Caremark Pharmacy Audit Defense Attorneys

CVS Caremark (“Caremark”) is a Pharmacy Benefit Manager (“PBM”) wholly owned by CVS Health.  As a PBM, Caremark has implemented vigorous Pharmacy Audits and Investigations including on-site audits, fraud waste and abuse investigations, desktop audits, and government agency audits.  Unfortunately, Audits can lead to full recoupment on claims and other adversarial actions such as Payment Suspension, Adjudication Suspension and Pharmacy Network Termination.  To make matters worse, Caremark is known for its onerous and time-consuming credentialing/recredentialing and readmission procedures.  Also, Caremark charges Direct-and-Indirect Remuneration (“DIR”) Fees to pharmacies based on the performance metric created by Caremark. 

Caremark Audit Findings/Penalties

Caremark Audits can be arduous and demanding.  Caremark often places heavy burdens on the pharmacy to provide a variety of requested documents and records that Caremark has determined are necessary to evaluate the pharmacy’s compliance with the terms of the Caremark’s Pharmacy Provider Agreement and Pharmacy Provider Manual.  If Caremark determines that the supporting documents submitted by the pharmacy are insufficient, then Caremark will clawback the entire reimbursement amount of the claims and may impose additional penalties (including network termination). 

During an Audit, Caremark will often review claims-specific information, requesting documentation on a certain group of prescriptions (typically for claims submitted in the past two years of the Audit), but may often request non-claims-specific information, such as purchase history records.  Examples of documentation routinely request by Caremark as part of an Audit include:

  1. Photocopies (front and back) of original hardcopy prescriptions/physician order sheets including back-slaps or any computer-generated stickers
  2. Signature logs
  3. Delivery logs with tracking information for mailed or home/business delivered prescriptions
  4. Wholesaler, manufacturer and distributor invoices (with NDC, drug names, quantity, package size)
  5. Wholesaler, manufacturer and distributor pedigrees and state licenses.
  6. Refill information
  7. Prescriber information
  8. Patient profiles/Prescriber orders
  9. Prescription label and dispensing label
  10. Medical records to support a bona fide prescriber-patient relationship
  11. Proof of copay collection (including receipts, cancelled checks, proof of credit card transactions, and bank deposit slips)
  12. Signed prescriber or patient attestations
  13. Ownership information
  14. Policies and procedures

Based on Caremark’s review of the documents provided by the pharmacy, Caremark will issue Initial Audit Findings that include Preliminary Discrepancy List.  In the Initial Audit Findings, Caremark will assign certain discrepancy code to each alleged discrepant claim, and may provide guidance on certain acceptable documentation that the pharmacy may provide to resolve the discrepancy. Common discrepancy types, and the supporting documentation, include the following:


Supporting Documents

Copay Collection (CPY)

Failure to provide adequate evidence of copayment collection.

Drug Invoice Shortage (DIS)

Failure to provide invoices and/or purchase summaries.

Invalid Prescriptions (INV)

Failure to provide supporting documents to cure deficiencies noted in the prescription.

Misfill (MIF)

Failure to provide documents that justify filling the prescription. 

Missing Prescription (MP)

Failure to provide hardcopy prescription or equivalent documents. 

No Signature Log (NSL)

Failure to provide signature logs signed by patients or patient representatives.

Prescriber Denial (PRD)

Prescriber denied existence or validity of the prescription.

Patient Denial (PTD)

Patient denied requesting or receiving the prescription.

Challenging Caremark Audit Findings/Penalties

When a PBM flags a claim as being discrepant, the PBM will typically clawback the entire amount of reimbursement on the claim (although, in some instances, it may make partial recoupments when there is only a partial overpayment).  Pharmacies have many rights – both under the contract documents and applicable law – to contest Audit Findings.  This can include introducing evidentiary materials such as prescription-related documents, patient or prescriber statements, invoices, and purchase histories. 

Pharmacies facing Caremark’s Audits should review Caremark’s Pharmacy Provider Manual and Audit Findings in order to gather the requisite supporting documentation.  As noted above, this will vary depending not only on the discrepancy type, but the drug product at issue.  For example, for diabetic testing supplies, Caremark requires their member pharmacies to use diabetic products that have been sourced either from within the manufacturer’s authorized distribution channel or purchased directly from the manufacturer. The Provider Manual also sets forth a specific time frame for the pharmacies to submit the evidentiary materials for Caremark’s review and consideration.  Thus, pharmacies must submit the supporting documentation within the time frame to Caremark.   

The normal life cycle of an Audit conducted by Caremark begins with a Notice of Audit whereby Caremark requests the Pharmacy to submit documents on a number of prescription claims.  Upon review of the documents submitted by the Pharmacy, Caremark will issue its Initial Audit Findings, which will include Preliminary Discrepancy List.  Subsequently, Caremark will issue its Final Audit Findings, regardless of whether the Pharmacy submitted an appeal response to dispute the Initial Audit Findings.  In the Final Audit Findings, Caremark will either upload or reverse alleged discrepancies raised in the Initial Audit Findings.  Recoupment on claims typically begins after Caremark issues the Final Audit Findings.  More importantly, pharmacies can often challenge the discrepancies upheld in the Final Audit Findings.   

As noted above, Caremark may further penalize the pharmacy based on the Final Audit Findings.  Such penalty may result in Payment Suspension (where Caremark temporarily suspends payments on claims while the pharmacy is allowed to submit claims), Adjudication Suspension (where the pharmacy is temporarily prohibited from submitting claims to Caremark), or Pharmacy Network Termination (where the pharmacy is terminated from Caremark’s Pharmacy Network for a set period, which may range from 1 year to 5 years).  These penalties often must be appealed separate and apart from the underlying Audit Findings that formed the basis of the penalties. 

With respect to Pharmacy Network Termination, the critical time for appeal can determine the future for the pharmacy, especially since terminations generally result in a 1-year, or even a 5-year, waiting period before the pharmacy can re-apply to the Caremark’s Pharmacy Network.  In the event of termination, the pharmacy must begin preparing for readmission into Caremark’s Pharmacy Network as Caremark tracks history of Audits.  Thus, it is imperative pharmacies demonstrate, when seeking readmission into Caremark’s Pharmacy Network, that they took the necessary steps to “cure” any and all discrepancies that formed the basis of termination.

Among the important tools available to pharmacies facing PBM Audits are State Fair Audit laws.  Although each state has different State Fair Audit laws (albeit not all states have these laws), the directive of the Fair Audit laws is to regulate PBMs’ audit practices, which are often abusive and unreasonably demanding.  Thus, these laws could be highly beneficial for the pharmacies when challenging Audit Findings.  For example, Texas State laws prohibit PBMs from calculating the amount of recoupment based on “an absence of documentation the pharmacist or pharmacy is not required by applicable federal laws and regulations and state laws and rules to maintain.”1   

Speak with Seasoned Pharmacy Attorneys Today

Dealing with a PBM audit is a daunting task.  It becomes more challenging when PBMs such as Caremark require documents that are not readily available from the pharmacies and unilaterally decide types of documents that are “reasonably necessary” that allegedly would demonstrate the pharmacy’s compliance.  More troubling, we have seen instances where Caremark withheld the entire reimbursement on claims even before issuing Audit Findings.  

Frier Levitt has a deep bench of experienced healthcare attorneys, including several pharmacist- and clinician-attorneys, who have been assisting pharmacies throughout the country on a variety of legal issues including, but not limited to, disputing Payment Suspension, Adjudication Suspension, Network Termination, Audit Findings, Fraud Waste and Abuse (“FWA”) Investigative Findings, and Government Investigations.  Contact Frier Levitt today to speak with an experienced Pharmacy Attorney today. 


1.TX INS § 1369.259(a)(1).