Summary of Report 03-029

April 2003

Report Number 03-029

The Health and Human Services Commission (Commission) has not properly accounted for all the outstanding prescription drug rebate revenue owed to the State. Poor controls and inconsistent procedures have resulted in inaccurate data in the Pharmacy Rebate Information Management System (PRIMS), which is the system of record for the Commission's Prescription Drug Rebate Program (Program). As a result, the Commission does not know the total amount of uncollected drug rebates that drug labelers owe to the State. While PRIMS data for outstanding balances are unreliable, there are indications that a significant amount of rebate revenue could remain outstanding. Although the Program received $264 million in state and federal revenue in fiscal year 2001, the Commission lacks adequate assurance that drug labelers pay all rebates they owe to the State.

The Commission's lack of basic controls has resulted in significant rebate data integrity problems and leaves the Program susceptible to fraud and abuse. We were able to re-create the outstanding rebate balance owed to the State for only one of the six years from 1996 to 2001. Although we were able to identify specific estimates of uncollected rebate revenue for certain time periods, the generally poor condition of the Commission's rebate data and its inconsistent procedures for processing rebate payments and credits prevented us from calculating the total amount of unpaid rebates.

• The Commission lacks accurate information on outstanding rebate balances.
  
  PRIMS contains unreliable data regarding the amount of unpaid or disputed rebates. As a result, we were able to re-create the Commission's outstanding rebate balance for only one of the six years from 1996 to 2001. As of May 2002, $20.7 million in rebates remained uncollected from calendar year 2001. In addition, the Commission's data indicates that an estimated $9.1 million in rebate billings disputed by drug labelers for periods prior to 1995 remains unaccounted for. Furthermore, at least $4.3 million in interest drug labelers have owed to the State since June 1995 remains uncollected.
  
  
• A variety of issues has led to the Commission's inability to determine with certainty the amount of rebate revenue drug labelers owe to the State.

The following examples illustrate why the Commission has not determined the amount of rebates drug labelers owe:

• Data entry errors in 11,356 rebate transactions in PRIMS create uncertainty about the amount of rebates paid to the State. Our attempts to reconcile payment data associated with these transactions resulted in payment amounts that ranged from $16.2 million to $2.69 billion.
• Rebate staff have made at least $13.6 million in reductions to rebate amounts without properly verifying that the numbers of drug units involved in these transactions were correct.
• Rebate staff have recorded $373 million in rebate payments and $30.2 million in rebate credits in PRIMS without using the appropriate types of transactions.
• There is a lack of proper supervision of staff who grant rebate credits to drug labelers. Staff have adjusted drug utilization data without proper supervisory review and lack objective criteria for making adjustments to drug labelers' rebate invoices.
• Inadequate segregation of duties among rebate staff creates the risk of unauthorized rebate adjustments, fraud, or misuse of state funds.




• Rebate collection and dispute resolution processes are not efficient and result in delays, backlogs, and rework.
  
  The Program has not successfully integrated PRIMS, which it brought online in 1996, with its daily work processes for rebate dispute resolution and collection activities. In addition, the Commission has not created an operational environment with adequate control measures to guard against the potential fraud and misuse of state revenue.

• The Commission has not established performance metrics or standardized methods for assessing the performance of the Program.
  
  Not evaluating the efficiency and effectiveness of the Program hinders the Commission's ability to make sound business decisions. As a result, the Commission has made decisions materially affecting the Program's ability to collect rebates without evaluating the effects of these decisions. For example, the Commission terminated the Program's participation in a federally sponsored program that assisted in the collection of disputed or delinquent rebates.
  

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