Federal funds cannot be used to reimburse state Medicaid programs for prescription drug products classified by the FDA's Drug Efficacy Study Implementation (DESI) review as less-than-effective (LTE) for all their labeled indications and for drug products that are identical, related, or similar (IRS) to these drug products.  The Division of Compliance Risk Management and Surveillance is responsible for identifying LTE/IRS drug products. This program ensures that drug products available to Medicaid patients are effective for their intended uses and that federal funds are not expended for drugs that are not maximally effective. The division reviews various agency publications and documents on a quarterly basis to determine the effectiveness of marketed drug products. 

The federal Medicaid Drug Rebate Program requires prescription drug manufacturers to offer discounts on prescription medications to state Medicaid programs. All drug manufacturers who want their products to be eligible for Medicaid reimbursement must participate in this program, which is administered by the federal Centers for Medicare and Medicaid Services (CMS). Participating firms enter into an agreement with CMS to rebate money to state Medicaid programs based on the total amount of drug products dispensed. The firms are required to provide CMS with a list of all their drug products.