Independent pharmacies know that Pharmacy Benefit Managers (“PBMs”) perform various types of audits upon their in-network pharmacies. Far less known, however, is that adverse audit findings, even when seemingly insignificant amounts are placed at issue, can lead to future adversarial action from PBMs – particularly when PBMs identify discrepancies during an invoice reconciliation. Accordingly, while pharmacies must take proactive steps to prepare for all types of PBM audits, it is especially important for pharmacies to respond to invoice reconciliations appropriately.
What is an Invoice Reconciliation Audit?
Invoice reconciliation audits consist of PBM review of a pharmacy’s purchase histories for certain medications during a given timeframe, and comparing the total amounts purchased to the total amounts the pharmacy dispensed during the same timeframe. If a pharmacy dispensed greater quantities than it purchased, the PBM will identify drug invoice shortage discrepancies and seek to recoup amounts paid to the pharmacy for the excessive dispensed claims. Significant drug invoice shortages, or multiple audits resulting in drug invoice shortages, frequently result in PBM terminations. Thus, it is imperative that independent pharmacies utilize robust inventory management and record retention procedures, as well as accurately respond to invoice reconciliation requests.
Preparing for Invoice Reconciliation Audits
Given the importance of passing invoice reconciliation audits, pharmacies must proactively implement comprehensive inventory management and record retention procedures. By doing so, pharmacies are able to easily provide the necessary information to respond to an invoice reconciliation request. While the following list is not exhaustive, examples of necessary internal protocols include, but are not limited to, the following procedures:
- Maintenance of Purchase Histories/Proof of Purchases – Pharmacies are encouraged to maintain detailed records of all purchase histories and related documents for a minimum of six (6) years. Amongst the documentation that pharmacies should maintain, either in electronic or paper form, are copies of itemized invoices, proof of payment, and certain documentation required by federal or state laws such as Transaction Statements, Histories, and Information.
- Purchasing from Appropriate Sources – Through provisions of their Provider Manuals, many PBMs impose limitations on where pharmacies can source their inventory. For instance, one major PBM requires its participating pharmacies to purchase inventory exclusively from NABP Accredited Drug Distributors. Similarly, certain PBMs (and even certain state laws) mandate that certain products, like diabetic test strips, be sourced solely from “Authorized Trading Partners” of the test strip manufacturer. If a pharmacy fails to utilize an NABP Accredited Drug Distributor or Authorized Trading Partner, as the case may be, PBMs will refuse to accept the purchases for purposes of the invoice reconciliation, and assert drug invoice shortage discrepancies regardless of whether the Pharmacy technically maintained a sufficient inventory of a given product.
- Internal Invoice Reconciliations – The best way to prepare for an invoice reconciliation Audit is to simulate one internally before PBMs initiate audits of their own. By conducting semi-annual invoice reconciliations, pharmacies more effectively monitor their inventory and can identify any shortcomings before a PBM does, allowing the pharmacy to address and correct any shortfalls. While pharmacies can complete an invoice reconciliation on their own accord, utilizing third-parties to simulate an invoice reconciliation adds additional credibility to the reconciliation results in the event the results must be provided to a PBM to address unwarranted drug invoice shortage allegations.
Responding to PBM Invoice Reconciliations
When PBMs initiate an invoice reconciliation, they will require that purchase histories be submitted directly from the pharmacy’s wholesalers (as opposed to the pharmacy submitting their own copies of invoices). Pharmacies must notify their wholesalers of the pending audit and instruct them to send detailed purchase histories directly to the PBM. However, pharmacies must instruct the wholesalers to include the pharmacy on any email communications with the PBM, particularly when submitting the pharmacy’s purchase histories. Only by receiving the purchase histories at the same time as the PBM can pharmacies ensure that the purchase histories were actually received and that the purchase histories are accurate.
Once the wholesaler purchase summaries are received by the pharmacy and PBM, pharmacies should review the purchase report and compare it to the pharmacy’s own internal records to confirm that all relevant purchases were included in the report. Indeed, it is not entirely uncommon for wholesalers to inadvertently omit relevant purchases in the submitted files. Thus, by retaining itemized invoice copies, pharmacies can notify the wholesaler and PBM immediately if the pharmacy believes the submitted purchase report is incomplete. However, it is imperative that pharmacies provide accurate and detailed information to establish additional purchases were made, as PBMs will privately communicate with wholesalers to confirm such purchases. In the event that the pharmacy provides incorrect information and the wholesaler cannot confirm the additional purchases were made, the pharmacy exposes itself to further liability.
Invoice reconciliations are amongst the most important audits that PBMs conduct upon network pharmacies. Although the consequences of these reconciliations can be drastic, pharmacies possess numerous strategies to effectively prepare for and respond to invoice reconciliations. Ultimately, invoice reconciliations are a simple numbers game – did the pharmacy purchase quantities equal to or greater than the quantities it billed. By implementing robust policies and procedures and scrutinizing documents submitted to PBMs on the pharmacy’s behalf, pharmacies are well equipped to pass invoice reconciliations with flying colors.
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 are prepared to provide guidance as your pharmacy prepares for any type of PBM audit and take an aggressive approach to fight for your rights following an audit. If you have questions or need assistance combatting adverse PBM actions, contact us to speak to an attorney.
