA revised the rebate 

calculation and increased the minimum rebate percentage manufacturers 

are required to pay for brand-name and generic drugs. The basic URA for 

brand-name drugs was increased to the greater of 23.1 percent of the AMP 

or the difference between the AMP and the best price.17, 18 In addition to 

the basic URA, manufacturers are required to pay an additional rebate if 

11 Section 1927(b)(3) of the Act requires manufacturers provide CMS, in addition to the 

AMP, with the best price available for each of their brand-name drugs. “Best price” is defined 

in § 1927(c)(1)(C)(i) of the Act as the lowest price available from the manufacturer during the 

rebate period to any purchaser in the United States, with certain exceptions.

12 An NDC is an 11-digit identifier that represents a specific manufacturer, product, and 

package size for a drug.

13 Section 1927(k)(1) of the Act as amended by § 2503(a)(2) of the ACA. 14 Section 1927(b)(3) of the Act. Manufacturers also report AMPs on a monthly basis; 

however, only the quarterly AMPs are used for rebate purposes. 

15 Section 1927(b)(1)(A) of the Act.
 16 If the manufacturer does not pay the invoice within 30 days, interest will accrue beginning 

with the 38th day from the invoice’s postmark date. CMS, Medicaid & CHIP Program
 

Information. Accessed at http://www.medicaid.gov/ on February 15, 2012. 17 Section 1927(c)(1) of the Act as amended by § 2501(a) of the ACA.
 18 From 1996 to 2009, the basic URA for a brand-name drug was either 15.1 percent of the 

AMP or the difference between the AMP and best price (whichever was greater).
 

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the AMP for a brand-name drug has risen at a rate greater than inflation.19 

The URA for generic drugs was increased to 13 percent of the AMP.20, 21 

The ACA also requires that the additional amounts attributed to these 

increased rebate percentages (e.g., the amount between 15.1 and 

23.1 percent of AMP for brand-name drugs) be remitted to the Federal 

Government. Therefore, States are prohibited from keeping the additional 

money that results from the ACA changes to the rebate calculation. 

Because of changes to the definition of AMP, rebate percentages, and 

Federal share rules under the ACA, CMS was not able to modify its 

systems to calculate URAs during 2010. As a result, the States’ invoices 

to manufacturers included the number of units reimbursed for the drugs 

but did not contain URAs.22 Instead, CMS reminded manufacturers to 

calculate the URAs and make the appropriate 2010 quarterly rebate 

payments directly to States in accordance with the rebate changes for that 

year.23 In May 2011, CMS calculated URAs for each quarter of 2010 and 

provided those data to States as a prior period adjustment. 

Medicaid MCOs and Drug Rebates—Carve-In and Carve-Out 

Approaches 

Managed care plans aim to maximize efficiency by negotiating rates, 

coordinating care, and managing the use of services. MCOs differ from 

the traditional fee-for-service (FFS) system in that States prospectively 

pay MCOs a fixed monthly amount (i.e., capitation payment) for each 

Medicaid enrollee, regardless of whether that beneficiary seeks care 

during the month. A State may provide its Medicaid beneficiaries with the 

option to voluntarily enroll in MCOs or may mandate that all or certain 

categories of its Medicaid beneficiaries enroll in MCOs.24 

States may pay for drugs dispensed through MCOs using either the 

carve-in or the carve-out approach. To use the carve-in approach, States 

include payment for the drugs dispensed to beneficiaries in the MCOs’ 

19 Section 1927(c)(2) of the Act. To determine whether manufacturers owe an additional 

rebate for a drug, its “base date” AMP is updated for the current quarter using the consumer 

price index. If the resulting figure is greater than or equal to the reported AMP in the quarter, 

no additional rebate is owed. If the resulting figure is less than the reported AMP in the 

quarter, then the additional URA is equal to the difference between the reported AMP and the 

inflation-adjusted base date AMP. 

20 Section 1927(c)(3) of the Act as amended by § 2501(b) of the ACA.
 21 From 1996 to 2009, the basic URA for a generic drug was 11 percent of the AMP.
 22 CMS instructed States to report each URA as $0 on the rebate invoice. 

23 CMS, Medicaid Drug Rebate Program Release No. 155, August 11, 2010.
 24 Section 1903(m)(1)(A) of the Act defines a “Medicaid MCO” as a health maintenance 

organization that contracts with a State Medicaid agency to provide or arrange for health 

services to eligible individuals.
 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 4 
 

 

 

fixed monthly payment amounts. In the carve-out approach, States 

exclude payment for the drugs dispensed to beneficiaries from the MCOs’ 

fixed monthly payment amounts and instead pay for these drugs using the 

traditional FFS system. 

MCO Rebate Collections Prior to March 23, 2010. Before the 

enactment of the ACA, manufacturers were not required to pay rebates for 

drugs dispensed to beneficiaries by Medicaid MCOs. For that reason, a 

number of States carved out some or all prescription drugs from the 

Medicaid MCOs’ fixed payments. In other words, beneficiaries would 

receive most of their care through MCOs, but the State instead paid for 

drugs dispensed through MCOs on an FFS basis. Carving out prescription 

drugs from the MCOs’ fixed payment amounts enabled these States to 

invoice manufacturers for rebates for these drugs before the ACA was 

enacted. 

MCO Rebate Collections on or After March 23, 2010. As of 

March 23, 2010, section 2501(c) of the ACA expanded the rebate 

requirements to include prescription drugs provided to Medicaid 

beneficiaries enrolled in MCOs.25 To facilitate the States’ collection of 

these rebates from manufacturers, MCOs are required to report utilization 

data to each State by NDC for each covered outpatient drug dispensed to 

Medicaid enrollees. In April and September 2010, CMS sent letters to 

States that provided guidance about the changes to the rebate program 

under the ACA, including the new MCO provisions.26 

States are to include MCO utilization data in their quarterly rebate 

invoices to manufacturers. As previously mentioned, because CMS did 

not calculate URAs in 2010, States were unable to invoice manufacturers 

using the established process in that year. Instead, States provided 

manufacturers with the utilization data collected from MCOs and 

instructed manufacturers to calculate the rebate amounts and remit the 

amounts owed each quarter. 

The rebate expansion does not directly affect States that do not include 

prescription drugs in their MCOs’ payment rates (i.e., the carve-out 

approach) or that do not contract with MCOs. However, industry reports 

indicate that the ACA expansion may prompt these States to contract with 

25 Section 340B of the Public Health Service Act established the 340B Drug Pricing Program, 

which requires pharmaceutical manufacturers to charge at or below the statutorily defined 

prices for sales to certain qualified entities (e.g., community health centers). Drug purchases 

by MCOs that qualify for discounted 340B rates are not subject to the Medicaid rebate 

because this would result in duplicate discounts from manufacturers.

26 CMS, Letter to State Medicaid Directors, SMDL #10-006 and SMDL #10-019. Accessed at 

http://www.cms.gov/ on August 8, 2011. 

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MCOs using a carve-in approach. According to industry reports, this is 

because the prior rebate advantage to carving out no longer exists and 

because industry research has found that MCOs manage the pharmacy 

benefit more efficiently than would otherwise occur in an FFS setting.27 

METHODOLOGY 

Data Collection 

In October 2011, we sent online surveys to the 51 State pharmacy 

directors. We followed up with nonresponding States in November and 

December 2011. As of January 2012, we had received responses from 

50 States.28 

First, we asked States whether they contracted with Medicaid MCOs to 

provide medical care to beneficiaries as of October 1, 2011. If they 

answered yes, we asked them to provide the number of Medicaid 

beneficiaries in the State, the number enrolled in MCOs, and the number 

of MCOs that had contracts with the State from the second quarter of 

2010 until the second quarter of 2011 (i.e., from April 1, 2010, to 

June 30, 2011). Next, we asked whether the States maintained a carve-out 

approach, a carve-in approach, or a combination of the both approaches or 

had changed their payment approach since March 23, 2010 (i.e., switched 

from a carve-out to a carve-in approach or vice versa). 

Among responding States, half carved in prescription drugs and half either 

carved out prescription drugs or did not have MCO contracts. See Table 1 

for the number of States with different approaches to MCO drug coverage. 

The survey then asked States different questions based on whether they 

had MCO contracts and used a carve-in approach, had MCO contracts and 

used a carve-out approach, or did not have MCO contracts. 

27 For example, see the Lewin Group, Projected Impacts of Adopting a Pharmacy Carve-In 

Approach Within Medicaid Capitation Programs. Accessed at http://www.mhpa.org on 

February 17, 2012.

28 We made multiple attempts to obtain a response from Rhode Island; however, the State did 

not respond. 

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Table 1: States’ Approaches to Drug Coverage Through Medicaid MCOs 

From March 23, 2010, to October 1, 2011 

Approach 

Number of 

States 

Total States That Paid for Drugs Through MCOs (Carve-In Approach) 25

 Maintained only a carve-in approach 16 

 Changed from a carve-out to a carve-in approach 3 

 Used a combination of carve-out and carve-in approaches29 6 

Total States With MCOs That Maintained Only a Carve-Out Approach 10 

Total States That Did Not Have MCO Contracts 15 

Source: OIG analysis of State survey responses, 2012. 

Questions for Medicaid MCO States Using a Carve-In Approach. We 

asked these 25 States to describe the quality and timeliness of the 

utilization data provided by Medicaid MCOs and any followup action the 

States took in relation to flaws in these data. We asked States whether 

they verified (1) the completeness of the utilization data (e.g., that they 

included utilization for all covered drugs), (2) that the data did not include 

utilization for drugs paid through the 340B program, and (3) the data’s 

accuracy. 

We also asked whether, as of October 1, 2011, States invoiced 

manufacturers or collected rebates from manufacturers for drugs dispensed 

through Medicaid MCOs. We asked States that had invoiced 

manufacturers to describe the invoicing method used (e.g., sent 

manufacturers one invoice for Medicaid MCO utilization and a separate 

invoice for FFS utilization), whether they tracked the collection of the 

amounts invoiced, and whether manufacturers disputed the amounts 

invoiced. 

We asked that States provide the dollar amounts invoiced (both 

retroactively and nonretroactively) and collected from the second quarter 

of 2010 to the second quarter of 2011. We asked States that had not 

invoiced manufacturers during this time whether they intended to 

retroactively invoice. We also asked for the reasons for the delay, an 

estimated start date, and the method they anticipated using (e.g., send 

manufacturers one invoice for Medicaid MCO utilization and a separate 

invoice for FFS utilization). 

29 Six States used a combination of carve-out and carve-in approaches. In general, the drugs 

that these States carved out include those used to treat HIV/AIDS and depression and other 

mental health disorders. 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 7 
 

 

 

 

Questions for Medicaid MCO States Using a Carve-Out Approach. We 

asked these 10 States whether they intended to continue this approach now 

that rebates are available for drugs provided to beneficiaries enrolled in 

MCOs. If a State intended to no longer carve out, we asked that it 

describe any plans related to changing its rebate collection process. 

Questions for States Without Medicaid MCO Contracts. We asked these 

15 States whether they had plans to change the current structures of their 

drug programs because of the ACA. We asked these States whether 

section 2501(c) of the ACA had prompted them to consider such contracts 

in the future and, if so, to describe their course of action and provide 

possible implementation dates.30 

Data Analysis 

Medicaid MCO Drug Utilization Data. We reviewed the States’ survey 

responses to determine whether and when Medicaid MCOs provided 

drug utilization data in the five quarters after March 23, 2010 

(i.e., second quarter 2010 through second quarter 2011). For this portion 

of the review, we included 22 of the 25 States that had carved in all or a 

portion of their prescription drugs since the rebate expansion became 

effective on March 23, 2010; we excluded the 3 States that had switched 

from a carve-out to a carve-in approach.31 We calculated the number of 

States that: 

	 collected data for all five quarters from every MCO for which they 

had contracts (collected either within 60 days after the quarter or 

more than 60 days after the quarter), 

	 collected data from a portion of their MCOs in at least one of the 

five quarters, and 

	 did not collect data from any of their MCOs in all five quarters. 

States’ Verification of Medicaid MCO Data. We calculated the number 

of States that verify that the Medicaid MCOs’ drug utilization data: 

(1) include utilization for all covered outpatient drugs, (2) exclude 

utilization for drugs paid through the 340B program, and (3) include data 

that are accurate and correct. We summarized how States perform these 

verification checks and the reasons why other States decided not to 

perform them. For this portion of the review, we included the three States 

30 Section 2501(c) of the ACA extended the Medicaid rebate requirements to include drugs 

dispensed by MCOs.

31 These three States did not switch to a carve-in method until mid- to late 2011 (one State 

switched in the third quarter and two switched on October 1, 2011). When these States
 

received our survey, there had not been enough time to fully evaluate the timeliness of MCOs’ 

data submissions.
 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 8 
 

 

 

that switched from a carve-out to a carve-in approach. Therefore, this 

portion of the analysis includes 25 States. 

Invoice and Collection of Rebates for Medicaid MCO Utilization. Of the 

22 States that have carved in all or a portion of their prescription drugs 

since the rebate expansion, we identified States that did and did not 

invoice manufacturers for these rebates as of October 1, 2011. 

For the States that invoiced manufacturers, we calculated the total rebate 

amounts collected for each quarter between the second quarter of 2010 

and the second quarter of 2011. We also calculated the total amount of 

rebates that were uncollected because of unresolved disputes with 

manufacturers and determined whether States had methods to track unpaid 

rebates. Next, we summarized the methods used to invoice manufacturers, 

calculated the number of States that retroactively invoiced, and calculated 

the total amount retroactively invoiced. Lastly, we calculated the total 

amount that States invoiced manufacturers in the first and second quarters 

of 2011. Because CMS had not provided States with URAs in 2010, 

States were unable to invoice manufacturers for specific rebate amounts in 

that year and therefore could not provide invoice totals for 2010.32 

For the States that did not invoice, we summarized why they had not 

invoiced, when they intended to start, and the method they planned to use. 

We also calculated the total number of beneficiaries enrolled in MCOs for 

these States. 

States That Carve Out or Do Not Have Medicaid MCO Contracts. We 

reviewed survey responses for the 25 States that carve out prescription 

drugs from their Medicaid MCO payments or that did not have MCO 

contracts. We determined whether the MCO rebate expansion had 

influenced these States to change their payment policies for prescription 

drugs. 

Limitations 

The findings are based on survey responses provided by State Medicaid 

agencies. We did not independently verify their accuracy. We also did not 

attempt to verify the accuracy of the rebate amounts manufacturers paid to 

the States. The rebate amounts that States invoiced and collected from 

manufacturers were current at the time we received their responses. If a 

State invoiced and collected rebates after we received its response, then 

these rebate amounts would not be reflected in our totals. 

32 For drugs without URAs, CMS instructs States to provide utilization data to manufacturers, 

which are then responsible for determining the correct URAs to be used in calculating total 

rebates owed (enabling States to collect these rebates without actually invoicing for specific 

rebate amounts). 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 9 
 

In addition, we reviewed only the rebate collections and rebate processes 

related to Medicaid MCOs and did not focus on the effect these may have 

had on the capitation rates States pay to MCOs. We also did not review 

the effect the rebate expansion may have had on beneficiary services or 

provider payments. 

Standards 

This study was conducted in accordance with the Quality Standards for 

Inspection and Evaluation issued by the Council of the Inspectors General 

on Integrity and Efficiency. 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 10 
 

 

FINDINGS 

Eighteen of the twenty-two States using the carve-in 

approach obtained the Medicaid MCO utilization data

needed to collect rebates in all of the quarters under 

review 

Among the 22 States that paid for prescription drugs through Medicaid 

MCOs (i.e., carved in), 18 obtained all the drug utilization data necessary 

for rebate collection between the second quarter of 2010 and the second 

quarter of 2011.33 In addition to these 22 States, 3 States (Illinois, New 

York, and Ohio) switched from a carve-out to a carve-in approach in 

mid- to late 2011. Because they switched after the second quarter of 2011, 

we did not include them in this portion of our analysis. 

Of the remaining four States, one (Nevada) did not collect data in the 

quarter after the rebate expansion but did so for all its MCOs in all four 

subsequent quarters. Two additional States (California and West 

Virginia)34 collected the data from only a portion of their MCOs in each of 

the five quarters. California estimated that the majority of its MCOs 

would report the data by December 2011, and West Virginia reported that 

it would not take action to collect the data until data validation procedures 

were in place. The District of Columbia was the only State that never 

collected any of the utilization data needed from its MCOs to invoice 

manufacturers in all of the five quarters. It did not project a date when it 

would collect the data.35 

States must include data about each drug’s utilization on the rebate 

invoices they send to manufacturers within 60 days after a quarter ends, 

meaning that the timely collection of MCOs’ data is imperative for the 

completeness of these invoices. As shown in Table 2, the majority of 

States that collected utilization data generally received it from MCOs 

within 60 days after the quarter’s end. None of the States (including those 

that never collected utilization data) took action to encourage timelier 

33 One of the 18 States, Mississippi, did not contract with MCOs in 2010 and therefore did not 

need to collect utilization data in that year. However, Mississippi collected utilization data 

from all its MCOs in 2011. 

34 California and West Virginia use a combination of carve-in and carve-out approaches. 

35 However, the District of Columbia estimated that it would begin invoicing for these rebates 

in the first quarter of 2012. To do so, it would first need to collect utilization data from its 

MCOs. 

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Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 12 

 

submission from MCOs. 36 See Appendix A for a State-by-State depiction 

of when MCOs provided utilization data in the second quarter of 2011. 

Table 2: Collection of Drug Utilization Data: Characteristics of States Using the Carve-In 

Approach 

Data Collected 

Second 

Quarter 

2010 

Third 

Quarter 

2010 

Fourth 

Quarter 

2010 

First 

Quarter 

2011 

Second 

Quarter 

2011 

Collected All Data From MCOs

 All data collected within 60 days 

All data collected more than 60 days after the 

quarter

 Some data collected within and some data more

 than 60 days after the quarter 

17* 

11 

3 

3 

18* 

13 

2 

3 

18* 

14 

2 

2 

19 

15 

1 

3 

19 

16 

1 

2 

Collected Data From Portion of MCOs 2 2 2 2 2 

Did Not Collect Data From Any MCOs 2 1 1 1 1 

 Total Number of States 21 21 21 22 22 

Source: OIG analysis of State survey responses, 2012. 

* Mississippi did not contract with MCOs in 2010. Therefore, the total number of States in the 2010 quarters is 21. 

All but one State using a carve-in approach performed at least 

some type of verification check on the Medicaid MCOs’ 

utilization data 

Among the 25 States that used a carve-in approach by the end of 2011, the 

District of Columbia had not implemented any checks to verify Medicaid 

MCOs’ utilization data because it had not yet collected any data. The 

21 States that had collected data and the 3 States that recently switched 

from a carve-out to a carve-in approach reported having methods to ensure 

that the utilization data (1) were complete, (2) did not include 340B 

utilization, or (3) were accurate. In addition, States that followed up with 

MCOs about the data thought that MCOs were readily available and 

helpful with answering their questions. 

Eighteen of Twenty-Five States Verified That the MCO Data Are Complete. 

These 18 States reported that they verified that the data included 

utilization for all covered drugs by performing checks, such as requiring 

the MCO to certify the data, comparing the data to other sources 

(e.g., financial statements), or validating the data through a series of edits. 

For example, one of the verification checks Pennsylvania performed 

36 We did not ask about specific actions taken. Instead, States were generally asked to 

describe any action taken if the MCO did not provide the utilization data in a timely manner. 
 

 

 

 

 

 

 

included running queries that target missing or questionable data from 

MCOs. These queries have helped the State identify a lower-thanexpected submission of claims for certain drug groups, which the State 

then addressed with the MCOs. 

Among the seven States that did not verify the completeness of the data, 

four are in the process of implementing these checks and the other three 

did not mention having data-verification plans (although one mentioned 

that the MCO’s agreement with the State requires it to provide complete 

data).37 All of these States, except the District of Columbia, performed at 

least one of the other two data verification checks we specifically asked 

about in our survey (i.e., that the data exclude 340B utilization and that the 

data are correct). 

Twenty-One of Twenty-Five States Verified That the MCO Data Exclude 

340B Utilization. To verify that the MCO drug utilization data excluded 

340B utilization, these States either requested that the MCOs include a 

340B-entity indicator on the claims or matched the utilization data to a 

database identifying 340B entities and then removed the 340B entities’ 

utilization from the MCO data.38, 39 

Twenty-Three of Twenty-Five States Verified That the MCO Data Are 

Accurate. The primary tools these States used to verify that the data are 

accurate are claim edits and audit reports.40, 41 For example, New York 

completes a series of control and validation edits when a claim is first 

processed and then produces reports to verify the accuracy of the data 

submission once the claim is paid. The State uses these reports to 

follow up with the MCOs when necessary. New Jersey created an 

encounter-monitoring unit whose responsibility is to perform quality 

control checks of the data submitted by MCOs. 

37 The seven States are California, the District of Columbia, Florida, Kansas, Massachusetts, 

New Jersey, and South Carolina. 

38 States are prohibited from collecting rebates on drugs purchased under the 340B program. 

Section 340B of the Public Health Service Act requires States to establish a mechanism to
 

exclude 340B-purchased drugs from Medicaid rebate requests to prevent subjecting 

manufacturers to duplicate discounts. 42 U.S.C. § 256b(a)(5).

39 The four States that did not have a 340B check are the District of Columbia, New Jersey, 

Ohio, and West Virginia.

40 In addition to the District of Columbia, Ohio reported that it does not verify the accuracy of 

the MCO data. However, Ohio reported that it employs several methods to monitor data 

quality.

41 Although New Mexico reported that it verified that data were accurate, it was unsure of 

how it verified this information.
 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 13 
 

 

 

 

 

In the five quarters after the rebate expansion, 12 of 

the 22 States using the carve-in approach invoiced 

manufacturers and collected $1.6 billion in rebates for 

Medicaid MCO drug utilization 

At the time of our survey, 12 of the 22 States using the carve-in approach 

invoiced manufacturers and collected $1.6 billion in rebates for Medicaid 

MCO utilization for the second quarter of 2010 through the second quarter 

of 2011.42, 43 This amount will likely grow because three of these States 

reported that they were waiting for additional rebate payments from prior 

quarters at the time of our request. These 12 States had a total of 

8.8 million beneficiaries enrolled in MCOs at the time of our survey.44 

See Table 3 for the amount of rebates collected in each quarter and 

Appendix B for a list of the 12 States that invoiced manufacturers and the 

total amount of rebates collected by each State. 

Table 3: Amounts That 12 States Invoiced and Collected Between Second Quarter 2010 

and Second Quarter 2011 for Medicaid MCO Rebates 

Rebate Quarter Amount Invoiced Amount Retroactively 

Invoiced 

Amount Collected 

Second quarter 2010 State did not have URAs; 

manufacturer calculated 

invoice amounts 

$116 million $273 million 

Third quarter 2010 State did not have URAs; 

manufacturer calculated 

invoice amounts 

$101 million $317 million 

Fourth quarter 2010 State did not have URAs; 

manufacturer calculated 

invoice amounts 

$110 million $278 million 

First quarter 2011 $390 million* $40 million $413 million 

Second quarter 2011 $396 million* $39 million $337 million 

Total Cannot determine total $406 million $1.6 billion** 

Source: OIG analysis of State survey responses, 2012. 

* Massachusetts was unable to determine the amounts invoiced for MCO rebates; therefore, these amounts are not included in first and 

second quarter 2011 invoice totals. 

** Three States reported that they expect to collect additional rebate payments. 

42 Although the rebate expansion was effective on March 23, 2010, we asked States to provide 

rebate data for the first full quarter (i.e., second-quarter 2010) after that date. 43 Illinois, New York, and Ohio were excluded from this count because they had switched 

from a carve-out to a carve-in approach (Illinois on July 1 and New York and Ohio on 

October 1, 2011). Typically, States invoice manufacturers for rebates 60 days after the close 

of a quarter, meaning that not enough time had passed to enable these States to invoice the 

manufacturers when they completed our survey. 

44 Enrollment figures were approximations provided by each State in late 2011. 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 14 
 

 

 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 15 

As previously mentioned, States could not provide the URAs or exact 

dollar amounts on the rebate invoices sent to manufacturers in 2010.45 

Instead, States provided manufacturers with the drugs’ utilization data and 

relied on them to calculate and pay the amounts of rebates owed for each 

quarter in 2010. In the first and second quarters of 2011, the 12 States had 

invoiced manufacturers for $390 million and $396 million, respectively. 

In addition, 10 of the 12 States retroactively invoiced manufacturers 

$406 million in rebates for the second quarter of 2010 through the second 

quarter of 2011. Retroactive invoices for utilization in 2010 averaged 

$109 million per quarter, but dropped in the first half of 2011 to an 

average of $40 million per quarter (when CMS resumed providing URAs). 

The majority of the 12 States invoiced manufacturers by sending 1 invoice 

for the MCO data and a separate invoice for the FFS data (10 States). Of 

the remaining two States, one sent manufacturers individual invoices for 

each of its four MCOs and a separate invoice for FFS data (a total of five 

separate invoices) and the other sent one invoice that combined all MCO 

and FFS data. 

Additionally, all 12 States reported that they have processes to ensure that 

manufacturers pay the rebate amounts owed for MCO drug utilization. 

The process States used to collect unpaid invoiced amounts that were not 

disputed ranged from sending out prior period adjustments with the 

subsequent quarter’s invoice to taking a multistep approach to collecting 

the payments. For example, Massachusetts sends collection notices, 

produces a report identifying manufacturers with amounts past due, and 

provides details of past due amounts on the quarterly invoices. 

Eleven of the twelve States had $33 million in rebates that 

were uncollected at the time of our survey because of 

unresolved disputes with manufacturers 

The 11 States reported that the disputes with manufacturers involved 

potentially incorrect claim information provided by the Medicaid MCOs 

(e.g., invalid drug codes, incorrect units of measure, incorrect quantities 

listed on the claim), provider reimbursement issues, and manufacturer 

requests for more details about information on the invoices. 

Pennsylvania46 and Georgia accounted for the majority (70 percent) of the 

45 Two of the 12 States reported amounts invoiced in 2010 that were not retroactive. 

46 Pennsylvania included unpaid invoices in its total amount of dollars not collected because 

of unresolved disputes. 
 

 

 

 

$33 million in rebates that were uncollected because of unresolved 

disputes with manufacturers.47, 48 

As of October 1, 2011, 10 of the 22 States using a 

carve-in approach had not invoiced manufacturers 

and collected rebates for Medicaid MCO drug 

utilization 

Ten of the twenty-two States49 that carved in prescription drugs did not 

invoice and collect rebates for Medicaid MCO utilization as of 

October 1, 2011. Combined, these 10 States have 8.3 million Medicaid 

beneficiaries enrolled in MCOs, which is comparable to the enrollment of 

the 12 States that have invoiced and collected rebates for MCO drug 

utilization.50 See Appendix C for a list of the 10 States that did not invoice 

manufacturers and collect rebates. 

Nine of the ten States reported that they intended to begin invoicing 

manufacturers in the fourth quarter of 2011 or the first quarter of 2012, 

with just one State planning to do so by the end of 2012 (approximately 

2 years after the MCO rebate expansion was enacted). 51 However, all of 

the 10 States that had not sent rebate invoices to manufacturers planned to 

make invoice amounts retroactive, in most cases back to March 23, 2010, 

when the related ACA provision became effective. 

Seven of the ten noninvoicing States had collected all the drug 

utilization data needed to invoice manufacturers from all their 

Medicaid MCOs 

Seven of the ten noninvoicing States had collected all the drug utilization 

data necessary to invoice manufacturers for rebates. According to these 

seven States, they had not invoiced because they had to complete 

programming changes to the systems that process MCO claims and 

47 CMS had developed and implemented the Medicaid Drug Rebate Dispute Resolution 

program to address the problem of unpaid and disputed drug rebates. 

48 Massachusetts reported that manufacturers did not owe money for unresolved disputes. 

49 Illinois, New York, and Ohio were excluded from this count because they had switched 

from a carve-out to a carve-in approach (Illinois on July 1 and New York and Ohio on 

October 1, 2011). Typically, States invoice manufacturers for rebates 60 days after the close 

of a quarter, meaning that not enough time had passed to enable these States to invoice the 

manufacturers when they completed our survey. 

50 Enrollment figures were approximations provided by each State in late 2011. 

51 When these 10 States invoice manufacturers, 7 plan to send one invoice for MCO data and 

another for FFS data, 2 plan to send individual invoices for each MCO’s data and another for 

FFS data, and 1 plans to send a single invoice that combines data for all 5 of its MCOs with 

the FFS data. 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 16 
 

 

invoice manufacturers for these claims, were still receiving claims data, or 

had to finalize contractual changes with the States’ rebate contractors. 

Two States (California and West Virginia) that had not collected all 

utilization data from their MCOs52 were waiting to invoice manufacturers 

for rebates after programming changes to accommodate the new invoicing 

process were complete. The District of Columbia could not invoice 

manufacturers because it had not collected any utilization data from its 

MCOs. 

Five States that did not pay for drugs through 

Medicaid MCOs changed the structures of their drug 

programs as a result of the rebate expansion 

The ACA rebate expansion does not directly affect States that carve out 

prescription drugs or that do not contract with Medicaid MCOs. However, 

this rebate expansion prompted three States to switch from a carve-out 

approach to a carve-in approach in mid- to late 2011. According to these 

States, switching to a carve-in approach creates efficiencies by allowing 

them to consolidate care within an MCO and to take advantage of the new 

rebate inclusion. In addition, 2 of the 10 States that carved out 

prescription drugs at the time of our survey (Texas and Utah) reported that 

they have filed legislative changes to carve in at least a portion of their 

MCO utilization as a result of the rebate expansion. The expected 

implementation date for Texas was March 2012 and for Utah was July 

2012.53 

As of October 1, 2011, 15 States did not contract with MCOs to provide 

medical care to beneficiaries. The inclusion of MCOs in the rebate 

agreement has not prompted any of these States to consider contracting 

with MCOs. 

52 Four States (California, the District of Columbia, Nevada, and West Virginia) did not 

collect all the quarterly drug utilization data from their MCOs. Of these States, only Nevada 

invoiced manufacturers using the drug utilization data it had collected from its MCOs. 

53 According to its survey response, Utah filed a waiver to carve in some prescription drugs 

and was waiting for its approval at the time of our survey. 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 17 
 

CONCLUSION AND RECOMMENDATION 

Effective March 23, 2010, section 2501(c) of the ACA expanded the 

Medicaid rebate requirements to include drugs dispensed to beneficiaries 

by a Medicaid MCO. As a result, States contracting with MCOs that carve 

prescription drugs into the MCOs’ fixed payments are now required to 

collect rebates. The rebate expansion has the potential to provide these 

States with a significant source of additional funds. This is evident in the 

fact that the 12 States that collected these rebates received $1.6 billion 

collectively for just over 1 year’s utilization. However, not all eligible 

States had invoiced manufacturers for these rebates—money that these 

States are clearly entitled to collect. 

In addition, the Federal Government is potentially losing a significant 

source of funds as a result of States’ not collecting MCO rebates. Section 

2501 of the ACA increased the rebate amounts manufacturers pay and 

required manufacturers to remit the entire portion of this increase to the 

Federal Government. However, the Federal Government is unable to 

obtain these dollars if the States do not collect rebates. 

Therefore, we recommend that CMS: 

Follow Up With the 10 States That Had Not Collected Rebates 

for Drugs Dispensed to Medicaid MCO Beneficiaries and Take 

Action To Enforce Rebate Collection If Necessary 

Even though nearly 2 years had passed since the March 23, 2010, rebate 

expansion went into effect, 10 States were not meeting the ACA’s 

requirement to invoice and collect rebates from manufacturers for drugs 

dispensed to MCO beneficiaries. At a time when many States are facing 

financial difficulties, this new requirement enables them to pursue the 

collection of these additional rebates and further reduce Medicaid 

spending on prescription drugs. Furthermore, all but one State had 

obtained at least a portion of the MCO utilization data necessary for 

invoicing. Therefore, the factors that hinder rebate invoicing are mostly 

within the States’ control. 

Responses from these 10 States indicated that they intended to invoice 

manufacturers for drugs dispensed to MCO beneficiaries, generally 

starting in early 2012. CMS should follow up with these 10 States to 

verify that they have begun to invoice manufacturers and collect these 

rebates. CMS should also verify that States are invoicing manufacturers 

retroactively to the effective date of this provision (i.e., March 23, 2010). 

During its followup, if CMS finds that any of these 10 States have not sent 

invoices for the entire period since the rebate expansion, it should enforce 

the rebate collection requirements. CMS could consider denying Federal 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 18 
 

matching funds to these States until they comply with the ACA rebate 

requirements. 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 19 
 

 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with our recommendation. CMS noted that it has 

continuously undertaken such actions for all States. In regard to the 

10 States we had identified as not collecting rebates for drugs dispensed to 

Medicaid MCO beneficiaries, CMS conducted further followup and found 

that 2 had taken steps that indicate they are now collecting these rebates. 

CMS believes the remaining eight States will come into compliance, thereby 

negating the need for enforcement actions. 

We did not make any changes to the report based on CMS’s comments. For 

the full text of CMS’s comments, see Appendix D. 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 20 
 

 

 

 

APPENDIX A 

Percentage of Medicaid Managed Care Organizations That Provided Drug Utilization Data to 

States for the Second Quarter of 2011 

State 

Number of Medicaid 

MCOs* in Second 

Quarter 2011 

Percentage That 

Provided Data 

Within 60 Days 

Percentage That 

Provided Data More 

Than 60 Days After 

the Quarter 

Percentage That 

Did Not Provide 

Data 

Arizona 21 100% - -

California 29 17% - 83%1 

District of Columbia 3 - - 100% 

Florida 25 100% - -

Georgia 3 100% - -

Hawaii 5 - 100% -

Kansas 2 100% - -

Kentucky 1 100% - -

Maryland 7 100% - -

Massachusetts 5 100% - -

Michigan 14 100% - -

Minnesota 8 88% 13%2 -

Mississippi 2 100% - -

Nevada 2 100% - -

New Jersey 4 100% - -

New Mexico 7 100% - -

Oregon 15 100% - -

Pennsylvania 7 100% - -

South Carolina 4 100% - -

Virginia 5 100% - -

Washington 7 86% 14% -

West Virginia 3 - 33% 67%3 

Source: Office of Inspector General analysis of State survey responses, 2012. 

* Managed care organizations. 

1 California estimated that 53 percent of the Medicaid population was covered by the MCOs that did not provide the utilization data.
 

2 Totals do not add to 100 percent because of rounding.
 

3 West Virginia estimated that 50 percent of the Medicaid population was covered by the MCOs that did not provide the utilization data. 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 21 
 

 

 

APPENDIX B 

Total Amount of Medicaid Managed Care Organization Rebates That 12 States Using a 

Carve-In Approach Collected From Second Quarter 2010 to Second Quarter 2011 

State 

Approach to Prescription Drug 

Payment in Medicaid MCOs* 

Population Enrolled in 

MCOs 

Total MCO Rebates 

Collected Between Second 

Quarter 2010 and Second 

Quarter 2011 

Arizona Carve-in 1,255,500 $304,922,162 

Georgia Carve-in 1,118,978 $126,146,641 

Kentucky Carve-in 115,000 $56,500,258 

Maryland 

Combination of carve-out and 

carve-in 747,000 $116,987,931 

Massachusetts Carve-in 487,180 $87,195,855 

Michigan 

Combination of carve-out and 

carve-in 1,300,000 $160,529,095 

Minnesota Carve-in 400,000 $01 

Nevada Carve-in 260,0002 $12,203,599 

New Jersey 

Combination of carve-out and 

carve-in 1,004,000 $62,796,646 

Oregon 

Combination of carve-out and 

carve-in 503,000 $35,227,390 

Pennsylvania Carve-in 1,200,000 $590,541,831 

South Carolina Carve-in 442,000 $64,252,200 

Total 8,832,658 $1,617,303,608 

Source: Office of Inspector General analysis of State survey responses, 2012. 

Note: Rebate collection figures were current at the time the States responded to our survey (i.e., late 2011 until January 2012). 

* Managed care organizations. 

1 At the time of our survey, Minnesota had collected $1.1 million in rebates for the week following March 23, 2010, but had not collected
 

rebates for second quarter 2010 and subsequent quarters. However, when we followed up with the States for clarification in January 2012, 

Minnesota had collected an additional $800,000 for the week following March 23, 2010, and $18 million for the second quarter of 2010. 

2 Nevada did not provide its population enrolled in MCOs. We obtained the 2009 population figure (the most recent available) from 

http://www.Medicaid.gov on February 10, 2012.
 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 22 
 

 

APPENDIX C 

Ten States Using a Carve-In Approach That Had Not Invoiced or Collected 

Medicaid Managed Care Organization Rebates as of October 1, 2011

State 

Approach to Prescription Drug 

Payment Population Enrolled 

California Combination of carve-out and carve-in 4,008,547 

District of Columbia Carve-in 145,000 

Florida Carve-in 1,800,000 

Hawaii Carve-in 283,000 

Kansas Carve-in 231,506 

Mississippi Carve-in 51,500 

New Mexico Carve-in 370,000 

Virginia Carve-in 530,000 

Washington Carve-in 685,000 

West Virginia Combination of carve-out and carve-in 166,373

 Total 8,270,926 

 Source: Office of Inspector General analysis of State survey responses, 2012. 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 23 
 

APPENDIX D 

Agency Comments 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 24 
 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 25 
 

ACKNOWLEDGMENTS 

This report was prepared under the direction of Robert A. Vito, Regional 

Inspector General for Evaluation and Inspections in the Philadelphia 

regional office, and David E. Tawes, Regional Inspector General in the 

Baltimore regional office. 

Stephanie Yeager served as the team leader for this study. Other Office of 

Evaluation and Inspections staff from the Philadelphia regional office who 

conducted the study include Eric Merron. Central office staff who 

provided support include Tasha Trusty, Kevin Manley, and Debra Roush. 

Collection of Rebates for Drugs Paid Through Medicaid MCOs (OEI-03-11-00480) 26 
 

 

 

 

 

 

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. 

Office of Investigations 

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 renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

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

enforcement authorities.