The OIG has examined the extent to which states collect accurate drug utilization data and associated drug manufacturer rebates for drugs paid through Medicaid managed care organizations (MCOs). According to the OIG, this data is important to enable states to realize the full savings under an ACA provision that requires drug manufacturers to pay rebates for covered outpatient drugs dispensed by Medicaid MCOs. For this report, the OIG conducted a survey of all states and the District of Columbia in October 2011, and received a response from all but one state. The OIG asked states to identify whether they used a “carve in” or “carve out” approach to paying for drugs dispensed through MCOs, or whether the state did not have MCO contracts (which was the case in 15 states). Under the carve-in approach, states include payment for the drugs dispensed to beneficiaries in the MCOs’ fixed monthly payment amount. According to the OIG survey, between the second quarter of 2010 and the second quarter of 2011, 18 of 22 states using a carve-in approach collected all data needed to invoice manufacturers for rebates from their MCOs, and 12 of the states invoiced manufacturers and collected $1.6 billion in rebates for utilization in this period. The OIG recommends that CMS follow up with the carve-in states that did not collect rebates and take action to enforce rebate collection if necessary (e.g., by denying Medicaid matching funds). Under the carve-out approach, states exclude payment for such drugs from the MCOs’ fixed monthly payment amounts and instead pay for these drugs using the traditional FFS system; the rebate expansion does not directly affect these states. The OIG reports that the rebate expansion prompted three states to switch from a carve-out approach to a carve-in approach in mid- to late 2011, leaving 10 states using only the carve-out methodology.