Increase in PBM Audits Seeking DSCSA “T3” Documentation from Pharmacies

In the course of pharmacy audits, PBMs are increasingly requesting from pharmacies copies of Drug Supply Chain Security Act (“DSCSA”)[1] track and trace documents, commonly known as “T3” documentation. The T3, which consists of the Transaction Information, Transaction History, and Transaction Statement, must be received from “authorized trading partners” (i.e., licensed wholesalers, manufacturers, distributors, other pharmacies) before a pharmacy can accept prescription drugs into its inventory. Most PBM Provider Manuals explicitly state that T3 documentation must be received and maintained for a specific period of time and identify that T3 documentation may be subject to audit.

T3 is required for all prescription drugs. Loaning, bartering and donating products may be considered DSCSA transactions that require pharmacies to maintain T3 documentation. On the other hand, several products are exempt, including over-the-counter drugs, devices, medical convenience kits, intravenous solutions, imaging agents, medical gases, anesthetics, anticoagulants, vasopressors, sympathomimetics, products for water/mineral balance or irrigation, product samples and intracompany distributions. However, confusion has arisen since DSCSA provides only broad categories of exemptions and not actual product lists. For example, it is unclear as to where cell and gene therapies such as human cells, tissues, and cellular and tissue-based products (“HCT/P products”) fall into the mix. Confusion has also arisen when there are two entities to consider when sending drug product tracing information for sales to 340B-covered entities that use 340B contract pharmacies. Wholesalers sell drug products to 340B-covered entities but ship the drug products to the 340B contract pharmacies that dispense on behalf of those entities. In such transactions, there must be compliance with both DSCSA and the “covered entity” provisions of the Public Health Service Act. Pharmacies need to be aware of the rules regarding T3 documentation, particularly in terms of which products are required to have T3 documentation and which are not. Currently, minimal DSCSA requirements require pharmacies to check the state licensure status and the FDA listing for each trading partner from which they purchase.

Wholesalers with valid registration with FDA and valid license under state law are considered authorized trading partners. The term “authorized trading partners,” used by the FDA, does not refer to “authorized distributors” as exists under some manufacturer-restricted distribution channels, especially for HIV drugs. A number of products are only sold from a manufacturer to one of their authorized distributors, and as such, the first sale on the T3 must be to one of those authorized distributors. Where a pharmacy receives a T3 that involves a product required to be sold from an authorized distributor, some payors will place the burden for a legitimate T3 on the pharmacy to ensure that it determines (1) that the product has only be sold from a manufacturer to an authorized distributor, and (2) whether the first sale is to an authorized distributor. This may be impossible to ascertain since the first sale is a snapshot which occurred in the past and the list of authorized distributors is constantly changing. At least one PBM Provider Manual requires the pharmacy to check the authorized manufacturer’s website at least once annually to ensure that it is utilizing the most current list of authorized distributors from which to purchase drug products. In some cases, it is difficult to even locate a listing of authorized distributors with some sites requiring a password to access the list.

This all raises the question of what responsibility pharmacies have for ensuring the accuracy of T3 documentation, especially vis-à-vis the PBM. According to the DSCSA, each trading partner must ensure the accuracy of the T3 it receives. According to the PBMs, where a provider should have known a transaction was suspect or fraudulent, a claim chargeback and/or network termination may occur. PBMs have subjected pharmacies in the past to chargebacks and even termination if they are unable to provide pedigree documentation or if the pedigree documentation is not accurate or provides conflicting information. For example, if one of the trading partners in the T3 was not appropriately licensed, the purchase of the product associated with the T3 may be denied. Similarly, if the T3 appears to be inaccurate, a PBM may question the veracity of the T3 and seek chargeback on the relevant claims.

Some PBMs also mandate that pharmacies purchase diabetic testing supplies either directly from a manufacturer or from authorized distributors to avoid the so-called “grey market” resale of these products. However, this mandate fails to consider the current U.S. drug supply chain where a product may pass through multiple wholesalers before the sale to a pharmacy. It also fails to consider the tremendous administrative burden placed on pharmacies to (1) identify which diabetic testing products must only be purchased from “authorized distributors,” (2) locate each manufacturer’s list of “authorized distributors,” and (3) order from these entities and maintain separate purchase records for each of these products. PBMs are increasingly conducting audits and singling out diabetic test supplies purchased from wholesalers who may be authorized trading partners but not included in a manufacturer’s restricted authorized distributor network. PBMs then refuse to count any purchases from non-authorized distributors toward the pharmacy’s inventory resulting in “inventory shortage” discrepancies for claims, then ultimately charge back on those claims despite there being no concern on the safety and otherwise valid sourcing of the diabetic testing supplies. In addition, PBMs are requiring pharmacies to provide T3 documentation for all purchases, and failure to provide such documentation may result in chargeback and the PBM accusing the pharmacy of “inventory shortages,” leading to potential termination.

How Frier Levitt Can Help

When evaluating DSCSA requirements and exemptions in the context of PBM requirements and when considering the need for compliance documentation, pharmacies should consult with pharmacy legal counsel to adjust their business processes for the future. Experienced legal representation can provide a concise response to the audit allegations which directly addresses the issues raised. If you are a pharmacy undergoing an invoice audit and are being asked to provide T3 documentation, or if you are a wholesaler that wants to understand your obligations to maintain and provide T3 documentation, contact Frier Levitt to speak to an attorney.

[1] DSCSA, P.L. 113-54. Title II.

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