Over the past few months, we have seen an aggressive trend of Express Scripts, Inc. (“ESI”) and Medco Health Solutions, Inc. (“Medco”) audits, focusing specifically on NDC numbers ending in “00”. Only one manufacturer uses NDC numbers ending in “00” for all package sizes sold. ESI/Medco have labeled these audits as “Fraud, Waste and Abuse (“FWA”) Investigations.” ESI/Medco will initially conduct a purchase history verification of a pharmacy’s invoices and inventory records and seek summaries of a pharmacy’s purchase histories from its wholesalers. Unlike traditional purchase history verifications, these actions are targeted specifically at compounders. The investigations seem further focused on compounders experiencing significant revenue growth in compound prescriptions.
Because ESI arbitrarily and unilaterally identifies these invoice audits as “Investigations,” ESI attempts to carry out the examinations under the Investigation Procedures section of the Pharmacy Manual (not the “audit” section of the Manual). By characterizing the audit as a FWA “investigation,” ESI/Medco argue that they can get around the provisions in the ESI/Medco Manuals setting forth audit rules and also is an attempt by the PBMs to get around various State laws. Many states have “pharmacy bill of rights” type rules, controlling the “timing” of PBM audits. However, most such state laws provide “exceptions” to the PBMs, permitting more aggressive “auditing” where the audit relates to a FWA “investigation.”
The real focus of these audits has been on the pharmacies’ use of compound ingredients that have an NDC number ending in “00.” One manufacturer uses “00” as the final two digits for all of its products, regardless of package size. Essentially, ESI/Medco have taken the position that “00” at the end of an NDC number is considered a representation by the pharmacy that the compound pharmacy has purchased and is billing for a one gram package size. ESI/Medco consider that the pharmacy has “billed” the PBMs for “one gram” package sizes, and then ESI/Medco examine the pharmacy’s purchase history records and conclude that it has in not fact purchased any “one gram package sizes.” ESI/Medco then conclude that the claims are unsupported and subject to full recoupment, despite the fact that the NDC number submitted by the pharmacy is the exact same NDC number for the product purchased by the pharmacy. We are defending these audits and disagree with ESI/Medco’s conclusions.
Because ESI has characterized these audits as “investigations” rather than audits, ESI seeks to greatly curtail a pharmacy’s right to respond to these investigations or otherwise appeal ESI’s findings. However, ESI/Medco may not have the complete authority to conduct investigations in this manner, and several defenses exist. First, often times the pharmacy’s State law prohibits ESI/Medco from investigating in this way in the absence of probable fraud, thus the investigations procedures and findings may be entirely barred by State law. Second, there may be contractual defenses to ESI and Medco jointly auditing in this manner under a provision that exists only in ESI’s Manual (and not in Medco’s).
Frier Levitt is handling multiple Purchase History Verification audits for compounders across the United States, involving ESI and Medco. We have an in-depth and detailed understanding of the NDC number issue and how the NDC number interacts with traditional definitions of package size.
If your pharmacy has received a notice of investigation, request for supplier purchase summaries, or an investigation findings letter from ESI or Medco, contact Frier Levitt. We have substantial experience in this area and can defend your pharmacy.
