PBM Audits in Retail and Long-Term Care Combo Pharmacies: When a Retail Audit Becomes a Combo Audit
PBM audits increasingly start as routine retail claim reviews and expand, sometimes abruptly, into full-scale combo audits when the auditor detects poor separation between the retail and long-term care (LTC) lines of business. The trigger is often inventory or claim segregation failures that suggest class‑of‑trade misuse, LTC ineligible claims, or packaging or service billing inconsistent with plan rules.
This article explains the audit expansion trend, how PBMs build scope from retail to LTC, and what combo pharmacies must do, immediately and long‑term, to minimize recoupment risk, protect network status, and demonstrate compliance.
The New Audit Reality: Retail to Combo in One Notice
PBMs leverage broad audit rights in network contracts to review eligibility, documentation, pricing, inventory acquisition and dispensing, and compliance with plan rules. When an auditor reviewing retail claims sees signals of LTC activity without clear structural separation, such as a shared wholesaler account and no separation of inventory, the audit is commonly expanded to include both retail and LTC claims, inventory, and operations. For example, during a retail inventory audit, a pharmacy is required to submit purchase documentation directly from its wholesaler. If the auditor then inquires about whether the retail and LTC pharmacies maintain separate ordering processes and physical inventory, and discovers that they do not, this raises an immediate red flag. As a result, the auditor may expand the scope of the audit and begin reviewing the LTC pharmacy’s dispensing and billing activity to the PBM under the same audit.
What PBMs Look For First: Red Flags and Proof Points
The hallmark of a compliant combo operation is clear, well-documented separation between the retail and LTC sides of the business. This is especially important when it comes to inventory. PBMs will compare wholesaler invoices to the pharmacy’s claims data and check that the National Drug Code (NDC) for what was dispensed matches what was purchased and what was billed, with quantities lining up by package size.
What To Do: Practical Steps Before, During, and After an Audit
Pharmacies that operate as combo pharmacies should prepare now and act deliberately. Before an audit occurs, pharmacies should understand their legal and contractual obligations to maintain separate operations as a retail and LTC pharmacy, despite being a combo pharmacy. To the extent pharmacies are required to do so, pharmacies should conduct separate audits of each arm of their business, the retail and LTC, to ensure that independently there are no areas of non-compliance, particularly as it relates to their inventory management.
If an audit has already been initiated against your combo pharmacy, ensure that the expanded scope of the audit is permitted under the applicable PBM Provider Agreement and Manual, as well as applicable law, and seek effective counsel to advise on any representations and submissions of information to the PBM during the audit.
Key Takeaways for Combo Pharmacies
Operating as a combo without separation may invite audit expansion and additional recoupments.
- Consider building virtual, or if possible, real walls between inventories.
- Make sure documentation at either pharmacy is audit-ready.
- Review internal measures, implement robust policies and procedures, and consider corrective action plans when necessary.
- Engage counsel early. Contract terms and appeal processes matter when disputing the scope or recovery related to an audit.
Contact Frier Levitt to speak with an attorney today.
