Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MEDICAID DRUG REBATE 

DISPUTE RESOLUTION COULD 

BE IMPROVED 

Suzanne Murrin 

Deputy Inspector General for 

Evaluation and Inspections 

August 2014 

OEI-05-11-00580 
 

 

EXECUTIVE SUMMARY: Medicaid Drug Rebate Dispute Resolution Could Be 

Improved 

OEI-05-11-00580 

WHY WE DID THIS STUDY 

The Medicaid drug rebate program is a significant source of savings for States and the Federal 

government. Between 2011 and 2013, the rebate program saved Medicaid an average of 

$17.5 billion annually—an amount that will grow as a result of changes made by the Affordable 

Care Act. Sometimes, however, States and drug manufacturers do not agree on the amount of 

money that manufacturers owe in rebates. In such cases, the manufacturer and the State may 

enter into a dispute. Disputes are a matter of concern because they can lead to inefficient use of 

resources and lost money for States and the Federal Government. 

HOW WE DID THIS STUDY 

We requested data from 31 States to determine the extent to which rebate amounts were 

disputed. We also surveyed 12 States (including 6 from the group of 31) in more depth to 

determine the causes of the most frequent types of disputes and the challenges associated with 

resolving them. We interviewed relevant staff from these States, five manufacturers, and the 

Centers for Medicare & Medicaid Services (CMS) to determine the measures that each has taken 

to prevent and resolve disputes. 

WHAT WE FOUND 

Twenty-nine of thirty-one States that could provide data estimated that only a small percentage 

of rebate dollars were disputed. The 12 selected States indicated that within this small 

percentage, certain types of disputes occur frequently. These States reported that poor-quality 

claims data lead to disputes regarding unit-of-measure conversions and physician-administered 

drugs. In addition, States reported that poor-quality data regarding ineligible drugs lead to 

disputes about drugs purchased at a discount under the 340B Drug Pricing Program and 

terminated drugs. 

The 12 selected States reported that once disputes are initiated, they struggle to provide the data 

necessary to resolve them. States reported difficulties in providing claims data or source data to 

help resolve disputes. Finally, the selected States and manufacturers expressed interest in greater 

CMS involvement in preventing and resolving disputes. 

WHAT WE RECOMMEND 

We recommend that to help prevent and resolve drug rebate disputes, CMS (1) work with States 

to improve the quality of claims data submitted by providers and pharmacies, (2) help States 

obtain better data on ineligible drugs, (3) facilitate States’ submission of standardized claims 

data, and (4) establish a stronger role in dispute resolution. CMS concurred with our 

first three recommendations and partially concurred with our fourth recommendation. 
 

 

TABLE OF CONTENTS 

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

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

Methodology................................................................................................5 

Findings........................................................................................................7 

Twenty-nine of thirty-one States that could provide data estimated 

that only a small percentage of rebate dollars were disputed ..........7 

Poor-quality data is a primary cause of frequent rebate disputes in 

12 selected States .............................................................................7 

Selected States struggle to provide the data necessary to resolve 

disputes ..........................................................................................10 

Selected States and manufacturers are interested in greater CMS 

involvement in preventing and resolving disputes.........................11
 

Conclusion and Recommendations ............................................................14 

Agency Comments and Office of Inspector General Response .....16 

Appendixes ................................................................................................18 

A: Detailed Methodology .............................................................18 

B: Agency Comments ...................................................................20 

Acknowledgments......................................................................................23 
 

 

 

OBJECTIVES 

To determine: 

1.	 the extent to which rebates are disputed under the Medicaid drug 

rebate program, 

2.	 the causes of frequently occurring types of disputes, 

3.	 challenges that States face in resolving disputes, 

4.	 the measures that States and drug manufacturers believe will help 

prevent or resolve disputes. 

BACKGROUND 

The Medicaid drug rebate program is a significant source of savings for 

States and the Federal government. Between 2011 and 2013, the rebate 

program saved Medicaid an average of $17.5 billion annually. This 

amount is likely to grow due to changes made by the Affordable Care Act 

(ACA). 

Drug manufacturers (hereinafter referred to as manufacturers) may dispute 

the number of prescription drug units for which States are requesting 

rebates. Disputes are a matter of concern because they can lead to 

inefficient use of resources and lost money for States and the Federal 

Government. In some cases, States and manufacturers spend significant 

time investigating and addressing disputes. In addition, States may not be 

receiving all of the rebates they are owed because of vulnerabilities in the 

dispute-resolution process. Previous Office of Inspector General (OIG) 

reports have found that some States were not resolving disputes in a timely 

manner, potentially leading to a loss of rebate revenue.1 

Medicaid Drug Rebate Program 

Congress created the Medicaid drug rebate program to reduce State and 

Federal Medicaid expenditures for prescription drugs.2 Manufacturers of 

covered outpatient drugs (i.e., rebate-eligible drugs) are generally required 

1

 OIG, Multistate Review of Medicaid Drug Rebate Programs, A-06-03-00048, 

July 2005; OIG, Nationwide Rollup Report for Medicaid Drug Rebate Collections, 

A-06-10-00011, August 2011. 

2 The Omnibus Budget Reconciliation Act of 1990, § 4401, codified at 42 U.S.C. 

§ 1396r-8. Social Security Act § 1927. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 1 
 

 

 

 

 

to enter into rebate agreements with the Secretary of Health and Human 

Services and pay quarterly rebates to States.3 

Most drugs covered under Medicaid are self-administered products (e.g., 

tablets) dispensed by pharmacies. However, Medicaid also covers 

physician-administered drugs, which include both injectable and 

noninjectable drugs that are typically administered by medical 

professionals in physicians’ offices, clinics, or hospitals.4 

Medicaid Drug Rebate Process 

Rebates are calculated using two kinds of data: (1) pricing data submitted 

by manufacturers and (2) utilization data (i.e., the total number of 

rebate-eligible units for each drug) compiled by States.5 Each quarter, 

manufacturers send pricing data to the Centers for Medicare & Medicaid 

Services (CMS), which then calculates an unofficial unit rebate amount 

(URA). CMS makes a URA for each national drug code (NDC) available 

to States in the Drug Data Reporting (DDR) system for Medicaid.6, 7 Each 

State determines the rebate amount that a manufacturer owes by 

multiplying the URA for each of the manufacturer’s NDCs by the 

corresponding number of rebate-eligible units. Manufacturers are 

ultimately responsible for calculating an official URA and paying rebates 

to States. 

Rebate collection for physician-administered drugs. In contrast to drugs 

dispensed by pharmacies, which are billed for using NDCs, 

physician-administered drugs are typically billed for using Healthcare 

Common Procedure Coding System (HCPCS) codes.8 Unlike NDCs, 

HCPCS codes do not identify the manufacturer responsible for paying a 

rebate. To assist States in collecting rebates for physician-administered 

drugs, the DRA essentially required the States to provide for the gathering 

of data (including NDCs) necessary to collect rebates for all single-source 

3

 Generally speaking, to be eligible to receive Federal payment for covered outpatient 

drugs provided under Medicaid, manufacturers must enter into rebate agreements and pay 

rebates to the State Medicaid programs. Sections 1927(a)(1) and (b)(1) of the Social 

Security Act . 

4

 See, e.g., §§ 1927(k)(2) and (a)(7) of the Social Security Act (as added by the Deficit 

Reduction Act of 2005 (DRA), P.L. No. 109-171). 

5

 See, generally, Social Security Act §§ 1927(b)(3)(A) and 1927(c)(1). 

6

 An NDC is an 11-digit identifier for prescription drugs that represents a specific 

manufacturer, product, and package size. 7

 The DDR is a Web-based application for all drug data collection. Manufacturers must 

submit information on their drugs to the DDR. States can request access to view select 

Medicaid drug rebate data. 

8

 A HCPCS code identifies the drug’s name, route of administration, and dosage size. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 2 
 

 

 

 

 

 

 

physician-administered drugs and the 20 multiple-source 

physician-administered drugs with the highest dollar volume.9 

Rebate exception for 340B-purchased drugs. Drugs purchased through the 

340B Drug Pricing Program (340B program) are not subject to rebates 

under the Medicaid drug rebate program. The 340B program requires 

manufacturers to sell covered outpatient drugs to eligible health care 

organizations, known as covered entities, at significantly reduced prices.10 

Drugs purchased under the 340B program (340B-purchased drugs) are not 

subject to Medicaid rebates because to do so would subject manufacturers 

to a duplicate discount on these drugs.11 

However, covered entities may choose to purchase drugs outside of the 

340B program for their Medicaid patients. States may invoice 

manufacturers for rebates for such drugs. 

The Medicaid Exclusion File, maintained by the Health Resources and 

Services Administration (HRSA), indicates whether covered entities 

dispense 340B-purchased drugs to their Medicaid patients. States use this 

information to exclude 340B-purchased drugs from the invoices they use 

to collect rebates. 

Drug Rebate Disputes 

When a manufacturer, in good faith, does not believe that a State’s 

utilization data for a particular NDC accurately represent the total number 

of rebate-eligible units, the manufacturer may dispute the invoiced 

amount.12 To initiate a rebate dispute, the manufacturer communicates the 

number of units for each NDC that it is disputing (i.e., the number of units 

that it believes not to be rebate-eligible) to the State and indicates the 

reason it believes this number is incorrect. When a manufacturer initiates 

a dispute, it can withhold payment only for the disputed numbers of units; 

for all nondisputed numbers of units, the manufacturer is expected to pay 

rebates in a timely manner. 

Manufacturers may initiate disputes at any point in the process. In fact, 

some manufacturers review old data and initiate disputes on previously 

9

 Section 1927(a)(7) of the Social Security Act (as added by the DRA, P.L. No. 109-171). 

10 See http://www.hrsa.gov/opa/index.html. The 340B program was established by the 

Veterans Health Care Act of 1992, P.L. No. 102-585 § 602 and codifed at 42 U.S.C.
 

§§ 256b. 

11 42 U.S.C. § 256b(a)(5). See also 58 Fed. Reg. 27293 (May 7, 1993). 12 CMS, Sample Drug Rebate Agreement, § V(b). Accessed at http://www.medicaid.gov/
 

Medicaid-CHIP-Program-Information/By-Topics/Benefits/Prescription-Drugs/
 

Downloads/SampleRebateAgreement.pdf on April 23, 2014. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 3 
 

 

 

 

 

 

 

 

paid rebates.13 As of fiscal year (FY) 2014, there was no Federal 

requirement establishing a time limit to prevent manufacturers from 

initiating disputes on claims that were paid years ago. However, the 

President’s budget for FY 2015 includes a proposal to limit to 12 quarters 

the timeframe for which manufacturers can dispute drug rebate amounts. 

Resolving Drug Rebate Disputes 

To resolve a dispute, States and manufacturers must come to an agreement 

on the disputed units. If States can prove to manufacturers’ satisfaction 

that the utilization data they invoiced was correct, manufacturers should 

pay rebates for any disputed units.14 If States find errors in the utilization 

data that they invoiced, they should adjust the number of units 

accordingly.15 If States cannot provide evidence to manufacturers, it is 

possible that the dispute will remain unresolved and manufacturers will 

not pay rebates for the disputed units. 

No time limit exists for resolving disputes. In fact, previous OIG reports 

indicated that States may have disputes dating back many years.16 

Although the rebate agreement says that States and manufacturers should 

strive to resolve disputes within 60 days, this does not always happen.17 

States have indicated that they generally try to resolve disputes within 

1 year of paying providers’ claims for disputed units. 

CMS involvement in dispute resolution. CMS has a voluntary 

dispute-resolution program that provides facilitation and mediation 

assistance to States and manufacturers during rebate disputes. CMS 

previously sponsored conferences at which manufacturers and States could 

meet to resolve disputes, but has not done so since 2009. States can 

contact the regional CMS staff member assigned to dispute resolution or 

submit questions by email. 

13 States can also review old data and previous invoices. If a State finds that it was 

underpaid because a drug was invoiced using the wrong type of unit, resulting in an 

incorrect number of units, the State can request an adjustment from the manufacturer. 14 CMS, Best Practices for States, § II6, and Best Practices for Drug Manufacturers, 

§ II5. Accessed at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/ByTopics/Benefits/Prescription-Drugs/Medicaid-Drug-Rebate-Program-DisputeResolution.html on April 29, 2014. 15 Ibid. 

16 OIG, Review of the Medicaid Drug Rebate Program in California, A-09-03-00038, 

December 2003; OIG, Follow-Up Review of the Medicaid Drug Rebate Program in
 

Florida, A-04-07-00022, April 2008; OIG, Review of the Medicaid Drug Rebate 

Program in Illinois, A-05-08-00011, July 2008; OIG, Follow-up Review of the Medicaid 

Drug Rebate Program in Michigan, A-05-08-00014, July 2008. 17 CMS, Sample Drug Rebate Agreement, § V(c). See footnote 12 for URL. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 4 
 

 

 

 

In addition to having the voluntary dispute-resolution program, CMS has 

issued documents to assist States and manufacturers with dispute 

resolution. Among these documents are several “program releases” on the 

topic, as well as documents with best practices for resolving disputes. 

Related Reports 

Previous OIG reports have indicated concerns about States’ ability to 

properly invoice manufacturers, resolve disputes, and collect all rebates 

owed to them. In 2005, OIG found that many States lacked adequate 

assurance that all drug rebates owed to them were properly recorded or 

collected, and that CMS did not have reliable billing and collection 

information to properly monitor the drug rebate program.18 Specifically, 

this study found that 15 States had inadequate processes for dispute 

resolution and rebate collection.19 A 2011 followup study found that 

6 States (including 2 of the original 15) had inadequate processes for 

dispute resolution and rebate collection.20 

METHODOLOGY 

This review presents information collected from selected States and 

manufacturers related to preventing and resolving disputes. In addition, 

we collected information from CMS on its role in helping States prevent 

and resolve disputes. See Appendix A for a detailed methodology. 

Sample 

State selection. To determine the extent to which rebates are disputed 

under the Medicaid drug rebate program, we collected data from 31 States. 

These States indicated that they had the capability to provide all of the 

data that the OIG planned to request. 

Initially, we surveyed all States and the District of Columbia (hereinafter 

referred to as States) about their ability to provide data such as the amount 

of money ever in dispute, the amount of money currently in dispute, and 

the total amount of money invoiced since the rebate program began. 

Thirty-one States indicated that they could provide all of the requested 

information, and 20 States indicated that they could not. 

To address the other evaluation objectives, we purposively selected a 

sample of 12 States for more in-depth review. We selected 6 States from 

18 OIG, Multistate Review of Medicaid Drug Rebate Programs, A-06-03-00048, 

July 2005. 

19 Ibid. 

20 OIG, Nationwide Rollup Report for Medicaid Drug Rebate Collections, 

A-06-10-00011, August 2011. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 5 
 

 

 

 

the 31 States that indicated they could provide the requested data and 

6 States from the 20 States that indicated they could not. We purposively 

selected States this way to include States with different levels of 

sophistication in their dispute-tracking systems, so as to represent 

variation among States in their capacity to track and address disputes. In 

addition, to maximize our coverage of Federal funds invested in the rebate 

program, we selected these 12 States from those with the highest drug 

expenditures. 

Manufacturer selection. To determine which manufacturers to select, we 

used information provided from all States as to which manufacturers 

worked more cooperatively to resolve disputes in a timely manner and 

which did not. We purposively selected manufacturers using these criteria 

to obtain a broad perspective of how manufacturers handle dispute 

resolution. The five manufacturers we interviewed included two that 

States most often reported as more cooperative and three that States most 

often reported as less cooperative. 

Data Collection 

Data request. In May 2013, we sent a data request to the 31 States that 

indicated they could provide OIG’s requested data. We received 

responses from all 31 States. The data request focused on quantifying the 

amount of money that States had in dispute at the time of our data request. 

State survey and structured interviews. Also in May 2013, we sent a 

survey to the 12 selected States. We received survey responses from all 

12 States. In June 2013, we conducted followup structured interviews 

with each of these States.21 

Limitations 

The results of this report cannot be extrapolated nationally (i.e., across all 

States), nor can they be extrapolated across all manufacturers. 

All data were self-reported by States and manufacturers and represent their 

perspectives on Medicaid drug disputes. 

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. 

21 In some cases, States use a contractor for drug rebate functions. Some States invited 

their contractors to attend the interviews. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 6 
 

 

 

 

 

FINDINGS 

Twenty-nine of thirty-one States that could provide 

data estimated that only a small percentage of rebate 

dollars were disputed 

Twenty-nine of thirty-one States that could provide data estimated that, of 

the amount of money they invoiced for rebates in calendar year 

(CY) 2012, 6 percent or less was in dispute. Specifically, 24 of these 

29 States reported 2 percent or less of the money from CY 2012 rebate 

invoices in dispute. Of the two States that reported that more than 

6 percent was in dispute, one reported that 14 percent of the money it 

invoiced was in dispute, and the other reported 25 percent.22 

While the percentage of money in dispute appears to be small, it still 

represents millions of dollars. Six of the thirty-one States provided dollar 

amounts for their estimated percentages of money in dispute from 

CY 2012 rebate invoices; these disputed amounts totaled $5.2 million. 

This represents 2 percent or less of the money invoiced in these States. 

The remaining 25 States could not provide estimates that distinguished 

between invoice amounts that were disputed and those that were unpaid 

for other reasons. 

Because disputes can be resolved in favor of the State or manufacturer, the 

entirety of the estimated money in dispute is likely not owed to the State 

or Federal government. However, the entirety of the money represents 

unresolved disputes that parties are expending resources to monitor and 

resolve. 

Poor-quality data is a primary cause of frequent rebate 

disputes in 12 selected States 

Within the small percentage of money in dispute, certain types of disputes 

occur frequently. These disputes are typically associated with (1) drugs 

with complicated unit-of-measure conversions, (2) physician-administered 

drugs, (3) 340B-purchased drugs, and (4) terminated drugs.23 

22 The State that reported the figure of 14 percent indicated that this percentage was 

associated with retroactive rebate invoices for drugs dispensed by Medicaid managed 

care organizations. These invoices dated back to 2010, and the State found that disputes 

were higher for those retroactive rebate invoices. The State that reported a figure of 

25 percent indicated that only 2 percent was for mandated Medicaid rebates. The 

remaining 23 percent in dispute was for additional rebates that the State negotiated with 

manufacturers. 

23 A terminated drug is a drug that is no longer manufactured. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 7 
 

 

States struggle with preventing these disputes because of poor-quality 

data. States reported receiving poor-quality claims data from providers 

and pharmacies. In addition, States reported challenges in obtaining 

accurate data from other sources to remove drugs that are ineligible for 

rebates. See Table 1 for the relationship between the type of dispute and 

the related data problems that States reported. 

Table 1: Causes of Frequent Types of Rebate Disputes 

Type of Dispute Cause Reported by States Number of States 

Unit-of-measure conversions Poor-quality claims data from 

providers and pharmacies 

10 

Physician-administered drugs 

340B-purchased drugs Poor-quality data as to which 

drugs are ineligible for rebates 

7 

Terminated drugs 

Source: OIG analysis of survey responses, 2013. 

Ten of the twelve selected States reported that poor-quality 

claims data lead to disputes regarding unit-of-measure 

conversions and physician-administered drugs 

Ten of the twelve selected States reported that poor-quality Medicaid 

claims data from providers and pharmacies can result in disputes regarding 

drugs with complex unit-of-measure conversions (i.e., drugs delivered as 

liquids, creams, or aerosols) and physician-administered drugs. The 

five selected manufacturers also said that these types of disputes were 

frequent. 

Unit-of-measure conversions. Nine of the ten States reported that one way 

they receive inaccurate claims data is when providers or pharmacies 

submit the wrong number of units. Three of these ten States reported that 

physician-administered drugs, which are typically liquid injectable drugs, 

are especially prone to unit-of-measure mistakes. The five selected 

manufacturers also indicated that unit-of-measure issues continue to cause 

frequent disputes. 

Determining the correct units to bill is not always straightforward, 

particularly for drugs in nontablet form (e.g., liquid-filled syringes or 

creams). For example, 1 dose of albumin is 12.5 grams per 240 milliliters. 

Solutions, injectable liquids, and drugs measured by volume should be 

billed as the number of milliliters, not grams. With such drugs, the 

provider or pharmacy would have to calculate the correct number of 

milliliters and include that number of units on the claim. For example, if 

2 doses of albumin were administered, the units to be billed to Medicaid 

would be 480 units, not 25 units. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 8 
 

 

Physician-administered drugs. Three of the ten States reported that 

another way they receive inaccurate data is when providers include the 

wrong NDC on claims for physician-administered drugs. One State noted 

that it sometimes receives NDCs for a completely different drug or for a 

different drug within the same “product line.” In some cases, the HCPCS 

codes that providers use to bill for physician-administered drugs cover 

many NDCs representing different manufacturers. 

States have limited ability to determine whether the NDC listed on the 

claim from the provider is correct. In the case of an NDC for a completely 

different drug, States may be able to catch this error if they have access to 

a “crosswalk” that indicates which NDCs are linked to the HCPCS code 

on the claim. In the case of an NDC for a different drug within the same 

product line—i.e., one of the NDCs associated with a given HCPCS 

code—there is little States can do to determine whether the provider billed 

for the correct NDC, short of requesting medical records or talking 

directly to the provider. Because of these limitations, States may invoice 

manufacturers for the wrong drug, leading to disputes. 

Seven of the twelve selected States reported that poor-quality 

data regarding ineligible drugs lead to disputes associated 

with 340B-purchased drugs and terminated drugs 

Seven of the twelve selected States reported that the data they need to 

exclude ineligible drugs from rebate invoices are of poor quality. This 

occurs primarily with 340B-purchased drugs and terminated drugs. 

340B-purchased drugs. States reported that it can be difficult to ensure 

that all drugs that receive an upfront discount under the 340B program are 

excluded from the rebate invoice. Four of the twelve selected States 

reported that disputes related to 340B-purchased drugs occurred 

frequently. Four of the five selected manufacturers agreed. 

States reported problems with the Medicaid Exclusion File, the official list 

of covered entities that dispense 340B-purchased drugs to Medicaid 

patients. Specifically, States noted that the file sometimes was not up to 

date or was inaccurate. Without accurate data on which covered entities 

dispense 340B-purchased drugs to Medicaid patients, States cannot 

effectively program their systems to identify claims for 340B-purchased 

drugs and exclude them from rebate invoices. 

Terminated drugs. Three States reported that another way that ineligible 

drugs are invoiced for rebates is when States lack updated or complete 

information needed to remove terminated drugs from rebate invoices. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 9 
 

 

 

 

 

One State noted that it receives updated information about terminations 

from CMS only on a quarterly basis.24 Another State reported that the 

information from CMS may not indicate all terminated drugs because 

manufacturers do not always report drug terminations in a timely way. 

This State reported that some manufacturers do not report a drug’s 

termination until years after the fact. 

Selected States Struggle To Provide the Data 

Necessary To Resolve Disputes 

All 12 selected States reported that they struggle to provide data needed to 

resolve disputes. First, States had difficulties providing claims data to 

manufacturers. Second, when claims data are insufficient to resolve 

disputes, States struggle to provide source data, particularly if the disputes 

are about old claims.25 

Four of the twelve selected States reported difficulties in 

providing claims data to manufacturers 

Four of the twelve selected States reported that it was difficult to provide 

claims data to manufacturers. States and manufacturers agreed that, 

despite potential inaccuracies with claims data, reviewing these data is a 

helpful first step in pinpointing the cause of disagreement. 

States reported that providing claims data is time consuming, especially if 

records are on paper or require manual review. One State reported that it 

has a spreadsheet with multiple pages and thousands of lines to review 

prior to sending claims data to manufacturers. Another mentioned that it 

had to review claims data to remove confidential beneficiary information 

before sharing with manufacturers. 

In addition, all five selected manufacturers reported problems in 

efficiently using claims data received from States, which delays dispute 

resolution. For example, two manufacturers reported that necessary 

information, such as provider number or provider name, is missing from 

some States’ claims data. As a result, manufacturers must go back to the 

States for the additional information, which delays resolution. 

Additionally, all five manufacturers reported that receiving 

nonstandardized data from States is a problem. Manufacturers must 

reformat nonstandardized data, which also delays resolution. 

24 CMS staff reported that if they choose, all States have the ability to access the DDR 

system, which provides real-time drug status. 

25 Source data is documentation of the drug provided, maintained in the records of
 

providers and pharmacies.
 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 10 
 

 

 

 

Four of the twelve selected States reported difficulties in 

obtaining source data when claims data are insufficient to 

resolve disputes 

Four of the twelve selected States reported difficulties in obtaining source 

data to resolve disputes. States need source data when manufacturers 

suspect that claims data are inaccurate and request further proof to resolve 

disputes. 

However, source data can be challenging for States to obtain because it 

can be hard to reach providers and pharmacies. For example, three States 

reported that when they contact a provider or pharmacy, the person they 

reach may be an administrative or billing staff member who does not 

know specifics as to what drugs were used or why they were used. Such 

an individual would be able only to provide information listed on a 

medical record, and would not be able to tell if there was an error in a 

record. Further, because of providers’ clinical responsibilities, reaching 

the provider can be difficult or time consuming. 

All of the 12 selected States reported difficulties in obtaining 

data for disputes about old claims 

The 12 selected States reported difficulties in obtaining information for 

disputes about old claims. Two States reported that they have trouble 

reviewing their own claims data before a certain year because system 

upgrades have made accessing old data difficult or impossible. 

Additionally, States reported that they have trouble verifying the accuracy 

of older claims with providers or pharmacies. Providers or pharmacies 

may no longer be enrolled in Medicaid when States attempt to contact 

them, in which case States cannot compel them to provide the source data 

needed to resolve the dispute. Even when States are able to contact 

providers or pharmacies, data needed may be past the statute of limitations 

for medical records retention and therefore unavailable.26 

Selected States and Manufacturers Are Interested In 

Greater CMS Involvement in Preventing and Resolving 

Disputes 

According to the 12 selected States and 5 selected manufacturers, greater 

CMS involvement in preventing and resolving disputes could be helpful. 

States reported that they want more general involvement from CMS in 

both preventing and resolving disputes. 

26 Among the 12 selected States, the statute of limitations for medical records retention 

ranged between 3 and 10 years. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 11 
 

 

All 12 selected States would like help from CMS in preventing 

disputes 

All 12 selected States wanted help from CMS in preventing disputes. 

Five of them suggested additional guidance that CMS could provide. 

Nine of them had specific suggestions as to how CMS could help with 

disputes related to drugs that are ineligible for rebates. 

Five of the twelve selected States suggested that additional guidance from 

CMS could help prevent a variety of disputes. For example, one State 

requested that CMS issue guidance defining when it is acceptable for a 

manufacturer to initiate a dispute. The State noted that there is no 

disincentive for a manufacturer to initiate a dispute, because the burden is 

on the State to prove the dispute is not valid. This State recounted 

difficulties with a manufacturer that disputed any prescription dosage over 

the average dose, even for doses within the manufacturer’s own 

recommended dosage range (listed on the drug’s package insert). Another 

State also faced this problem and suggested that to avoid this type of 

dispute, CMS should establish a range of reasonable values to be used 

when manufacturers review invoices. 

Nine States also made suggestions as to how CMS could assist with 

frequent disputes related to drugs that are ineligible for rebates. States 

said that to help them exclude 340B-purchased drugs, CMS should 

(1) work with HRSA to improve the accuracy of the Medicaid Exclusion 

File and (2) encourage States to require pharmacies to identify 

340B-purchased drugs on claims. States said that to help them exclude 

terminated drugs, CMS should (1) require manufacturers to report 

termination dates in a timely manner and (2) update termination 

information weekly, not quarterly. 

Eleven of the twelve selected States suggested that active 

CMS involvement could help resolve disputes 

States suggested that greater CMS involvement could assist in dispute 

resolution. States noted that CMS is the legal party to the rebate 

agreement with manufacturers and has more influence over manufacturers 

than they do.27 For example, eight States reported that when CMS became 

involved, formerly nonresponsive manufacturers became responsive. 

Four States suggested that greater CMS involvement would increase 

efficiency for all parties. For example, if multiple States have the same 

27 Technically, the Secretary is the legal party to the rebate agreement with 

manufacturers. However, CMS has been designated by the Secretary to administer the 

Medicaid drug rebate program. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 12 
 

 

 

type of dispute with the same manufacturer, CMS could facilitate a single 

conversation between the manufacturer and the group of States, 

eliminating the need for multiple separate conversations. 

Additionally, three States noted that the past CMS-sponsored conferences 

on dispute resolution were helpful and two of the three specifically 

suggested that CMS resume these conferences. One of the three States 

reported that these conferences were helpful because (1) a State could talk 

to many manufacturers over the course of the conference, and (2) the 

conferences helped reveal to CMS and manufacturers that multiple States 

were having the same problems. Two manufacturers agreed that previous 

CMS-sponsored meetings had been helpful. 

Two of the twelve selected States and all five of the selected 

manufacturers suggested that CMS could improve dispute 

resolution by helping States provide standardized data 

Two of the twelve selected States and all five of the selected 

manufacturers suggested that to improve dispute resolution, CMS could 

help States resolve their problems in providing claims data. First, States 

and manufacturers said that they would like help from CMS in facilitating 

the electronic transmission of claims data—for example, by developing a 

central repository for States and manufacturers to use to transmit claims 

data. They suggested that a central repository in one format would reduce 

the time it takes to request and reformat data from States. Second, 

manufacturers would like CMS to encourage that claims data be 

standardized. Some suggested that CMS could specify what data elements 

should be provided and require that the data be in a universal format. 

Nine of the twelve selected States suggested that CMS 

establish a statute of limitations for initiating disputes 

Nine states suggested that CMS could minimize disputes that are 

challenging to resolve by establishing a statute of limitations regarding 

manufacturers’ ability to initiate a dispute (e.g., manufacturers could not 

open a dispute more than 3 years after an invoice was submitted). This 

would increase the likelihood that States would have access to the data 

needed to verify the accuracy of the claims data. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 13 
 

 

 

CONCLUSION AND RECOMMENDATIONS 

Within the small percentage of rebate money in dispute, certain types of 

disputes occur frequently in the 12 selected States. These States struggle 

with preventing these disputes because of poor-quality data, including 

claims data from providers and pharmacies and data needed to effectively 

remove drugs that are ineligible for rebates. 

States and manufacturers reported that disputes can be difficult to resolve. 

To resolve a dispute, a State must prove that a rebate is owed for the 

disputed number of units. This typically involves providing claims data to 

manufacturers and may also require obtaining source data from providers 

and pharmacies. Both activities are time consuming for States and are 

particularly difficult for disputes about old claims. 

We recommend that to help prevent and resolve drug rebate disputes, 

CMS: 

Work with States to improve the quality of claims data 

submitted by providers and pharmacies 

CMS should work with States to improve data that States receive from 

providers and pharmacies. CMS should work with States to educate 

providers and pharmacies on (1) how to accurately calculate units on 

claims for drugs with complicated unit-of-measure conversions and (2) the 

importance of submitting the correct NDC on claims for 

physician-administered drugs. Improving the quality of claims data will 

increase the accuracy of rebate invoices that States send to manufacturers, 

thus reducing disputes. 

Help States obtain better data on ineligible drugs 

CMS should help States obtain accurate and up-to-date data on ineligible 

drugs. CMS should inform States of the option for them to identify, at the 

claim level, 340B-purchased drugs that are ineligible for rebates. States 

can instruct covered entities to use the industry-accepted standard to 

identify Medicaid claims for 340B-purchased drugs. However, when OIG 

asked States about this method in 2010, only nine States reported that they 

instruct covered entities to identify 340B-purchased drugs on Medicaid 

claims.28 

CMS should also work to ensure that data about terminated drugs are 

accurate and up to date. CMS could accomplish this by working with 

28 OIG, State Medicaid Policies and Oversight Activities Related to 340B-Purchased 

Drugs, OEI-05-09-00321, June 2011. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 14 
 

 

 

 

States to learn which manufacturers may be delayed in submitting 

termination data. Then, CMS could conduct one-one-one outreach to 

these manufacturers or send a targeted reminder to these manufacturers 

about their responsibility to report termination dates in a timely manner. 

Facilitate States’ submission of standardized claims data 

Although it is not mandatory for States to submit claims data to 

manufacturers, some States do so to help resolve disputes and clarify 

manufacturers’ questions. To make this data exchange more useful and 

efficient, CMS could work with States and manufacturers to develop a 

core set of variables that States could transmit to manufacturers. 

Additionally, CMS could work with States and manufacturers to develop a 

recommended standardized format for this core set of variables. 

Establish a stronger role in dispute resolution 

CMS, as the delegate of the Secretary (who is the legal party to the rebate 

agreement), should be more engaged in dispute resolution. CMS 

involvement could help States and manufacturers reach agreement more 

quickly, enforce agreements, or bring multiple issues to the forefront at 

once. 

CMS should provide more opportunities for States and manufacturers to 

interact and work on dispute resolution. For example, CMS could 

reestablish the CMS-sponsored conferences on dispute resolution. 

Alternatively, CMS could consider regional conferences, or the agency 

could host a videoconference or teleconference with a different 

manufacturer each quarter. 

In addition, CMS should provide additional opportunities for States to 

collaborate on dispute resolution. CMS could do this by creating an 

online forum for States to obtain technical assistance, either from CMS or 

from each other. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 15 
 

 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with our first three recommendations and partially 

concurred with our fourth recommendation. CMS described ongoing 

activities in support of our recommendations, and it listed topics for which 

it is considering issuing additional guidance. OIG acknowledges CMS’s 

planned activities and encourages CMS to take the additional steps 

necessary to address our recommendations. 

For the first recommendation, CMS stated that it will consider issuing 

additional guidance to States and manufacturers about accurately 

calculating units on claims for drugs with complicated unit-of-measure 

conversions and about the importance of submitting the correct NDC on 

claims for physician-administered drugs. OIG encourages CMS to issue 

this guidance and suggests that CMS guidance to States also address 

improving the quality of Medicaid claims data submitted by providers and 

pharmacies. 

For the second recommendation, CMS addressed ineligible 

340B-purchased drugs and terminated drugs. For 340B-purchased drugs, 

CMS indicated that it is working with HRSA regarding guidance on such 

drugs. OIG encourages CMS to continue working with HRSA to finalize 

the guidance and ensure that the guidance addresses how to flag claims for 

340B-purchased drugs. Regarding terminated drugs, CMS reiterated that 

States can view current drug data in the Drug Data Reporting (DDR) 

system for Medicaid and indicated that it has added a new field for 

identifying when a termination date was reported. CMS also indicated 

that it is considering issuing additional guidance to manufacturers about 

the need to provide accurate information to the DDR regarding a drug’s 

termination date. OIG encourages CMS to take the steps necessary to 

issue this guidance. 

For the third recommendation, CMS stated that it will offer technical 

assistance to States that require help in identifying methods to improve the 

quality of claims data, and that it will consider additional guidance to 

States on best practices for submitting claims data. The actions to which 

CMS commits are excellent steps to respond to our first recommendation, 

and we encourage CMS to implement them. However, we wish to clarify 

that the third OIG recommendation refers to the claims data that States 

submit to manufacturers to help resolve rebate disputes, not the claims 

data that providers and pharmacies send to States to be reimbursed for 

dispensing drugs to Medicaid patients. To respond to the third 

recommendation, CMS should work with States to develop a standard set 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 16 
 

 

of variables that States could transmit to manufacturers to help resolve 

disputes more efficiently. 

For the fourth recommendation, CMS indicated that it would take some 

actions to reinforce dispute resolution, but it did not agree to take a more 

active role. CMS indicated that it plans to issue dispute-resolution 

guidance to reiterate best practices both for States and manufacturers. 

CMS also indicated that its staff, including regional office coordinators of 

the dispute resolution program, will continue to respond to State and 

manufacturer inquiries. These efforts will be helpful and OIG encourages 

them, but we continue to believe that disputes could be resolved more 

efficiently and quickly if CMS took a more active role. For example, 

CMS could identify areas of common concern and attempt to resolve 

them. OIG appreciates CMS’s resource constraints and urges CMS to 

consider low-cost solutions for involvement, such as videoconferences or 

teleconferences, for a more active role in dispute resolution. 

We did not make any changes to the report as a result of CMS’s 

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

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APPENDIX A 

Detailed Methodology 

Sample 

State selection. The 31 States indicating that they could fully respond to 

OIG’s data request were Alabama, Arkansas, Colorado, Florida, Georgia, 

Hawaii, Idaho, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, 

Massachusetts, Mississippi, Montana, Nevada, New Jersey, New Mexico, 

New York, Ohio, Oregon, South Dakota, Texas, Utah, Vermont, Virginia, 

Washington, West Virginia, Wisconsin, and Wyoming. 

The 12 States we selected for more in-depth review were California, 

Florida, Indiana, Illinois, Louisiana, Michigan, Missouri, New York, 

North Carolina, Ohio, Tennessee, and Texas.29 Together, these States 

represented 68 percent of total Medicaid drug expenditures in FY 2011. 

To determine States’ drug expenditures, we analyzed the data that States 

report to CMS on a quarterly basis.30 We obtained these data from CMS’s 

Medicaid Budget and Expenditure System for each State in FY 2011. 

Manufacturer selection. We purposively selected seven manufacturers to 

include in our review. We selected three manufacturers that States most 

often reported as more cooperative and three manufacturers that States 

most often reported as less cooperative. We also selected one 

manufacturer that an equal number of States reported as more cooperative 

and less cooperative. After selecting the sample, we excluded 

two manufacturers because of ongoing OIG investigations. The final 

five manufacturers included two that States most often reported as more 

cooperative and three that States most often reported as less cooperative. 

Data Collection 

Data request. Specifically, we asked States to provide the amount of 

money in dispute for rebates invoiced in CY 2012 and to determine the 

percentage that this represented from all money invoiced for rebates for 

the same period. We asked States to include (if possible) national and 

supplemental rebates and to exclude uncollected money resulting from 

URA changes. 

29 The sample of 12 States included 6 States (Florida, Indiana, Louisiana, New York, 

Ohio, and Texas) that were in the group of 31 States and 6 States (California, Illinois, 

Michigan, Missouri, North Carolina, and Tennessee) that were not. 30 States report these data using Form CMS-64, Quarterly Expense Report. This form 

tracks expenditures for which States are entitled to Federal reimbursement and the share 

of rebates that States must remit to the Federal government. 

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Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 19 

State survey and structured interviews. The survey focused on the types 

of disputes that States receive from manufacturers and how States resolve 

disputes. Specifically, we asked States about the types of disputes that 

occurred frequently, what they believed caused those disputes, the 

methods they use to resolve disputes, suggestions they had for changes to 

the rebate program that would enhance their ability to prevent and resolve 

disputes, and about CMS’s involvement in the dispute-resolution process. 

In the followup interviews, we asked States to clarify their responses to 

the survey and to provide additional context about their responses. 

Primarily, we asked each State to provide more information about the 

reasons for disputes in its State and for more detailed descriptions of its 

dispute-resolution methods. 

Structured interviews with selected manufacturers. In June 2013, we also 

conducted structured interviews with the five selected manufacturers. We 

asked them about the reasons they dispute rebate invoices, the steps they 

take to prevent and resolve disputes, and the factors that facilitate or 

hinder dispute resolution. 

Structured interview with CMS. In July 2013, we also conducted a 

structured interview with the CMS staff responsible for the drug rebate 

dispute-resolution program. We asked questions about the status of the 

program and how CMS assists States and manufacturers in resolving 

disputes. 

Data Analysis 

To determine the extent to which rebates were disputed, we analyzed the 

31 States’ responses to our data request. We grouped States by the 

percentage of money in dispute that they reported, and we counted the 

number of States in each group. In addition, for the States that could 

provide precise estimates of money in dispute, we summed the figures 

they provided to obtain a total amount of money in dispute. 

To identify which types of disputes States reported as occurring more 

frequently, the challenges that States face, and States’ suggestions for 

improvements, we analyzed the 12 States’ survey responses by theme. 
APPENDIX B 

Agency Comments 

./·~·'"""'<, ( DEPARTMENT OF HEALTH & HUMAN SERVICES Centers tor Medicare & Medicaid Services 

,, 

E.. "'"<~aa Administrator 

Washington, DC 20201 

DATE: JUL -8 2014 

TO: Daniel R. Levinson 

Inspector General 

FROM: .Manryn TaV£nner 

Administrat011 

SUBJECT: Office oflnspector General (OIG) Draft Report: "Medicaid Drug Rebate Dispute 

Resolution Could Be Improved" (OEI-05-11-00580) 

Thank you for the opportunity to review and comment on the above-referenced OIG draft report. 

The Centers for Medicare & Medicaid Services (CMS) appreciates the information presented in 

the report and offers the following comments. 

The Medicaid Drug Rebate (MDR) Dispute Resolution Program (DRP) is an alternative dispute 

resolution process developed and administered by CMS that provides assistance to 

manufacturers and states when MDR amounts are in dispute. The purpose of the report was to 

determine the extent to which rebates are disputed under the MDR program, the causes of 

frequently occurring dispute types, challenges states face in resolving disputes, and what 

measures states and drug manufacturers believe will help prevent or resolve disputes. 

The OIG recommendations and CMS responses to the recommendations are discussed below. 

OIG Recommendation 

The OIG recommends that CMS work with States to improve the quality of claims data 

submitted by providers and pharmacies. 

CMS Response 

The CMS concurs with OIG's recommendation. CMS has issued guidance (State Release No. 

162 and State Medicaid Directors Release No. 151) to assist with reporting physicianadministered drugs. Additionally, we will consider issuing further guidance to states and 

manufacturers on how to accurately calculate units on claims for drugs with complicated unit of 

measure conversions, and the importance of submitting the correct national drug code on claims 

for physician-administered drugs. CMS also continues to issue sub-regulatory guidance to assist 

states and manufacturers regarding unit type and units per package size reporting for covered 

outpatient drugs. 

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Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 21 
 

 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 22 
 

 

ACKNOWLEDGMENTS 

This report was prepared under the direction of Ann Maxwell, Regional 

Inspector General for Evaluation and Inspections in the Chicago regional 

office; Thomas F. Komaniecki, Deputy Regional Inspector General; and 

Laura Kordish, Deputy Regional Inspector General. 

Nicole Hrycyk served as the team leader for this study, and 

Carolyn Pichert served as the project lead. Other Office of Evaluation and 

Inspections staff from the Chicago regional office who conducted the 

study include Poppy Coleman and Cassie Yarbrough. Central office staff 

who provided support include Althea Hosein, Kevin Manley, and 

Christine Moritz. 

Medicaid Drug Rebate Dispute Resolution Could Be Improved (OEI-05-11-00580) 23 
 

 

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.