Although it’s been three years since the first wave of national lockdowns, many industries continue to grapple with the effects of the COVID-19 pandemic including the disruption of pharmaceutical drug supply chains. In addition, there have been trending off-label uses for many drugs that render the drug unavailable for those who need it for the indicated uses. Besides the obvious delays in patient treatment, national drug shortages pose a unique issue for pharmacies, particularly those operating under intense PBM scrutiny and continue to be audited for past and ongoing purchases of medications. This article explores the implications of drug shortages on pharmacies, particularly in relation to PBM audits, and provides recommendations for pharmacies to navigate these challenges effectively.
As part of their network contracts, PBMs regularly audit pharmacy providers’ records to confirm their compliance with the relevant provider manual and confirm that pharmacies have not engaged in fraudulent or wasteful practices. Typically, in an audit, PBMs will also perform invoice reconciliations to verify that the medications billed to the PBM are adequately supported by pharmacy purchases during the relevant period as an additional way to confirm that pharmacies are dispensing the medications that they are being reimbursed for.
The Impact of Drug Shortages on PBM Audits
While this should be a relatively straightforward process, drug shortages caused by the disruption of the supply chain can easily create the appearance of inventory shortfalls, where a pharmacy seems to be billing for medications that it did not dispense due to delays in receiving the drug product from its suppliers or where a pharmacy purchased the drug product from alternative sources that might not accepted by the PBM . The failure to sufficiently address these types of inventory shortfall discrepancies can result in PBMs seeking to recover these large discrepant amounts from pharmacies, or even taking disciplinary actions such as termination from a provider network.
Unfortunately, PBM manuals do not provide much, if any, specific guidance on what pharmacies should do if there is a national shortage of a medication. However, the consequences of a drug shortage combined with PBMs’ propensity for audits makes knowing how to appropriately respond even more crucial for pharmacies. However, even without explicit guidance, pharmacies should keep the following in mind while determining how to conduct their business in the event of a drug shortage:
Restrictions on Inventory Sourcing
PBMs often limit where pharmacies can source their medications and drug products. A common example of such a limitation is requiring that pharmacies purchase from wholesale distributors that are accredited by the National Association of Boards of Pharmacy (“NABP”) as verified-accredited wholesale distributors, and that are appropriately licensed in the state where a pharmacy operates. Accordingly, only purchases from wholesalers which meet these requirements will be considered during an invoice reconciliation. Additionally, some PBMs may have limitations on purchases from other pharmacies, while others will require that the pharmacy maintain the appropriate documentation regarding the purchase (i.e. invoice, proof of payment, pedigree, etc.). Pharmacies should be aware of their limitations under their PBM provider manuals and agreements on where to source their medications and the documentation requirements that come with such limitations, particularly when trying to source medication during a national drug shortage.
Prohibitions of Bulk Purchases
In addition to limiting the types of wholesalers from which pharmacies can purchase inventory, PBMs often restrict the quantity of medication that pharmacies can purchase at a time. Many PBMs explicitly prohibit or require prior approval for bulk purchases that can otherwise provide the pharmacy with inventory for larger periods of time so that they can afford to make inventory purchases less frequently. This means that even if there is a shortage of a medication and a pharmacy is able to make a bulk purchase of the medication to ensure it can meet its patients’ present and future needs, PBMs may not take such bulk purchases into consideration when conducting an audit of the pharmacy. Therefore, pharmacies should check relevant PBM agreements and provider manuals before making a bulk purchase of medication, particularly those that are affected by drug shortages, even if they anticipate that a medication may be harder to source in the future.
Dispensing Drug Alternatives
To avoid delays in treatment caused by backordered medications, pharmacists may coordinate with a patient’s prescriber to find therapeutic alternatives. Pharmacies should be aware of their obligations under the relevant federal and state law, as well as their PBM agreements and provider manuals, to ensure that any substitution or dispensing of a therapeutic alternative is appropriately documented and permitted.
How Frier Levitt Can Help
In the face of national drug shortages and the scrutiny of PBMs, pharmacies must be proactive and well-informed of the practical considerations and implications discussed above. By considering the limitations on inventory sourcing, restrictions on bulk purchases, and proper dispensing of drug alternatives, pharmacies can navigate these challenges effectively and avoid unfavorable audit results and clawbacks. Our experienced attorneys are prepared to review your policies and procedures on inventory management to ensure your pharmacy’s compliance and assist in any PBM audits your pharmacy may be facing. For assistance with a comprehensive review of your policies and procedures involving drug shortages, inventory sourcing, and bulk purchasing, contact Frier Levitt to speak with an experienced life sciences attorney.
