SURPRISE! : How’s a Manufacturer to Accrue for Unpredictable Medicaid Invoicing Practices?

By Karen Agama, CIS Compliance Consultant
karenagama@cis-partners.com

One quarter, a state bills for a little over $3,500.00. The next, over $40,000.00!! All the summary level variance tests look fine, and wondering how this can possibly be, you ask the state for claims level detail. Not seeing anything amiss with the numbers, you call your state contact for an explanation of the 1,000+% increase. Your end of the conversation sounds something like, “Oh, I see…the state withholds reimbursement to its providers when it runs out of budget money at its fiscal year end, then catches up when the coffers are replenished in the new budget year. The state has withheld reimbursement for six months? Oh, yes. I do see service dates in the detailed data that correspond with that period. Thank you for the explanation.” Now, you have to prepare your message to the higher ups in your company to help them understand how this can happen when dealing with Medicaid programs and why the accrual projections did not set aside nearly enough of your company’s budget money for the payment that’s about to hit the books.

How can this happen? Is this practice allowed? If this scenario can occur, what else could pop up? Can manufacturers ever know if a shock like this is lurking around the proverbial bend?

Since the Medicaid Drug Rebate Program (MDRP) was instituted with the Omnibus Budget Reconciliation Act of 1990 (OBRA ’90), no restriction on the amount of time for which the states could seek retroactive rebates has ever been imposed. A manufacturer could therefore expect to potentially be invoiced for claims, or receive adjustments to prior claims invoiced, going all the way back to 1991. Fortunately, the states are generally more current in their submissions, but it is possible and allowable for states to present manufacturers with the scenario described above, and with smatterings of “found” claims from prior periods in the current period’s invoice totals. It works the other way, too, with states reversing claims from prior periods that have been found to be ineligible for the MDRP.

A second scenario relates to the submission of congested J-Code (HCPCS) claims. Since January 2008, states have been required to submit utilization data for all single-source, and at least the top 20 multiple-source, physician-administered drugs, but identifying which multiple-source product’s NDC is associated with an HCPCS claim has historically been problematic. To facilitate state submission of these claims, an NDC to HCPCS crosswalk table was established (see https://www.dmepdac.com/crosswalk/index.html), and physicians are required to report the NDCs of the products used in each procedure. With these resources in place, the Deficit Reduction Act of 2005 (DRA) prohibits the states from receiving federal participation related to physician-administered drugs unless they submit claims as required.

State governments are not always adequately funded or resourced to move quickly on these types of mandates, and may either outsource the work to a qualified vendor or update their internal systems and processes. In either case, creating multiple-source crosswalks can be slow and laborious, and for process-specific reasons, the result can be multiple quarters submitted within a single invoice processing cycle.

Are manufacturers then allowed to rebate at the rate that was in effect at the time of the original claims service? In the J-Code scenario, each quarter’s claims are typically invoiced separately, even though they are all sent at one time, so the rebate is calculated at the period-specific rate. Where the budget causes the backlog, there is no provision in the law for making any such adjustment, and as a practical matter, doing so would cause extra work for the manufacturer and the state, as the adjustments may require manual calculations outside of your GP system. Consider too, that the states could opt to take their budget considerations a step further and instruct their providers to stop approving claims and buying your products when the money runs dry.

In the end, it looks like surprises are to be expected now and then. Can manufacturers accrue for them so they hurt less? The budget shortfall scenario can be considered a case study for the wisdom of getting to know the states and how they operate. Those processing Medicaid invoices may be able to help their Accounting counterparts by sharing insights about such state-to-state nuances so that the historical data trend used to establish accruals is expanded to capture more quarters for a more predictable pattern. The J-Code solution seems more elusive. I know of no centralized effort currently underway (or planned) designed to compile a report in which states are able to process all of their required J-Code claims or how much of a backlog exists. Short of doing that, it looks like we can all look forward to more surprises in the future.

If you have questions about processing your state Medicaid claims, please contact me at karenagama@cis-partners.com!