A pharmacy can follow state and federal regulations, meet professional standards of care, and still face significant recoupment demands following a pharmacy benefit manager (PBM) audit. That is because regulatory compliance does not necessarily equal PBM contractual compliance.
While state and federal laws govern the practice of pharmacy, PBM provider agreements impose additional requirements related to dispensing, billing, documentation, and other pharmacy operations. These two sets of rules do not always align, creating compliance risks that even well-run pharmacies may overlook.
When Compliant Pharmacy Practices Lead to PBM Recoupment
A practice that is lawful, routine, and fully defensible under state pharmacy regulations may still violate a PBM provider agreement and trigger an audit finding or recoupment demand if it runs afoul of PBM contractual requirements. Understanding where these requirements differ is essential to protecting pharmacy reimbursement and minimizing audit exposure. The following six examples illustrate how common pharmacy practices can create unexpected PBM compliance risks, even when the pharmacy is operating within the law.
1. “Borrowing” Between Pharmacies (Interpharmacy Transfers)
- The practice: Two pharmacies under common ownership, or even independent pharmacies with a cooperative arrangement, move stock back and forth when one location runs short. Many state boards allow this, provided that both the transferring and receiving pharmacies follow applicable recordkeeping rules.
- The PBM requirement: Most PBM provider manuals require that the pharmacy submitting the claim be the one that actually filled and dispensed the prescription from its own stock, using its own National Drug Code (NDC), on its own premises. Network contracts also often require transfer documentation beyond what the board asks for, such as matching lot numbers, transfer logs signed by both pharmacists, and proof that the dispensing pharmacy (not the lending pharmacy) is the one billing the claim. Some contracts even require that a pharmacy only source products from an NABP-accredited supplier and would bar sourcing product from another pharmacy altogether.
- The difference: A transfer that fully meets the board’s rules can still be billed in a way the PBM views as misrepresenting who dispensed the drug, because the PBM’s definition of a proper transfer record is narrower than the board’s. When an audit turns up transfer records that satisfy the board but not the PBM, the PBM usually wins, and the result is full recoupment of the claim rather than a partial credit.
2. NDC Substitutions and Billing Accuracy
- The practice: When the exact NDC associated with the prescribed product is nt in stock, the pharmacist substitutes a therapeutically or generically equivalent product. This is a routine exercise of professional judgment that boards authorize, especially for generic substitution.
- The PBM requirement: PBM contracts follow a simple rule: bill what you dispense. The NDC on the claim must match the product actually dispensed to the patient, including the same manufacturer and package size. The DAW (Dispense as Written) code must also accurately show whether the substitution was requested by the patient, required by the prescriber, or initiated by the pharmacy.
- The difference: A pharmacist can make a perfectly lawful substitution and then bill the NDC from the original prescription instead of the one actually dispensed, with no intent to defraud anyone. To the PBM, that is a billing accuracy problem, not a clinical judgment call, and it is a potential basis for recoupment during desk audits or retrospective claim reviews.
3. Cash Copayments
- The practice: The pharmacy collects the copayment in cash at the counter. This is common, efficient, and generally permissible when properly processed and documented in accordance with applicable law.
- The PBM requirement: PBM audits may check whether the pharmacy can produce itemized records created at the time of the transaction, such as a receipt, point-of-sale log, or other acceptable documentation demonstrating that the copayment was collected on that specific claim.
- The difference: Cash transactions can be difficult to verify after the fact without adequate records. A pharmacy that collected every copayment but used a single cash drawer with no transaction log may not be able to prove it during an audit. PBMs may treat an undocumented copay the same as a waived copay (discussed next) and recoup accordingly, even when the pharmacy did nothing wrong at the counter.
4. Waiving or Reducing Copayments for Financial Hardship
- The practice: A pharmacist waives or reduces a copayment for a patient who cannot afford it. Many pharmacists see this as good patient care, and in many states, it is not illegal when done on an individual, documented basis.
- The PBM requirement: Nearly every PBM network contract flatly prohibits routine or undocumented copay waivers. Even legitimate hardship waivers usually must follow a specific process: a written hardship policy applied consistently, documentation of each patient’s financial need, and, under many contracts, advance notice to or approval from the plan or PBM.
- The difference: This is the clearest example on the list. A pharmacy can have a fair, needs-based waiver practice that would satisfy a fraud and abuse regulator and still breach its PBM contract just because it didn’t follow the PBM’s required process. PBMs also read “routine waiver” broadly, and sometimes a pattern of waivers alone is enough to support recoupment, without showing that any single waiver was improper.
5. Methods of Obtaining Prescriptions
- The practice: The pharmacy markets its services to prescribers and patients, makes refill reminder calls, or accepts referrals from a nearby clinic. This is ordinary business development and may be permissible when conducted in accordance with applicable licensing, privacy, marketing, and fraud and abuse laws.
- The PBM requirement: PBM network agreements often ban specific solicitation practices outright, including cold calling patients to switch pharmacies, giving anything of value in exchange for a referral, or steering prescribers toward the pharmacy in ways the PBM considers improper. These bans apply whether or not the conduct would violate anti-kickback or state marketing laws.
- The difference: Because these restrictions come from the contract rather than solely from licensing law, a pharmacy can run a marketing program that otherwise complies with applicable law and still be in breach of its provider agreement. The consequence here can go beyond recoupment. PBMs may treat prohibited solicitation as grounds to terminate the pharmacy from the network.
6. Delivery and Mailing of Prescriptions
- The practice: The pharmacy offers home delivery or mails prescriptions to homebound or rural patients. Most boards of pharmacy allow this, and many patients depend on it.
- The PBM requirement: PBM contracts may restrict delivery and mailing practices in ways state law does not. Some require the patient to request each delivery instead of using automatic refills, some limit delivery to certain areas near the pharmacy’s licensed location, and some require signed proof of delivery or other acceptable documentation to support the claim.
- The difference: A delivery program that keeps every record the board requires can still fail a PBM audit if it does not meet the network’s narrower rules. For example, an automatic refill and delivery model may be permissible under applicable pharmacy law, but a particular PBM contract may treat it as unauthorized “push” dispensing that is not reimbursable.
Why Pharmacy Law Compliance Alone May Not Prevent PBM Recoupment
Each of these examples follows the same pattern: a practice that is lawful under pharmacy regulations, paired with a PBM contract requirement that is narrower, more specific, or simply different. Boards of pharmacy generally focus on whether the drug was dispensed safely and lawfully. PBMs also evaluate whether the claim, as submitted, meets the documentation and process requirements the pharmacy agreed to when it signed the network contract. These are separate standards, and meeting one will not protect you if you fall short on the other.
The practical takeaway is that a compliance program built only around board regulations and DEA rules leaves a significant contractual compliance gap. Closing it means regularly reviewing the pharmacy’s actual PBM provider manuals and network agreements, which may change, vary from one PBM to the next, and don’t always agree with each other. It also means building internal documentation practices around all applicable legal and contractual requirements, rather than assuming compliance with pharmacy law automatically satisfies PBM expectations.
How Frier Levitt Can Help
Frier Levitt advises pharmacies on PBM audits, recoupment disputes, and network contract compliance. Whether your pharmacy is responding to an audit finding or proactively reviewing its dispensing, billing, and documentation practices, our attorneys can help identify contractual risks and evaluate potential defenses. Contact Frier Levitt to discuss your pharmacy’s PBM compliance concerns.
