Pharmacy Benefit Managers (PBMs) are placing increased scrutiny on Drug Supply Chain Security Act (DSCSA) compliance during pharmacy audits, with a particular focus on T3 documentation for pharmacy-to-pharmacy transfers, including transactions facilitated through online marketplaces. Although pharmacies often retain invoices, proof of payment, shipping records, and other evidence of these purchases, PBMs are increasingly demanding complete T3 documentation and often refusing to credit otherwise legitimate purchases when such documentation is unavailable.
The result can be substantial inventory shortage findings, significant chargebacks, and even network termination. As PBMs continue expanding their review of DSCSA compliance, pharmacies should understand what T3 documentation is, when it is required, and how PBMs are evaluating pharmacy-to-pharmacy transfers during audits.
What Is T3 Documentation?
Under the DSCSA, entities that engage in transactions involving prescription drugs are typically required to maintain Transaction Information, Transaction History, and Transaction Statements (collectively, “T3 documentation”) and provide such documentation to certain entities during relevant transactions. Following implementation of the DSCSA, many PBMs have likewise required pharmacies to maintain T3 documentation and produce it upon request during an audit, including in circumstances where pharmacies may actually be exempt from such requirements under the DSCSA. Therefore, when ownership of a prescription drug product is transferred between authorized trading partners, the receiving pharmacy should generally receive and maintain T3 documentation. Together, these records trace the movement of prescription drugs through the supply chain and help ensure the integrity and security of products as they move through the pharmaceutical distribution system.
During an audit, PBMs may refuse to credit otherwise legitimate purchases when a pharmacy cannot produce T3 documentation, even when invoices, proof of payment, shipping records, and other documentation demonstrate that the product was lawfully acquired and subsequently dispensed. Issues involving T3 documentation frequently arise in connection with pharmacy-to-pharmacy transfers, including transactions facilitated through online marketplaces and similar platforms. These transactions often occur when a pharmacy needs to obtain a product quickly to fill a prescription or address a temporary inventory shortage. While such transfers may be entirely legitimate, they do not always include the same documentation that accompanies a traditional wholesaler purchase. As a result, when a PBM audit occurs months or even years later, pharmacies may find themselves attempting to reconstruct records for transactions long after the transfer occurred.
PBMs May Require T3 Documentation Even When a DSCSA Exemption Applies
One point that is often overlooked during PBM audits is that not every pharmacy-to-pharmacy transfer requires T3 documentation. The DSCSA contains several exemptions, including an exemption for the distribution of a product to address a specific patient need rather than to replenish inventory. Although the application of this exemption depends on the particular facts and circumstances, it may apply where a pharmacy transfers a limited quantity of product to another pharmacy to fulfill the needs of an identified patient.
However, pharmacies should be aware that PBMs may impose documentation requirements that extend beyond those required under the DSCSA. For example, certain PBMs may require pharmacies to maintain T3 documentation for pharmacy-to-pharmacy transfers even where the transfer may otherwise qualify for a DSCSA exemption. Pharmacies should therefore review applicable PBM requirements and, if feasible, maintain T3 documentation even when they believe an exemption applies.
Although the absence of T3 documentation does not necessarily mean that a transfer was improper or that it violated the DSCSA, it may nevertheless create issues during a PBM audit if the applicable PBM separately requires such documentation. Maintaining T3 documentation, along with records demonstrating the purpose of the transfer and the specific patient need, can help pharmacies substantiate the inventory transfer and address potential audit concerns.
What Pharmacies Should Do Now
As PBMs continue to increase their scrutiny of pharmacy-to-pharmacy transfers, pharmacies should take proactive steps to ensure these transactions can withstand audit review, including:
Maintain T3 documentation.
Where T3 documentation is required, pharmacies should ensure that they receive it from authorized trading partners and retain it for the period required under applicable law and any applicable PBM provider manuals.
Maintain supporting documentation for pharmacy-to-pharmacy transfers.
In addition to maintaining T3 documentation, pharmacies should retain invoices, proof of payment, shipping records, communications regarding the transfer, and other records demonstrating the legitimacy and purpose of the transaction. While these records may not substitute T3 documentation when it is required, they may be critical in establishing the legitimacy of the transfer during an audit.
Document transfers thoroughly.
Pharmacies should maintain records identifying the drug name, dosage form, strength, National Drug Code (NDC), lot number, quantity transferred, and transfer date. Where a transfer is made to address a specific patient need rather than to replenish inventory, pharmacies should also retain documentation supporting the applicability of the DSCSA exemption.
Understand PBM-specific requirements.
Pharmacies should review their PBM contracts and provider manuals to understand any PBM-specific requirements governing pharmacy-to-pharmacy transfers, purchases through online marketplaces, and required documentation.
Conduct periodic self-audits.
Pharmacies should regularly reconcile purchasing records against dispensing history to identify potential inventory gaps before a PBM audit occurs. Where discrepancies exist, pharmacies should investigate them promptly and gather supporting documentation while records remain readily available.
How Frier Levitt Can Help
Frier Levitt represents pharmacies nationwide in PBM audits, appeals, and network termination matters, including disputes involving inventory shortages, pharmacy-to-pharmacy transfers, T3 documentation, and DSCSA compliance. Our attorneys understand both the DSCSA framework and the documentation requirements PBMs impose through their provider manuals and network agreements.
If your pharmacy is facing a PBM audit, or if you have questions about your documentation practices, contact Frier Levitt to speak with one of our attorneys.
