I. Introduction
Has anyone ever started a home repair project that seemed straightforward at first, only to discover it was much more complicated than expected? Did the problem get worse the more you tried to fix it, ultimately costing you more time, effort, and money than if you had just hired a professional from the beginning?
The same is true for pharmacies representing themselves before a board of pharmacy when facing discipline. What initially appears to be a straightforward administrative process may end up being a complex legal dispute with the outcome having a broad scope of potential negative side effects.
Pharmacies operate at the intersection of clinical care, regulatory oversight, and contractual obligations with private payers. Among the most influential regulatory authorities are state boards of pharmacy, which bear the statutory mandate to safeguard the public by ensuring that pharmacies and pharmacists adhere to professional and operational standards. Disciplinary actions taken by these boards, though often arising from relatively discrete violations, frequently generate consequences that extend beyond the regulatory domain.
One of the most significant collateral consequences stems from the contractual relationships between pharmacies and Pharmacy Benefit Managers (PBMs). Most PBMs require pharmacies to disclose disciplinary actions, meaning that a single board order can trigger network scrutiny, audits, or termination.
II. The Scope and Nature of Board of Pharmacy Discipline
State boards of pharmacy possess broad statutory and regulatory authority to discipline pharmacies and pharmacists. At the state level, a pharmacy disciplined by a state board is subject to a wide array of disciplinary measures ranging from administrative fines, reprimands, probation, suspension, or even revocation of licensure. Sanctions can also include remedial requirements, such as continuing education, quality improvement plans, or enhanced reporting obligations. The severity of the disciplinary measure is intended to be commensurate with the grounds for discipline.
However, the grounds for discipline across each state’s regulatory and statutory scheme are equally broad. Common infractions include inadequate recordkeeping, violations of controlled substance regulations, improper staffing or supervision, failure to maintain security of drug stock, or errors in dispensing that jeopardize patient safety. In certain cases, violations are technical in nature rather than malicious, for example, incomplete documentation of refrigerator temperatures or failure of a licensee to wear a name tag. Nevertheless, the regulatory framework permits discipline even for inadvertent or relatively minor errors if deemed indicative of systemic noncompliance.
Importantly, board disciplinary orders are generally a matter of public record. They may be published on the board’s website, reported to national practitioner databases, and disseminated to other regulatory and commercial entities. Thus, the effects of board action are rarely confined to the regulatory sphere and often act as the catalyst for more impactful adverse action being taken against the pharmacy.
III. PBM Contracts and Reporting Requirements
PBMs maintain provider networks through contractual agreements with pharmacies. PBMs typically require pharmacies to certify ongoing compliance with applicable laws, regulations, and licensing requirements. They also frequently impose affirmative duties to disclose material adverse actions, including but not limited to:
- Disciplinary orders, reprimands, or consent agreements issued by a state board of pharmacy.
- Restrictions or conditions on licensure, such as probationary status or limitations on dispensing controlled substances.
- Suspensions, revocations, or denials of licenses or permits.
- Adverse actions by other governmental entities, including the Drug Enforcement Administration (DEA), Centers for Medicare & Medicaid Services (CMS), or state Medicaid programs.
Failure to disclose such actions, even if inadvertent (but especially if intentional and malicious), may constitute a breach of contract. PBMs often reserve broad discretion to impose remedies, which may include audits, recoupment of payments, monetary penalties, or termination from the provider network. From the PBM perspective, regulatory discipline is frequently viewed as a proxy indicator of heightened compliance risk, potential fraud, or diminished patient safety.
IV. The Importance of Legal Counsel in Board Proceedings
At Frier Levitt, our team is uniquely experienced with the inter-play between board of pharmacy actions and their effect on PBM agreements. Given the potential cascading effects, pharmacies should not regard board of pharmacy proceedings as isolated regulatory matters. Instead, they must be approached with a comprehensive strategy that considers both regulatory defense and contractual risk management. Experienced legal counsel provides essential advantages in this process.
A. Guidance During Investigations
When boards initiate investigations, responses provided by pharmacy staff may later form the evidentiary basis for disciplinary action. Legal counsel serves as an intermediary, ensuring that responses are accurate and appropriately framed while preventing inadvertent admissions. Counsel may also negotiate the scope of investigative requests, protecting against overly broad demands.
B. Formulation of Defense Strategies
Many board allegations are contestable. Counsel can identify evidentiary deficiencies, procedural irregularities, or mitigating factors that warrant dismissal or reduction of charges. Where violations stem from systemic challenges, such as staffing shortages, counsel may demonstrate corrective measures that mitigate culpability. Frier Levitt is familiar with the type of evidence required to refute accusations before various boards and can prepare persuasive corrective action plans.
C. Negotiation of Disciplinary Outcomes
If discipline is unavoidable, counsel plays a critical role in negotiating terms. For example, legal representatives may secure a non-disciplinary resolution rather than a formal reprimand, thereby avoiding PBM reporting obligations. Alternatively, they may negotiate settlement language that minimizes reputational harm or collateral contractual consequences.
D. Management of PBM Reporting Obligations
Legal counsel can provide tailored advice on when and how to disclose board actions to PBMs. By carefully reviewing contractual language, counsel may determine whether particular board outcomes trigger reporting requirements at all. Where disclosure is necessary, counsel can frame the matter in a manner that emphasizes corrective actions and mitigates perceptions of risk. The key is to be prepared from the outset of any board investigation, with a strategy focused on minimizing discipline and reducing collateral effects with PBMs and with boards of pharmacy in other states where the pharmacy or pharmacist is licensed.
E. Protection of Long-Term Business Interests
Ultimately, legal counsel evaluates board proceedings within the broader context of the pharmacy’s long-term operational viability. By anticipating the reactions of PBMs and other stakeholders, counsel can develop strategies that protect both immediate legal interests and the continuity of business operations.
V. Conclusion
Disciplinary actions by state boards of pharmacy are not just discrete regulatory events but may become catalysts for broader contractual and commercial consequences. The requirement to disclose such actions to PBMs creates significant risks, as PBMs often respond with heightened scrutiny, audits, or exclusion from networks. In many cases, the collateral impact of PBM responses may exceed the severity of the underlying board sanction.
For this reason, pharmacies must approach board proceedings with a strategic mindset that accounts not only for the regulatory process but also for the downstream contractual implications. Engaging experienced legal counsel is critical in this regard. Counsel provides essential know-how when navigating investigations, formulating defenses, negotiating outcomes, and managing PBM reporting obligations.
Ultimately, investment in legal representation is not merely a defensive measure against board sanctions. It is a proactive strategy to safeguard contractual relationships, protect reimbursement streams, and preserve the long-term viability of the pharmacy within a highly regulated and commercially challenging healthcare environment. Contact Frier Levitt to learn how we can assist your pharmacy.
Frier Levitt provides strategic, industry-focused legal counsel tailored to your needs. Contact our team today to learn how we can help you.
