HHS OIG Report Finds that Drug Manufacturers’ Misclassifications May Have Led to More Than $1.3 Billion in Lost Medicaid Rebates

Washington, D.C. - The U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) recently released a report which found that over the past five years, drug manufacturers may have potentially misclassified drugs to retain $1.3 billion in rebates rather than passing them on to State Medicaid agencies.

“This Inspector General’s report provides compelling evidence of manufacturers misclassifying prescription drugs at the expense of the American taxpayer.  Every misclassification could result in hundreds of thousands of dollars being lost – money that would have been used to provide essential care to vulnerable Americans, including seniors and children,” said Senator Collins.  “Congress must work with CMS to prevent this type of abuse to ensure that the Medicaid Rebate Program is implemented as intended to reduce the costs of drugs to those in need.”

The Centers for Medicare and Medicaid Services (CMS) calculates rebates using data that the manufacturer reports on the price and classification of drugs. When a drug manufacturer provides incorrect information, state Medicaid agencies may not be able to collect the full rebate due from the manufacturer. In its review, OIG compared manufacturer-reported classifications for drugs to information in FDA files to identify drugs in the Medicaid rebate program that were potentially misclassified over the past five years. OIG found that while the vast majority of the approximately 30,000 drugs in the Medicaid rebate program were classified appropriately, manufactures may have misclassified 885 of these drugs (3 percent) in 2016. OIG estimated that, over the past five years, manufacturers may have underpaid Medicaid $1.3 billion in rebates for 10 potentially misclassified drugs.

OIG made three recommendations in the report, with which CMS concurred. OIG recommended that CMS:

1. Follow-up with manufacturers that may have misclassified drugs and determine whether current classifications are correct;

1. Improve its Drug Data Reporting for Medicaid System to minimize inconsistent data submissions and track potential classification errors for follow-up; and

1. Pursue a means to compel manufacturers to correct inaccurate classification data reported to the Medicaid rebate program.

As Chairman of the Senate Aging Committee and a senior member of the Senate Health Committee, Senator Collins has championed efforts to curb rising drug prices.  In 2015, she led a bipartisan investigation into the causes, impacts, and potential solutions to egregious price spikes for certain generic, off-patent drugs.  Following her investigation, a bill that Senator Collins authored to improve generic competition and lower the cost of prescription drugs was signed into law as part of the FDA Reauthorization Act.