Pharmacy Benefit Managers (“PBMs”) are third party companies that contract with Plans/Plan Sponsors including self-funded employers and government entities to administer and manage prescription drug benefits. In doing so, PBMs maintain network of pharmacies that Plans/Plan Sponsors members can access to receive pharmaceutical services offered by those member pharmacies. Notably concerning, only six (6) PBMs manage over 95% of prescription claims of Americans processed in the calendar year 2020[1], majority of which are vertically integrated to include Plans/Plan Sponsors, PBMs, and pharmacies. By and through such model, PBMs have gained more ability to assert their influence over prescription benefits.
PBMs often use abusive tactics when conducting audits of independent pharmacies. These audits can result in significant monetary penalties as well as other forms of sanctions including network suspension and termination. While the stated purpose of an audit is to ensure that pharmacies are in compliance with applicable Federal and State regulations/laws and terms set forth by PBMs (albeit often more rigorous than Federal and State laws), PBMs’ audit tactics do not necessarily align with the stated purpose. Instead, PBMs seek to recoup thousands of dollars from pharmacies through various types of audits that include: (i) onsite audit (an auditor arrives at the pharmacy and reviews documentation related claims submitted by the pharmacy for reimbursement by the PBM); (ii) desktop audit/investigative audit (PBM contacts the pharmacy via mail, telephone, or fax and requests to review documentation related to claims submitted by the pharmacy for reimbursement); and (iv) Fraud, Waste and Abuse (“FWA”) investigations (when a PBM suspects a pharmacy has engaged in fraudulent conduct, it may conduct an FWA investigation wherein the pharmacy’s rights, whether available through contracts with PBM or statute, are drastically restricted due to the suspected fraud and the pharmacy may be subject to additional sanctions during the investigation).
When a pharmacy is first notified of an audit, often by way of a formal written request, it is important to review the audit request closely. The pharmacy should pay particular attention to any deadlines identified, any points of contact (such as an auditor), and the information being requested. Once a pharmacy has reviewed the audit request and all corresponding information, the pharmacy should work diligently to collect all the necessary documentation and perform an internal review before prompt submission of the documents. Should the pharmacy come across any issues in its review, every effort should be made to compile supplemental information to explain any errors to avoid excessive PBM action, including recoupment.
Once a PBM receives the documentation and performs its own review, it supplies the pharmacy with “initial audit findings.” In the initial audit findings, the PBM lists any claims at issue, the corresponding discrepancy identified, and the total discrepant amount (i.e., the amount the PBM will seek to recoup if the discrepancies are not cured). The discrepant amount of each claim is usually the entirety of reimbursement paid on that claim. While there are dozens of discrepancies PBMs may allege, the most frequent discrepancies identified are: (i) Drug Invoice Shortage (a drug invoice shortage discrepancy occurs when the pharmacy billed the PBM for larger quantities of a particular drug or drug product than supported by the pharmacy’s documented purchases during the review period); (ii) Copay (a copay discrepancy is identified when there are issues concerning the pharmacy’s collection of applicable copayments; (iii) Invalid Prescription (an invalid prescription discrepancy can be alleged for a variety of reasons including errors on the face of the prescription or the PBM may claim the prescription was not issued pursuant to a valid patient-prescriber relationship); and (iv) Patient/Prescriber Denial (where patients/prescribers deny the authenticity of the prescription).
Upon receipt of initial audit findings, it is imperative that pharmacies conduct a thorough review of the PBM’s findings. Often times, the initial audit findings can be overturned by documentation the PBM did not receive during its initial review coupled with factual/legal arguments. Importantly, when PBMs issue their initial audit findings, the report will include specific documentation that pharmacies can submit to reverse the alleged discrepancies. To the extent the pharmacy has additional documentation to submit, pharmacies must ensure they adhere to the deadlines for submitting such documents included in the initial audit findings, or, alternatively, request an extension of time to submit additional documentation.
After a pharmacy submits its appeal, the PBM will issue final audit findings wherein it will either uphold or reverse discrepancies alleged in the initial audit findings. More often than not, however, PBMs refuse to deviate from their strict documentation guidelines despite a pharmacy’s submission of substantial documentation, and, therefore, uphold discrepancies when issuing “final audit findings.” Further, the documentation PBMs often require pharmacies submit substantial amounts of documentation that can be difficult to acquire. Specifically, PBMs often ask pharmacies to provide evidence of prescriber-patient relationship in the form of medical records and/or medical charts. Critically, these types of documents are not maintained by pharmacies (nor mandated by Federal and State laws) and can only be acquired if a prescriber complies with the pharmacy’s request to receive the documentation. Perhaps most troubling, PBMs often use audit results to justify further disciplinary action against pharmacies, including, but not limited to, payment/adjudication suspension, termination, and/or formal reports to government agencies.
To the extent that there are outstanding discrepancies included in the final audit findings, PBMs will identify the remaining discrepancies and the final outstanding discrepant amount. Importantly, the final discrepant amount is usually recouped by PBMs by withholding reimbursement from pharmacies going forward until the discrepant amount is settled. In order to further dispute the audit results after final findings have been issued, pharmacies must initiate a formal dispute process.
Notwithstanding the foregoing, there are multiple tools and resources pharmacies can utilize to combat unjust and abusive audit tactics. First, pharmacies should engage in certain practices before an audit even takes place to decrease the likelihood that an audit results in any discrepancy findings. For example, as part of routine pharmacy practice, each pharmacy should have detailed policies and procedures that set out a standard operating procedure that complies with applicable Federal and State regulations/laws as well as PBMs’ terms and conditions. Once these policies and procedures have been drafted, pharmacies should strictly adhere to them as robust policies and procedures dramatically decrease the probability of pharmacy non-compliance. Additionally, often times PBMs find discrepancies simply because a pharmacy’s internal software/technology is out of date and cannot produce the type of records PBMs require. For example, older operating systems may not produce itemized receipts necessary to defeat allegations of copay collection errors, or older technology may result in more frequent filling/dispensing mistakes that PBMs will seek to penalize. As such, pharmacies should regularly update their software and technologies to ensure the highest standards of pharmacy practice. To find a more complete breakdown of what pharmacies should do to better prepare for PBM audits, please refer to our PBM Audit Checklist.
Moreover, many states have enacted legislation in the form of “Fair Audit Laws” to grant protections to pharmacies facing PBM audits. Fair Audit Laws can provide a variety of protections and rights, including, but not limited to, limits on the number of prescriptions that a PBM may review, limits on the frequency of which a PBM may audit a pharmacy, certain notice requirements before an audit is conducted, and restrictions on the PBM’s ability to recoup on discrepancies that were the result of minor, clerical errors. Further, some states as well as the federal law have enacted “Prompt Pay” statutes which require insurers, including PBMs, to remit payment for clean claims within a certain statutorily designated timeframe. Therefore, even after receiving final audit findings from a PBM, there are multiple tools at a pharmacy’s disposal to help combat against unjust PBM audits.
How Frier Levitt Can Help
Regardless of the size of your pharmacy or the amount at stake, Frier Levitt is ready and able to assist you in successfully challenging a PBM’s audit of your pharmacy. Our life science attorneys are prepared to provide guidance as your pharmacy prepares for PBM audits as well as provide an aggressive approach to fight for your rights following a PBM audit. If you have any questions or need help fighting a PBM audit, contact us to speak to an attorney.
[1] See Drug Channels, The Top Pharmacy Benefit Managers of 2020: Vertical Integration Drives Consolidation, April 6, 2021, available at https://www.drugchannels.net/2021/04/the-top-pharmacy-benefit-managers-pbms.html.
