Pharmacy Benefit Manager (PBM) audits are now a routine, and often aggressive, feature of the pharmacy ecosystem. While PBM audits can begin as paperwork exercises focused on a discrete date range or claim set, they can quickly escalate into recoupments, network suspension, and, in the most severe cases, termination. Unresolved PBM audits can progress to network termination through contractual and procedural pathways, but pharmacies can mitigate risk and preserve network participation through practical strategies.
The PBM Audit Framework and Why It Matters
PBM audits are grounded in network participation agreements, manuals, and accompanying policies, as well as payer contracts the PBM administers. These documents generally give PBMs broad authority to review claims for compliance with credentialing requirements, dispensing and documentation standards, acquisition cost substantiation, prescriber verification, and patient eligibility. An audit can be desk-based, on-site, or hybrid, and almost always culminates in preliminary findings, a rebuttal window, and a final determination.
The stakes are not limited to dollar recoupments. Audit findings often serve as the predicate for categorizing a pharmacy as “high risk,” imposing corrective action plans, expanding the scope of review to other claim periods, and triggering additional oversight such as recredentialing or enhanced monitoring. When left unresolved, regardless of the dollar amount at issue (or inadequately rebutted), these matters can ripen into alleged “material breaches” or “fraud, waste, and abuse” (FWA) determinations. Many PBM contracts identify this as grounds for immediate termination.
How Unresolved Findings Escalate
A common escalation sequence begins with preliminary audit results that identify variances in documentation or dispensing. If the pharmacy does not provide a timely and substantiated rebuttal with primary-source evidence, the PBM may finalize the findings and issue a recoupment demand. From there, two dynamics often push the matter toward termination.
First, unresolved findings can be cast as systemic deficiencies rather than isolated clerical errors. PBMs may argue that missing or inconsistent records, unverified prescriber credentials, stale prescriptions, or insufficient proof of acquisition costs reflect ongoing noncompliance. Second, final findings can feed into credentialing and network integrity determinations. When a PBM concludes that a pharmacy cannot validate its claims or inventory sourcing, the PBM may assert the pharmacy has violated network terms tied to recordkeeping, dispensing standards, FWA policies, or “clean claim” representations, setting up a termination pathway.
Procedural Steps and Due Process Considerations
Most PBM frameworks include administrative processes, such as the issuance of preliminary findings, rebuttal, and final determination, sometimes followed by further internal appeal. The precise timelines and evidentiary requirements vary by PBM and product line. If a pharmacy does not appeal timely, the PBM will often treat findings as admitted, making later appeals difficult. Even when a pharmacy appeals findings from a PBM audit, the quality and specificity of appeal documentation make a significant difference.
Some PBMs also require pharmacies to exhaust internal appeal rights before seeking external relief. Pharmacies should be aware of their contractual and legal rights when facing a PBM audit and understand how to leverage them to successfully challenge PBM audits and any wrongful actions that may follow.
Common Audit Themes That Lead to Termination
While every audit is fact-specific, certain themes recur in termination cases when left unresolved:
- Insufficient proof of inventory acquisition costs or quantities, especially for specialty or limited-distribution drugs. PBMs may allege “inventory shortfalls” if invoices do not align with dispensed units.
- Documentation gaps: missing delivery manifests, signature logs, proof of patient receipt, or temperature control records for cold-chain products.
- Prescription validity issues: expired or incomplete prescriptions, prescriber credential discrepancies, or lack of prescriber-patient relationship documentation in telemedicine contexts.
- Suspected copay manipulation, waiver practices, or use of third-party copay programs inconsistent with plan terms.
- Noncompliance with PBM manual requirements, including notice obligations for ownership changes, unapproved use of NPI, submission of test claims, or shipping practices.
Strategic Response: Preventing Audit Findings from Becoming Termination
The best defense to termination begins even before an audit is issued. It is important for pharmacies to be proactive rather than reactive. Pharmacies should centralize audit response, calendar every deadline, and immediately triage document requests against what the PBM manual and agreement actually require. Where the PBM seeks materials beyond contractual or policy scope, the response should preserve objections to the audit while balancing a cooperative but strategic response.
Substantively, pharmacies need claim-specific, primary-source documentation. For example, with respect to supporting a pharmacy’s inventory, this includes supplier invoices, pedigree documentation where applicable, purchase summaries reconciled to dispensed quantities, and proof of payments. When records are incomplete, contemporaneous system logs, dispensing system metadata, and corroborating third-party records may help bridge gaps if properly authenticated.
Importantly, pharmacies should propose and execute corrective actions as needed. Even when contesting findings, demonstrating enhanced training, updated SOPs, technology controls, and vendor remediation can help reframe the issue from alleged deficiencies, undercutting termination rationales. In fact, some PBMs may now expressly indicate they expect pharmacies to develop and implement corrective action plans in the event there are outstanding discrepancies.
Navigating Recoupment, Holds, and Network Status
When final findings are issued, PBMs may begin offsetting recoupments against current claims or place payment holds, if they haven’t already done so. These measures often precede or accompany notices of potential termination. Pharmacies should review whether the PBM complied with contractual notice and timing requirements, whether offsets violate applicable prompt-pay rules, and whether the PBM exceeded the scope of its audit authority.
Practical Takeaways
An unresolved PBM audit does not merely risk a recoupment; it can threaten the pharmacy’s participation in critical networks. PBMs have increasingly sought network termination of pharmacies, regardless of the dollar amount at issue. The keys to avoiding termination are disciplined audit response management, rigorous documentation, timely and evidence-backed rebuttals, and credible corrective action, if needed. Treating every audit as a potential gateway to network action, and responding accordingly, materially improves the odds of preserving network status.
How Frier Levitt Can Help
Frier Levitt attorneys bring years of experience assisting pharmacies in challenging PBM audits and navigating their relationships with PBMs. If your pharmacy is undergoing a PBM audit or facing potential network action, contact Frier Levitt to speak with an attorney.
