Pharmacies are entering 2026 amid reinforced regulatory scrutiny, increasingly interconnected oversight, and expanded expectations for documentation and operational consistency. While PBM audits and terminations remain a central business risk to independent community pharmacies, some of the most consequential triggers arise from Board of Pharmacy (BOP) inspections and follow-on reporting obligations that ripple into contractual relationship between pharmacy benefit manager (PBM) networks and pharmacies. During Frier Levitt’s recent webinar, Eric Knowles, Esq., outlined a practical framework for proactively strengthening compliance and effectively responding when a PBM termination or Board action occurs.
This article provides a summary of the webinar’s key takeaways for pharmacies and pharmacists aiming to enter 2026 with a framework to minimize potential non-compliance issues.
What to Expect: Boards of Pharmacy Enforcement Trends for 2026
Boards are increasingly evaluating pharmacies using broader and deeper criteria than in years past. Inspectors scrutinize organizational structure, recordkeeping, controlled‑substance management, and whether written policies align with actual practice and current law. Common deficiencies include lapsed or outdated licenses; unresolved variances in controlled‑substance inventories; incomplete compounding documentation; inconsistent or noncompliant labeling; policy gaps; expired drugs commingled with active stock; unregistered technician activity; and inadequate documentation of patient counseling. Although these issues may appear minor, adverse audit findings under these circumstances often lead to expanded inquiries, repeat inspections, or escalated enforcement.
Boards initiate inspections for a wide range of reasons, from routine compliance reviews, complaint‑driven investigations, PBM referrals, DEA or law‑enforcement alerts, and post‑change reviews following a change in ownership, location, or PIC. While on site, inspectors typically verify license display; storage conditions; temperature and humidity logs; segregation of expired or recalled drugs; inventory reconciliations; labeling accuracy; and USP compliance (particularly in compounding settings). A growing focus among state Boards is documentation of technician training and the PIC’s oversight of both technician training and adherence to current, up‑to‑date policies and procedures. After inspections, Boards usually issue preliminary findings and provide a short window—often 14 to 30 days—to respond and/or cure. Outcomes range from no action, to a warning or corrective‑action letter, to referral to a Board attorney for prosecution, to formal administrative measures such as reprimand, probation, fines, suspension, or revocation.
In this environment, a pharmacy’s history and conduct matter. Cooperation, candor, internal oversight, and prompt corrective action frequently mitigate discipline from the state Board, whereas repeated deficiencies, poor preparation, or delayed implementation of corrective action escalate it. And avoiding formal “discipline” by a state Board may not even be enough where even certain non-disciplinary outcomes from state Boards can trigger PBM disclosure obligations. Thus, what initially appeared to be a minor administrative mishap may ultimately transform into an issue having significant downstream risk for the pharmacy, its staff, and its operational viability.
Self-Auditing is a Pharmacy’s Most Effective Shield Against Enforcement
Quarterly, risk-based self-audits—documented and followed by targeted remediation—are one of the most powerful tools available to prevent regulatory findings and to blunt PBM scrutiny. Robust reviews should evaluate licensure and registration status (including proper display), controlled substance inventories and variance reconciliation, dispensing documentation and labeling accuracy, procurement and transfer records, and adherence to USP standards where applicable. Documented self-audits demonstrate year-round compliance culture and, in practice, influence whether Boards view issues as isolated and correctable or systemic and sanctionable.
Inventory and procurement records deserve particular attention because they later underpin PBM sufficiency-of-inventory analyses in audit challenges. Pharmacies should maintain uniform, retrievable documentation for wholesalers and inter-pharmacy transfers – including pharmacies owned by the same individual – to avoid gaps that PBMs may leverage as invoice shortages or inventory mismatches.
The Interplay Between Board Activity and PBM Oversight
Provider agreements between PBMs and pharmacies typically contain disclosure requirements for a broad range of Board outcomes. While nearly all provider agreements require disclosure for Board actions such as reprimands, consent agreements, probation, suspensions, or other licensure restrictions, some agreements mandate disclosure even when a pharmacy obtains a non-disciplinary outcome from the relevant Board.
Failure to disclose is often deemed a breach of contract. The reason being that PBMs view any Board activity as a proxy for elevated compliance and patient safety risks. PBMs then may respond with additional audits, recoupments, credentialing holds, or network termination. These contractual definitions of “reportable” actions vary by PBM, making it essential to obtain and review current provider agreements and manuals to calibrate disclosure triggers and timelines. A pharmacy that fails to sufficiently understand its obligations with respect to its PBM provider agreements is simply unprepared to protect the long-term interests of the pharmacy and the patients it serves.
Critically, PBMs also frequently style their reviews as Fraud, Waste, and Abuse (FWA) investigations rather than audits to sidestep state fair-audit protections, including limits on recoupment for clerical errors, mandated appeal windows, and obligations to consider alternative documentation. Pharmacies should anticipate this tactic and be ready to assert statutory protections and contractual defenses.
Recurring PBM allegations include failures to collect copays (or improper collection methods), invoice shortages or non-compliant sourcing from approved wholesalers, and prescriber or patient denials that can be triggered by non-responsiveness rather than affirmative contradictions. PBMs may stack additional leverage through percentage-based audit fees untethered to actual costs—fees that incentivize larger recoveries. These mechanics can culminate in termination, either with cause (e.g., audit discrepancies, compliance violations, or non-disclosure) or without cause. In some cases, PBMs attempt to characterize a single action as both.
When PBMs allege fraud, diversion, or imminent patient harm, they may immediately suspend claim processing, block access to systems, and/or freeze payments which effectively operates as a de facto immediate termination. Pharmacies should promptly evaluate contractual rights and escalation options, including whether internal appeals are meaningful at this stage or whether arbitration/litigation relief is warranted.
Responding to a PBM Termination Notice
Time is of the essence immediately upon a pharmacy’s receipt of a termination or suspension notice. Internal appeals generally require a comprehensive, well-organized submission within 10–30 days where the pharmacy articulates objections, supplies documentary support, and presents a credible corrective action plan where appropriate. The clarity and seriousness of the response often influences whether a PBM upholds, modifies, or rescinds termination. If internal processes fail, most PBM contracts funnel disputes to arbitration.
When available, arbitration typically offers increased confidentiality and privacy while also offering faster timelines than traditional court litigation. However, in both arbitration and litigation, a pharmacy’s most commonly asserted claims against a PBM due to the proposed termination are breach of contract, various statutory violations (such as violating a particular state’s Any Willing Provider Law), and tortious interference. Where continued participation in a particular PBM network is vital for a pharmacy to continue operating, pharmacies should evaluate a temporary restraining order (TRO) or preliminary injunction which, if granted, would preserve a pharmacy’s network participation status during the entirety of the proceeding. However, a pharmacy must act immediately and decisively when deciding to file for a TRO since these applications require in-depth legal analysis accompanied by detailed showings of the pharmacy’s ultimate likelihood of success against the PBM on the merits of the pharmacy’s claim and a showing of irreparable harm such that the proposed termination by the PBM would render the pharmacy’s short-term capability to keep its doors open effectively non-existent.
Strengthening Your Compliance Infrastructure for 2026
As 2025 comes to a close, pharmacies should prepare to enter 2026 with current policies that are consistently implemented by staff, organized and readily accessible documentation, and training programs that reflect applicable regulatory requirements. Pharmacies should also treat every inspection, audit, or inquiry (whether by a state Board or a PBM) as part of a broader compliance ecosystem where adverse Board findings can spur PBM action and vice versa. Internally, pharmacy owners, PICs, compliance officers, and counsel should coordinate early and often to develop risk-avoidance strategies, avoid missteps, standardize corrective action, and align disclosure decisions with specific contractual obligations.
Experienced counsel aids pharmacies in anticipating and managing the interplay between Board processes and PBM contracts. On the front end, counsel can guide investigation responses, avoid inadvertent admissions, identify evidentiary or procedural defects in Board and PBM investigation results, and negotiate proportionate outcomes that minimize downstream risk. On the PBM side, counsel maps Board outcomes to payer-specific reporting obligations, calibrates corrective action plans for audit appeals, and positions the matter for potential arbitration or injunctive relief if a termination threatens business continuity. Across both domains, the goal is constant: protect network access while embedding a sustainable, auditable compliance framework.
How Frier Levitt Can Help
Frier Levitt works with pharmacies nationwide to navigate the intersection of Board of Pharmacy enforcement, PBM audits, and network participation risks. Our team advises pharmacies at every stage, from proactive compliance assessments and self-audit development to inspection response, disclosure strategy, PBM audit defense, and termination challenges. We assist pharmacies in interpreting provider agreements, aligning Board outcomes with PBM reporting obligations, and developing corrective action plans designed to mitigate downstream risk. When enforcement actions or terminations threaten business continuity, we counsel pharmacies on escalation options, including appeals, arbitration, and injunctive relief, while helping build sustainable compliance frameworks that support long-term operations heading into 2026 and beyond.
