Follow-Up Audit of the Medicaid Drug Rebate Program in Alaska, A-09-08 -00051

Hhs Office Of Inspector General, Office Of Audit Services (Oas)

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DEPARTMENT OF HEALTH & HUMAN SERVICES Office of Inspector General
Region IX
Office of Audit Services
h
90 - i Street, Suite 3-650
San Francisco, CA 94103
JA!I 2 2 2009
Report Number: A-09-08-00051
Mr. William Streur
Deputy Commissioner
Department of Health and Social Services
Division ofHealth Care Services
4501 Business Park Boulevard
Anchorage, Alaska 99503-7167
Dear Mr. Streur:
Enclosed is the U.S. Department of Health and Human Services (HHS), Office ofInspector
General (OIG), final report entitled "Follow-Up Audit ofthe Medicaid Drug Rebate Program in
Alaska." We will forward a copy of this report to the HHS action official noted on the following
page for review and any action deemed necessary.
The HHS action official will make final detennination as to actions taken on all matters reported.
We request that you respond to this official within 30 days from the date ofthis letter. Your
response should present any comments or additional infonnation that you believe may have a
bearing on the final detennination.
Pursuant to the principles ofthe Freedom ofInfonnation Act, 5 U.S.c. § 552, as amended by
Public Law 104-231, OIG reports generally are made available to the public to the extent the
infonnation is not subject to exemptions in the Act (45 CFR part 5). Accordingly, this report
will be posted on the Internet at http://oig.hhs.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
[phone], or contact Doug Preussler, Audit Manager, at [phone] or through e-mail
at [e-mail]. Please refer to report number A-09-08-00051 in all
correspondence.
Sincerely,
Lori A. Ahlstrand
Regional Inspector General
for Audit Services
Enclosure Page 2 - Mr. William Streur
Direct Reply to HHS Action Official:
Ms. Jackie Gamer, Consortium Administrator
Consortium for Medicaid and Children's Health Operations
Centers for Medicare & Medicaid Services
233 North Michigan Avenue, Suite 600
Chicago, Illinois 60601 Department of Health and Human Services

OFFICE OF

INSPECTOR GENERAL

FOLLOW·UP AUDIT OF THE

MEDICAID DRUG REBATE

PROGRAM IN ALASKA

Daniel R. Levinson

Inspector General

January 2009

A·09·0S·00051
Office ofInspector General
http:// oig.hhs.gov
The mission ofthe Office ofInspector 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 ofAudit 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 ofHHS 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 ofEvaluation and Inspections
The Office of and (OEl) 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 ofInvestigations
The Office ofInvestigations (01) 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, 01 utilizes its resources by
actively coordinating with the Department of Justice and other Federal, State, and local law
enforcement authorities. The investigative efforts of 01 often lead to criminal convictions,
administrative sanctions, and/or civil monetary penalties.
Office ofCounsel to the Inspector General
The Office of Counsel to the 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. Notices

THIS REPORT IS AVAILABLE TO THE PUBLIC
at http://oig.hhs.gov
Pursuant to the principles of the Freedom of Information Act, 5 U.S.C.
§ 552, as amended by Public Law 104-231, Office of Inspector General
reports generally are made available to the public to the extent the
information is not subject to exemptions in the Act (45 CFR part 5).
OFFICE OF AUDIT SERVICES FINDINGS AND OPINIONS
The designation of financial or management practices as questionable, a
recommendation for the disallowance of costs incurred or claimed, and
any other conclusions and recommendations in this report represent the
findings and opinions of GAS. Authorized officials of the HHS operating
divisions will make final determination on these matters. EXECUTIVE SUMMARY

BACKGROUND

The Medicaid drug rebate program, which began in 1991, is set forth in section 1927 of the
Social Security Act (the Act). For a manufacturer's covered outpatient drugs to be eligible for
Federal Medicaid funding under the program, the manufacturer must enter into a rebate
agreement with the Centers for Medicare & Medicaid Services (CMS) and pay quarterly rebates
to the States. CMS, the States, and drug manufacturers each undertake certain functions in
connection with the drug rebate program. In Alaska, the Department of Health and Social
Services (the State agency) administers the Medicaid drug rebate program.
of the Act requires States to maintain drug utilization data that identifies, Section 1927(b)(2)(A)
by National Drug Code (NDC), the number of units of each covered outpatient drug for which
the States reimbursed providers. The of units is applied to the unit rebate amount to
determine the actual rebate amount due from each manufacturer. Section 1927(b)(2) of the Act
requires States to provide the drug utilization data to CMS and the manufacturer. States also
report drug rebate accounts receivable data on Form CMS-64.9R, "Medicaid Drug Rebate
Schedule."
In 2005, we issued a report on the results of audits of the Medicaid drug rebate programs in
49 States and the District of Columbia (A-06-03-00048). Those audits found that only four
States had no weaknesses in accountability for and internal controls over their drug rebate
programs. As a result of the weaknesses, we concluded that States lacked adequate assurance
that all ofthe drug rebates due to the States were properly recorded and collected. Additionally,
CMS did not have reliable information from the States to properly monitor the drug rebate
program.
In our previous audit of the Alaska drug rebate program, we determined that the State agency
had not established adequate policies, procedures, and internal controls over the Medicaid drug
rebate program (A-10-03-00006). Specifically, we identified weaknesses in the following areas:
(1) quarterly reporting, (2) accounts receivable system, (3) segregation of duties, (4) interest
accrual and collection, and (5) dispute resolution. We recommended that the State agency
correct the reported balance of uncollected rebates to accurately reflect the State agency's drug
rebate activity and ending balance. In addition, we that the State agency establish
policies, procedures, and internal controls to:
e reconcile the ending balance of uncollected rebates to the State agency's

supporting receivable account, and ensure the accuracy of the data reported to

CMS;

" create a general ledger accounts receivable control account and a sufficiently

detailed subsidiary accounts system;

e provide for the proper segregation of duties within and between the rebate billing,
collection, and accounting functions; ~ calculate simple interest on disputed, late, and unpaid rebate payments, and verify
the accuracy of payments received; and
• make use ofthe State hearing mechanism when appropriate.
The State agency generally concurred with our findings and recommendations but expressed
concerns regarding the use ofthe State hearing mechanism.
This current review of Alaska is part of a nationwide series of reviews conducted to determine