As independent pharmacies are all too aware, pharmacy benefit managers (PBMs) routinely conduct invoice reconciliations as part of their audit processes to identify potential inventory shortfalls at audited pharmacies. To confirm the legitimacy of the claims billed by their network pharmacies, PBMs compare the quantities of drug products, often on an NDC level, for which pharmacies submitted claims against the purchases made by the pharmacies during the relevant time period. Ideally, the quantity purchased should be the same, if not greater than the quantity billed and dispensed during the audit period. If quantities billed exceed the purchased quantities for a given NDC, the PBM may flag the difference as an inventory shortfall and seek to recoup the corresponding claim payments.
While this type of review is intended to identify and prevent fraudulent billing practices, like many PBM practices, it often overlooks the practical realities of pharmacy operations. As a result, legitimate, non-purchase related factors can create apparent discrepancies on paper, and completely reasonable circumstances that are entirely unrelated to the providers’ failure to purchase sufficient quantities of the drug items billed and dispensed to patients can cause a reconciliation to show a discrepancy on paper, even where the pharmacy dispensed every unit it billed. Below, we discuss some of the more common, non-purchase-related reasons that your PBM is alleging that its audit identified inventory shortages.
Purchases Made Prior to Audit/Review Periods
Because PBMs only consider the purchases made by a pharmacy within a set period, anything purchased before that window often gets excluded from their calculations. Therefore, if a pharmacy happens to purchase a large quantity of a certain drug product (or even smaller quantities of less commonly prescribed drug products), such quantities will often not be considered during PBM audits. Accordingly, the PBM will allege that the pharmacy billed claims for drug products it did not have in its inventory during the relevant period. Pharmacies should understand whether they are required to notify PBMs prior to making any “bulk purchases,” so that any purchases not used soon after to dispense to patients are otherwise taken into consideration during an audit.
Purchases of alternative NDCs and Therapeutic Alternatives
During audits, PBMs typically reconcile inventory by matching the specific National Drug Code (NDC) on a dispensed claim to the NDCs reflected in the pharmacy’s purchasing records. When the system does not find a one-to-one match, it flags the claim as unsupported by a corresponding purchase. However, pharmacies routinely purchase drugs under NDCs that differ from the NDC billed on the claim. In each scenario, the purchasing records will reflect an NDC or product name that does not match the claim, causing the auditor’s system to register a shortfall even though the pharmacy legitimately acquired and dispensed the medication. Pharmacies should ensure the NDC submitted on a claim matches the NDC of the medication purchased and dispensed, even if it is the exact same medication.
Purchases from Non-Accredited and/or Unauthorized Wholesalers and Pharmacy Marketplaces
PBM auditors frequently obtain purchasing data directly from wholesalers, relying on those wholesaler reports as the definitive record of the pharmacy’s acquisitions. However, when a PBM requires that items dispensed to its members are sourced from wholesalers who meet specific accreditation requirements, any purchases made through wholesalers lacking the required accreditations and/or licensures are not credited toward the pharmacy’s purchases. Similarly, purchases made through pharmacy marketplaces, as well as quantities received via inter-pharmacy transfers, can also be omitted if a pharmacy does not maintain sufficient documentation to support those purchases.
Clerical Errors
PBM audits operate on the assumption that the data in a pharmacy’s dispensing system and claims records accurately reflect what was actually dispensed to patients. When auditors compare those records against purchasing data, any discrepancy is treated as a potential shortfall. However, human error in the ordinary course of pharmacy operations can distort the dispensing side of the equation. Data entry mistakes (such as entering an incorrect quantity dispensed, selecting the wrong drug or NDC in the pharmacy management system, or miscounting tablets during the fill process) can all create discrepancies between dispensing records and purchasing data. These clerical errors, while regrettable, are not uncommon in high-volume pharmacy settings and do not reflect intentional misconduct. When identified during an audit, pharmacies should work to trace the source of the error, provide corrected records where possible, and demonstrate that appropriate quality assurance procedures are in place to minimize such occurrences.
Improper Document Maintenance
PBM auditors routinely request that pharmacies produce supporting documentation (including purchasing invoices, wholesaler statements, and other acquisition records) to substantiate their dispensing activity. When a pharmacy cannot produce the requested records, the auditor treats the corresponding claims as unsupported, resulting in an inventory shortfall regardless of whether the purchases were actually made. Pharmacies are required to retain these documents for specified periods under state and federal law, as well as under their PBM contracts. When those documents are lost, misfiled, incomplete, or stored in a manner that makes retrieval difficult, the pharmacy may be unable to substantiate purchases that were, in fact, legitimate. Poor document maintenance practices can therefore transform what would otherwise be a clean audit into one marked by shortfalls and potential recoupment demands. Pharmacies should implement robust recordkeeping protocols and conduct periodic internal reviews to ensure all acquisition documentation is accurate, complete, and readily accessible in the event of an audit.
As described above, there are numerous legitimate, non-purchase reasons why the quantity dispensed within a certain period appears unsupported by pharmacies’ purchases. It’s important to note, however, that despite these reasonable explanations, each of these discrepancies can surface as an apparent shortfall during a PBM audit. This would be troublesome enough when only monetary recoupments are at stake for otherwise validly rendered services, but the consequences frequently extend much further, resulting in additional adverse actions, including termination from PBM networks. Given these stakes, it is essential that pharmacies take the time to review their own records to identify the root cause of shortfalls alleged by their PBM, and exhaust every available appeal and dispute procedure to challenge such findings before further disciplinary action can be taken.
How Frier Levitt Can Help
If you are going through an audit or investigation that involves an inventory or invoice reconciliation, Frier Levitt can help coordinate efforts to obtain responsive appeal documentation, as well as prepare a substantive response to resolve the discrepancies alleged by your PBM. Contact us to speak with an attorney today.
