On November 15, 2023, Frier Levitt attorneys Dae Lee, Harini Bupathi, and Adam Farkas hosted a comprehensive webinar delving into the most common issues pharmacies faced when audited by Pharmacy Benefit Managers (“PBMs”) in 2023, and what pharmacies can expect from PBMs in 2024. As discussed in our recent article, PBMs conduct thorough reviews of their pharmacy networks at the close of each calendar year. These reviews consist of PBMs assessing various facets of pharmacy operations, including an examination of past audit performance and any past adverse actions taken against a pharmacy, and can lead to PBM action, including, but not limited to, network terminations or reports to relevant government agencies. As we approach the end of the year, it becomes crucial for pharmacies to understand the key areas of focus PBMs in 2023 and the anticipated trends in 2024.
2023 PBM AUDIT TRENDS
PBMs routinely conduct audits of their contracted pharmacies and claim these audits are aimed at ensuring their network pharmacies operate in compliance with the PBM’s Provider Manual and Participation Agreement. As the industry develops, the areas PBMs focus on during audits evolve as well. Throughout 2023, Frier Levitt’s attorneys repeatedly represented pharmacies contesting PBM audit findings in relations to the following issues:
- HUB Pharmacy Arrangements – PBMs increased scrutiny on pharmacies that enter into HUB arrangements, enforcing provisions of their Provider Manuals that relate to such arrangements (e.g., requirements that contracted pharmacies collect patient copayments as opposed to the HUB pharmacy, restrictions on sharing the pharmacy’s NPI or NCPDP number, prohibition of test claims, etc.). Of note, certain types of drugs are more commonly affiliated with HUB arrangements than others. Thus, even if a pharmacy does not disclose or request permission from the PBM prior to engaging in the HUB arrangement, PBMs can still discover that one exists based on the types of drugs the Pharmacy is dispensing. As such, although HUB arrangements may not be of significant concern under relevant state regulations, pharmacies must ensure they are complying with the terms of their PBMs contracts before entering a HUB arrangement.
- Prior Authorizations (PAs) – The attention to PAs intensified in 2023, with variations across PBMs on pharmacy participation. The extent to which pharmacies are allowed to participate in the PA process varies between PBMs. For instance, some PBMs may prohibit from participating in the PA process altogether, while others may allow a pharmacy to fill out PA forms so long as the PA is ultimately submitted by the prescriber. Regardless of the limitations that may apply, PBM concentration on PAs has increased uniformly. To illustrate, in 2023, Frier Levitt encountered instances where PBMs possessed telephone call recordings where pharmacies represented themselves as members of the prescriber’s office to complete PAs or even check in on the status of a PA. PBM’s attention to PAs throughout 2023 is in addition to certain regulatory concerns that exist when pharmacies engage in the PA process. Pharmacies should carefully review contractual and legal responsibilities before engaging in the PA process, and to the extent that pharmacies are involved in the PA process, pharmacies should have detailed policies and procedures.
- Deliveries, Proof of Receipt, and Mailing Restrictions – Many PBMs waived delivery and mailing limitations, as well as the corresponding documentation requirements for proof of receipt, during the COVID-19 Pandemic. Following the expiration of the Public Health Emergency (the “PHE”) earlier this year, PBMs reinstated pre-COVID-19 limitations on mailing and delivery. As a result, PBMs have taken various routes to restrict pharmacies from delivering or mailing prescriptions. Throughout the latter half of 2023, Frier Levitt’s attorneys saw PBMs: (a) issue cease and desist notices requiring pharmacies to cease all mail-order practices or face termination; (b) force pharmacies to complete onerous mail-order credentialing; and (c) specifically audit claims that were mailed during the PHE searching for any discrepancy that might justify recoupment.
- Claims for COVID-19 Test Kits –PBMs have shown significant interest in auditing claims for COVID-19 Test Kits that were filled and billed during the COVID-19 Pandemic and PHE. COVID-19 Test Kit claims have typically been associated with a high rate of audit discrepancies, including, but not limited to: (a) drug invoice shortages; (b) patient denied requesting or receiving the Test Kits; and (c) invalid prescriptions, despite no prescription even being necessary for COVID-19 Test Kit claims.
- Drug Invoice Shortages and Other Common Audit Discrepancies – Throughout 2023, PBMs continued to conduct invoice reconciliations, which consist of a review of claims dispensed during a particular period and comparing the total amounts billed for a given drug during that timeframe against the total amounts purchased for the same drug during the same timeframe. Drug Invoice Shortage discrepancies have always been a favorite discrepancy of PBMs, but 2023 saw a particular focus in such discrepancies. PBMs have revised their Provider Manuals to impose terms that cause PBMs to misinterpret pharmacy dispensing and purchasing data such as: (a) limiting the timeframe for which purchases will be credited; (b) restricting the types of wholesalers that pharmacies may utilize and refusing to accept purchases from “non-compliant” wholesalers; and (c) prohibiting “bulk” purchases of inventory. In addition to drug invoice shortage discrepancies, though, PBMs asserted a high number of copay collection, member denial, and prescriber denial discrepancies as well. Again, the increase in these discrepancy types can likely be tied to changes to PBM Provider Manuals which require pharmacies to submit additional documentation to verify a prescription claim. For example, one of the major PBMs now requires pharmacies to submit bank deposits or credit card merchant reports to establish proof of copay collection.
- PBM/PSAO Withholding of Funds and Chargebacks – PBMs were more aggressive in withholding funds from pharmacies based on adverse audit findings in 2023. Whether the payment withholding occurred at the PBM level or through a PSAO (acting on PBM direction), these withholdings regularly occurred with little or no warning to pharmacies. Instead, pharmacies would only learn they have effectively been placed on a payment suspension when their next remittance report is delivered, and no funds were received. Moreover, PBMs have been erroneously withholding funds in excess of the amount at issue in the audit. To illustrate, if an audit placed $50,000 at issue, PBMs have made a habit of recouping $60 to $75,000. More troubling, PBMs may delay returning the excessively held funds or keep the excess altogether as “an audit fee.” Tools, including certain state laws, are available for pharmacies to counteract these tactics.
Understanding the areas PBMs are focusing on is critical for pharmacies to properly prepare for and respond to PBM audits or further adversarial action. Most importantly, pharmacies should take an aggressive approach to combat any and all audit findings, regardless of the amount at issue. With increasing regularity, PBMs have relied on multiple small audits to justify termination of pharmacies from their network, or otherwise impose disciplinary action over extremely small audit amounts, such as reporting the pharmacy to relevant state agencies or boards of pharmacy or requiring the pharmacy implement a formal corrective action plan.
LOOKING AHEAD TO 2024
Building on the trends identified in 2023, pharmacies should prepare for an uptick in PBM audits or investigations in 2024. Many of the areas PBMs focused on in 2023 will continue to be hot-button issues in 2024, especially as it relates to claims filled during the PHE and the consequences of the PHE’s expiration. Specifically, pharmacies should prepare for increased scrutiny over mail-order claims and their delivery operations. One issue pharmacies have begun facing and will likely continue facing in 2024 is establishing proof of receipt of prescriptions that were delivered to the patient through a local courier. Specifically, pharmacies may struggle to provide sufficient proof of receipt if it delivers a prescription to the patient’s home, but the patient is not home at the time of delivery.
Likewise, pharmacies should anticipate continued aggressiveness related to drug invoice shortages in 2024. PBMs are becoming more uniform in their requirements that pharmacies purchase inventory exclusively from NABP-approved wholesalers and, for diabetic test strips, from manufacturer-authorized distributors. In fact, even certain states have implemented laws which require pharmacies to deal exclusively with authorized distributors when purchasing diabetic test strips. As these statutes become more common and similar provisions make their way into additional PBM or third-party payor contracts, pharmacies need to react and make sure their purchasing habits align with their contractual and legal obligations. In addition, pharmacies should maintain diligent billing procedures to ensure that all claims submitted to PBMs contain the appropriate national drug code (“NDC”). Ensuring the NDC of the drug billed and the NDC of the drug dispensed are identical is becoming more crucial for pharmacies due to increasing availability of generic equivalents as well as an increased number of discontinued NDCs (e.g., where the NDC of a specific drug is updated).
Anticipating the areas PBMs will focus on in the new year is critical for pharmacies to respond to PBM audits and address any adverse audit findings. By anticipating areas of PBM concern, pharmacies are better able to maintain appropriate documentation to verify the legitimacy of billed claims and operate in accordance with their PBM contracts. Maintaining a robust set of policies and procedures is a proactive measure that pharmacies are encouraged to take so that the pharmacy is well-positioned to avoid any adverse PBM action. Finally, although mentioned above, it is worth reiterating that, in the event a pharmacy does receive adverse audit findings, the pharmacy exercises its contractual rights to fully challenge the audit findings. Contesting audit findings is an integral part of avoiding additional, more serious action in the future, including but not limited to, PBM network termination and escalation to regulatory bodies, such as State Boards of Pharmacy.
How Frier Levitt Can Help
Regardless of the size of your pharmacy or the amount at stake, Frier Levitt is prepared to assist you in challenging PBM abuse of your pharmacy. Our life sciences attorneys provide guidance in preparing for audits and take an aggressive approach to fight for your rights following a PBM audit. If you have questions or need assistance in combatting adverse PBM actions, contact us to speak to an attorney.
