As discussed in our recent article, the end of the calendar year brings with it Pharmacy Benefit Manager (“PBM”) end-of-year “housekeeping,” where PBMs intensely review credentialing materials and PBM audit histories to determine which pharmacies will remain in-network and which will be removed come 2024. Through its very nature, end-of-year housekeeping results in extremely unjust and unwarranted pharmacy terminations. In fact, Frier Levitt has recently encountered an alarming increase in pharmacy terminations from a major PBM’s network based on audit findings which placed only very small amounts at issue (e.g., less than $2,500). As such, pharmacies must be prepared to respond to PBM audits, challenge any adverse audit findings – regardless of the amount at issue, and, if necessary, contest PBM network terminations to the fullest extent possible.
What is a PBM Audit
PBMs are third parties that contract with insurance companies, health benefit plans, and government entities to manage prescription drug benefits. Through contracts with pharmacies, PBMs act as a middleman between their benefit plan clients and insurance companies, creating their own network of pharmacies that health benefit plan members can access for prescription drugs. Pursuant to their contracts with pharmacies, PBMs routinely conduct audits on pharmacies in their network, with the stated goal of ensuring their network pharmacies operate in compliance with the PBM’s Provider Manual and the Provider Agreements. PBMs utilize various types of audits including: onsite audits; desktop audits; investigative audits; invoice reconciliations and fraud waste and abuse audits. Each audit type evaluates claims submitted to the PBM by the pharmacy and requires pharmacies to submit extensive documentation to verify that a given claim was filled properly and in accordance with applicable contractual obligations as well as state and federal law.
Unfortunately, PBMs far too often use pharmacy audits as an additional revenue stream where claims are unjustly marked as discrepant and pharmacies are forced to repay the reimbursement received for said claims. PBMs regularly and unfairly scrutinize documents submitted by pharmacies which can result in significant recoupment associated with the audit findings and even network termination.
Contesting Audit Findings
Since PBMs often view pharmacy audits as a means to enhance their own profits, PBMs regularly issue audit findings that allege unfounded discrepancies. Once a PBM completes an audit, it provides the audited pharmacy with audit findings, and the pharmacy is given an opportunity to appeal the audit findings and reverse the alleged discrepancies. Although the appeal process varies depending on the specific PBM that has conducted the audit, it is absolutely critical that pharmacies utilize the contractual appeals process afforded in PBM Provider Manuals to contest adverse audit findings to the fullest extent.
Successfully challenging adverse audit findings requires the pharmacy to submit specific supporting documents that address the PBM’s allegations in the audit findings. Typically, PBM Provider Manuals outline the deadlines associated with an audit appeal as well as the specific supporting documents that will be accepted for each discrepancy type. For example, one discrepancy PBMs routinely allege is inadequate proof of copay collection. To rectify a copay discrepancy, one of the major PBMs requires pharmacies to submit a copy of the point of sale receipt and a patient statement confirming the copay was paid. The same PBM requires additional documentation depending on how the patient remitted payment, which obligates pharmacies to submit either a copy of the check used, a credit card merchant report showing the credit card charge, or bank statements showing cash deposits. Thus, it is not uncommon for PBMs to require pharmacies to submit documents, like bank statements or credit card merchant reports, that are not immediately in the pharmacy’s possession and can be somewhat difficult to obtain.
In addition to guidelines and instructions to contest audit findings provided in PBM Provider Manuals, state legislatures across the country have also enacted a number of PBM audit focused laws, often referred to as “Fair Audit Laws.” Fair Audit Laws recognize the troublesome tactics employed by PBMs on small pharmacies and provide additional tools to address unfounded audit discrepancies. To illustrate, many states have enacted Fair Audit Laws which prevent PBMs from recouping funds from audited pharmacies where the alleged discrepancy did not result in any overpayment to the pharmacy. Another common example of a provision found in Fair Audit Laws prevents PBMs from requiring pharmacies to submit documentation the pharmacy is not obligated to maintain under applicable state law. Ultimately, by utilizing appropriate supporting documentation along with state Fair Audit Laws, pharmacies are equipped to contest unjust PBM audit findings and the consequences associated with adverse audit findings.
Consequences of Adverse Audit Findings
After the audit appeal process, PBMs provide a pharmacy with final audit findings that state a recoupment amount as well as additional fees, sometimes referred to as an “audit fee.” Aside from recoupment of funds, with increasing regularity as we approach year-end, pharmacies may face additional consequences such as termination from the PBM’s network, required implementation of corrective action plans (CAP), and even being subject to being reported to government agencies like state Boards of Pharmacy. Each of these consequences can have detrimental effects on a small pharmacy with limited resources.
PBMs have used audits to seek a range of recoupment amounts from pharmacies, ranging from just hundreds of dollars to over one million dollars, in some instances. Although smaller amounts at issue may not seem “worth” contesting, there is a growing trend of PBMs exhausting all efforts to terminate a pharmacy or impose other adverse action against a pharmacy over shockingly small discrepant amounts. For instance, Frier Levitt has recently encountered situations where PBMs issue a notice of termination upon a pharmacy due to audit amounts that are less than $2,500. Critically, termination by one PBM is likely to cause a domino effect for the pharmacy, as a termination from one PBM often leads to terminations from additional PBMs, regardless of the basis of the initial termination. Thus, one seemingly insignificant and small audit finding can have catastrophic consequences for a pharmacy and lead to termination from multiple PBM networks. As such, it is imperative that pharmacies contest any and all audit findings to avoid the risk of significant adverse action down the road.
In addition to termination, even small audit amounts can lead PBMs to require a pharmacy to implement a corrective action plan (“CAP”) to remain in the PBM’s network. In such instances, the pharmacy will have to acknowledge any operational shortfalls and implement new policies and procedures to correct such shortfalls and ensure no further violations of the Provider Manual and Participation Agreement. Like PBM terminations, CAPs have been required in response to extremely minimal discrepant amounts. Recently, Frier Levitt drafted and submitted a CAP on behalf of a pharmacy client that was issued audit findings with a discrepant amount of just $28. Although implementing a CAP is certainly a better outcome than network termination, a pharmacy’s noncompliance with the CAP, even if noncompliance is due to mere clerical errors, often results in termination down the road.
Finally, in rare occasions, PBMs have also used tactics such as reporting the pharmacy to government agencies such as state Boards of Pharmacy. Such tactics will put the pharmacy under the microscope of the government and can result in the government taking further action against the pharmacy, including, but not limited to, imposition of criminal or civil penalties and imposition of disciplinary action like suspending a pharmacy’s license. While the consequences of adverse audit findings, particularly those audit findings that place only small amounts at issue, can seem extreme and disproportionate, they are tactics PBMs regularly rely on. Accordingly, pharmacies are strongly encouraged to contest any and all PBM audit findings to avoid additional adverse action down the road.
Proactive Steps to Prepare for Audits
Fortunately, there are ways for pharmacies to prepare and avoid any such consequences. Frier Levitt encourages and can aid pharmacies in drafting and implementing policies and procedures to be used in running the pharmacy. Additionally, the firm has helped pharmacies in conducting mock audits that will prepare them for the response that is expected when a PBM notifies the pharmacy of an audit. Furthermore, pharmacies should stay up to date with PBM Provider Manuals, as the terms of these agreements are regularly updated in response to the rapidly evolving industry. By taking proactive measures such as the ones mentioned above, pharmacies are better positioned to avoid adverse audit findings and the associated consequences altogether.
How Frier Levitt Can Help
Regardless of the size of your pharmacy or the amount at stake, Frier Levitt is prepared to assist you in challenging PBM abuse of your pharmacy. Our life sciences attorneys are prepared to provide guidance as your pharmacy prepares for audits and take an aggressive approach to fight for your rights following a PBM audit. If you have questions or need assistance in combatting adverse PBM actions, contact us to speak to an attorney.
