EXECUTIVE SUMMARY

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OBJECTIVES

(1) To determine whether all State Medicaid agencies collect drug manufacturer rebates for all physician-administered drugs.

(2) To estimate the potential savings that would result if all State Medicaid agencies collected drug manufacturer rebates for physician-administered drugs.

BACKGROUND

The Medicaid program, established under Title XIX of the Social Security Act, is administered by States and financed with State and Federal funds. Medicaid pays for medical and health-related assistance for certain vulnerable and needy individuals and families. All 50 States and the District of Columbia provide coverage for prescription drugs under the Medicaid program.

The Medicaid Drug Rebate Program was established in 1990 to reduce State and Federal Medicaid expenditures for prescription drugs. Under the rebate program, manufacturers are required to provide a rebate on drugs paid for by a State. Physician-administered drugs (drugs that a medical professional administers to a patient in a physician’s office) are covered under this program. In order to collect the rebates, States must identify the drugs by their national drug codes and provide units-paid data to the drug company. Unlike self-administered drugs, which are typically billed to the State with national drug codes, physician-administered drugs are more often billed with procedure codes. States that use procedure codes to bill physician-administered drugs need a crosswalk to national drug codes in order to collect rebates on these drugs. A crosswalk is the identification of national drug codes for drugs represented by procedure codes.

We asked Medicaid directors from 48 States and the District of Columbia about their coding and rebate policies concerning physician-administered drugs. We also requested financial data, such as total payments and units paid for physician-administered drugs in calendar year 2001. Arizona and Tennessee did not participate in the rebate program that year. We estimated potential savings on all the single-source and 40 multiple-source, physician-administered drugs for which States made payments but did not receive rebates in 2001.

FINDINGS

In 2001, 17 States collected rebates for physician-administered drugs, and 31 States did not. Of the 17 States that collected drug manufacturer rebates for physician-administered drugs in 2001, 3 collected rebates on all physician-administered drugs. These three States use national drug codes for billing. The remaining 14 States use procedure codes. These 14 States crosswalk procedure codes to national drugs codes for single-source drugs and collect rebates on these drugs only. Thirty-one States did not collect rebates on any physician-administered drugs in 2001, and 1 additional State did not respond to our question about rebate collection.

Medicaid could have saved millions of additional rebate dollars on physician-administered drugs in 2001. If all States had collected rebates for all single-source and 40 multiple-source, physician-administered drugs, Medicaid could have added $37 million to its rebate savings for 2001. The majority of additional savings ($30 million) would have been on rebates for single-source drugs alone, and the remainder ($7 million) would have been on 40 multiple-source drugs.

After 2001, 7 of 31 States that had not collected rebates on physician-administered drugs began to do so. Of the 7 States that began collecting rebates after 2001, 6 States collect rebates on single-source, physician-administered drugs, and 1 State collects rebates on all physician-administered drugs billed by a targeted group of providers. (We estimated that the 2001 potential savings for these seven States was $14 million on all single-source and 40 multiple-source physician administered drugs.) As of March 2003, 24 States still did not collect rebates on any physician-administered drugs. These 24 States spent a total of $125 million on physician-administered drugs. Five of these 24 States said they have no plans to collect rebates for physician-administered drugs. While 19 of these 24 States said they plan to collect rebates for these drugs, 13 of the 19 States did not have specific plans to collect rebates.

For States that had data available, rebates either requested or collected in 2001 exceeded the system implementation cost of collecting rebates for physician-administered drugs. Four States provided us with their estimated costs for implementing system changes to collect rebates for physician-administered drugs. For each of these States, rebates in 2001 alone exceeded their one-time implementation costs. The State that spent the most ($642,000) collected $3 million in rebates for all physician-administered drugs in 2001. The State that spent the least ($56,100) collected $3 million in rebates on single-source, physician-administered drugs in 2001.

RECOMMENDATION

Rebates for physician-administered drugs help States reduce prescription drug expenditures, which are rising at a time when State budgets are severely stressed. Federal and State Medicaid expenditures on physician-administered drugs could have been reduced by an estimated $37 million in 2001 if all States collected rebates on those drugs.

Based on cost estimates provided to us from States that have implemented changes in order to collect rebates for physician-administered drugs, the savings from rebates in 1 year can exceed the one-time costs of implementing system changes.

We recommend that CMS continue to encourage all States to collect rebates on physician-administered drugs, especially single-source drugs. As part of this effort, CMS should encourage cooperation and the sharing of information between States that collect rebates for these drugs, and States that do not, in order to facilitate rebate collection. It would be valuable for States that do not collect rebates for physician-administered drugs to know the details of implementing system changes, such as the what, where, when, and why of resources needed, and how the process unfolded for States that have been down this road. CMS could also issue a letter to State Medicaid Directors informing them about the availability and usefulness of the Medicare crosswalk. States could use this crosswalk, which is on the Internet, to reduce the administrative costs of creating and/or updating their own crosswalk.

AGENCY COMMENTS

CMS concurred with our recommendation and is currently facilitating information sharing. The agency is passing on information to States seeking help to collect rebates on physician-administered drugs and providing contact names in States that have experience in this area. In addition, CMS has asked its Pharmacy Technical Advisory Group to serve as a resource to share this information with States in their consortia.

CMS disagreed with our $37 million estimate of potential savings. As we reported, States provided us their payment and rebate information for physician-administered drugs for calendar year 2001 and told us whether they collected rebates on physician-administered drugs that year. We used the information provided by the States to calculate additional potential savings for each State in 2001. We acknowledge that the savings in future years will depend on rebate amounts and utilization and would likely be different from 2001.

CMS also commented that our report did not break out the States that did not collect rebates in 2001 and that our report did not estimate their potential savings. We wish to point out that in Table 1 in Appendix A, we showed which States did not collect rebates in 2001 and which States told us they began collecting rebates after 2001. We also showed the 2001 potential savings for each State in Table 3 of Appendix A. We have added two sentences to page 10, citing the 2001 potential savings for seven States that began collecting rebates after 2001.

CMS noted that of the 24 States not collecting rebates as of March 2003, 13 States had specific plans to collect rebates for these drugs and 6 States, while not having plans in place, indicated they will collect these rebates in the future. Our study, however, found the opposite for this subset of States. Thirteen States did not have specific plans, and six States did have specific plans (pages 10-11). In Appendix A, Table 1, we have added footnotes 12, 13, and 14 to identify the States that said they do not have specific plans, do have specific plans, and do not plan to collect rebates for these drugs. The full text of CMS comments is in Appendix B.

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