Pharmacy Alert: PBM Audits and Terminations can Lead to Collection Lawsuits

As Frier Levitt has highlighted in recent articles, independent pharmacies are encouraged to use all available tools to combat unjustified PBM audit findings.  Pharmacies should exhaust their efforts, even in instances where the amount of monies at stake are minimal, as Pharmacy Benefit Managers (“PBMs”) often combine unresolved audit findings to terminate a pharmacy from their networks.  Further, in the event audit findings do lead to a network termination, the pharmacy’s financial liability to the PBM is not eliminated, and thus the pharmacy remains responsible for repaying the PBM the full amount at issue identified during the audit.  Ph

In instances where a PBM has not had a chance to recoup the discrepant amount from a pharmacy post network termination, the PBM will likely seek to recover payment either from the pharmacy or from its Pharmacy Services Administrative Organization (“PSAO”) contingent upon terms of the contract between the PBM and the pharmacy or the PBM and the PSAO.  Likewise, the PSAO will likely seek to collect the discrepant amount from the Pharmacy when the PSAO was contractually bound to pay it back to the PBM.  Regardless, it is important to note that the pharmacy could be financially liable for any outstanding discrepant amount from a PBM audit post network termination.  More importantly, the pharmacy can be subject to collection lawsuits by collection agencies hired by PBMs and PSAOs.  Although there are State and Federal laws that aim to prevent abusive collection efforts by a collection agency, they remain highly motivated and persistent to collect all outstanding debts.  Recently, however, Frier Levitt has seen cases where collection lawsuits are pursued, rather than collection agency efforts, to recover money due and owing.

For example, a lawsuit recently filed in the Western District of Oklahoma (“Oklahoma Lawsuit”) by a PSAO illustrates the hurdles PBMs and other third-party administrators, like PSAOs, are willing to endure to collect outstanding funds.[1]  By way of brief background, a PSAO is a third-party that, like a PBM, has its own network of pharmacies.  The PSAO assists its in-network pharmacies in dealing with PBMs by offering negotiation, contracting, and reimbursement services.  Specifically, a PSAO may serve as a “middle-man” between an independent pharmacy and a PBM by collecting payments owed to the independent pharmacy by the PBM, and remitting payment to the pharmacy for a fee.  However, as highlighted in the Oklahoma Lawsuit, in the event a PBM withholds money from an independent pharmacy, the PSAO will have to seek the payment it is owed from its in-network pharmacies.

In the Oklahoma Lawsuit, an independent pharmacy was terminated from a major PBM’s network after an audit that placed approximately $500,000 at issue.  The PBM recouped the discrepant amount from the PSAO.  As a result, the PSAO sought collection from the independent pharmacy.  In the PSAO’s complaint, it cited to numerous contractual provisions entered into between the PSAO and the pharmacy including, but not limited to, one section which stated

“if [a PBM] or another payor withholds…all or any portion of [payment] amount due to [independent pharmacy], resulting in a negative balance due, [independent pharmacy] must immediately make funds available in its bank account designated for [payment] services and must allow [the PSAO] to recoup all monies due from [independent pharmacy]…”[2] 

The PSAO asserted multiple claims including breach of contract, and alarmingly, intended not only to hold the pharmacy liable, but also to hold the pharmacy’s owner personally liable for the amount at issue.

The Oklahoma Lawsuit serves as yet another example of why it is imperative that independent pharmacies dispute PBM audit findings to the fullest extent possible.  Although PBM audits are supposedly intended to identify and prevent fraud, waste and abuse, PBMs often use audits as a weapon to seek recoupment and increase their own profits at the expense of independent pharmacies.  More troubling, even if an audit results in relatively small clawback amounts, PBMs often combine small audit findings to justify terminating a pharmacy from its network.  Further, and as indicated by the Oklahoma Lawsuit, although the pharmacy is terminated from the PBM network, the pharmacy’s liability to a PBM and/or PSAO remains intact, and the pharmacy’s owner can be pulled into collection lawsuits. 

How Frier Levitt Can Help

Regardless of the size of your pharmacy or the amount at stake, Frier Levitt is ready and able to assist you in successfully challenging a PBM’s audit or termination of your pharmacy.  Our life science attorneys are prepared to provide guidance as your pharmacy prepares for PBM audits as well as provide an aggressive approach to fight for your rights following a PBM audit or termination.  If you have any questions, or need help fighting a PBM audit, contact us to speak to an attorney.

[1] See Pharmacy Providers of Oklahoma, Inc. v. Medi Brothers, LLC d/b/a Best Care Pharmacy, Case No. 5:22-cv-00247-JD, pending in the United States District Court for the Western District of Oklahoma.

[2] Complaint at 14, Pharmacy Providers of Oklahoma, Inc. v. Medi Brothers, LLC d/b/a Best Care Pharmacy, Case No. 5:22-cv-00247-JD (W.D. Okla. 2022).