A troubling trend that has emerged in the pharmacy industry is the practice of cross-network termination, where Pharmacy Benefit Managers (PBMs) target not just individual pharmacies but entire networks of pharmacies under common ownership, affiliation, or relationship. Such terminations follow audits conducted by PBMs upon independent pharmacies.
PBM audits can be exhaustive and punitive, often leading to recoupments that demand repayment of reimbursements previously made to pharmacies. Beyond financial penalties, the most severe consequence of these audits is network termination, which can effectively put a pharmacy out of business.
Historically, the impact of an audit was confined to the audited pharmacy. However, in the evolving landscape, PBMs have been increasingly extending the repercussions of one pharmacy’s audit to other pharmacies within the same ownership group or affiliated network. This practice of cross-network termination can devastate multiple business locations simultaneously, irrespective of their individual compliance status.
Cross-network termination refers to the PBM’s ability to terminate all pharmacies under common ownership, affiliation, or relationship following an adverse audit finding in one location. The rationale provided by PBMs often hinges on the assertion that non-compliance or fraudulent activity at one pharmacy could indicate systemic issues across the entire network.
This practice raises significant concerns for independent pharmacies, as it means that the actions or alleged non-compliance of one location can jeopardize the viability of several others. For instance, if a PBM audits a pharmacy and finds discrepancies, it may decide to terminate not only the audited pharmacy but also any affiliated pharmacies, regardless of their audit history or compliance status.
For independent pharmacy owners, the threat of cross-network termination represents a substantial risk. The interconnected nature of pharmacy networks means that a single audit can lead to a cascade of terminations, affecting multiple locations, employees, and patients. This risk is particularly acute for pharmacies that operate under a single corporate umbrella or have established relationships through joint ventures, partnerships, or shared management structures. Needless to say, the financial and operational impacts of such terminations are profound. Pharmacies face immediate revenue loss, disruption of patient services, and potential legal battles to contest the terminations. The reputational damage can also be significant, as patients and providers may lose trust in the stability and reliability of the pharmacies.
Independent pharmacies must adopt proactive strategies to mitigate the risks associated with cross-network termination. Thus, it is important for pharmacies to continuously monitor their business operation and compliance. Pharmacies should implement robust compliance programs that go beyond basic regulatory requirements. This includes regular internal audits, employee training, and stringent documentation practices to ensure adherence to PBM contracts and regulatory standards. Where feasible, pharmacies may consider restructuring their operations to minimize cross-network risks. This could involve creating distinct legal entities for different locations or business units, thereby reducing the likelihood of a single audit impacting the entire network.
More importantly, pharmacies should know that there are existing tools available to help defend against PBM scrutiny, ranging from contractual rights to legal rights. Pharmacies can effectively navigate and resolve egregious audit findings and unwarranted network termination including cross-network termination by utilizing such tools.
How Frier Levitt Can Help
At Frier Levitt, we are committed to supporting independent pharmacies in navigating these complex challenges posed by PBMs. Our team of experienced attorneys is dedicated to defending pharmacies against unjust PBM practices and ensuring their continued ability to serve their communities. If your pharmacy is facing audit threats or other PBM-related issues, we are here to help you protect your business and secure your future. Please contact us today to speak to an attorney. By staying informed, prepared, and united, independent pharmacies can resist the pressures of PBM audits and cross-network terminations, ensuring their vital role in the healthcare system endures.
