PBM Audit Trends & Preemptive Strategies for the Year Ahead

As the Pharmacy Benefit Managers (PBMs) prepare for the end-of-year “housekeeping”, pharmacies should be aware of the PBM audit trends and arm themselves with information necessary to preempt—and strategies to outright avoid—falling victim to abusive PBM audit practices in the year ahead. 

What are the PBM audit trends?

1. Drug Inventory Shortages

During an invoice reconciliation audit, PBMs will compare, and attempt to reconcile, the total claims billed to the PBM against the quantities purchased by the pharmacy. When the quantity billed exceeds the pharmacy’s purchases, the PBM will issue an inventory shortage discrepancy and seek financial recoupment against the allegedly discrepant claims. However, the reconciliation of purchase history with quantities dispensed is complicated by multiple factors.

First, certain PBMs require pharmacies to only purchase drug products from National Association of Boards of Pharmacy (NABP) approved wholesalers and/or source them from  manufacturer-authorized trading partners.  Second, PBMs tend to disregard drug purchases made outside of the audit timeframe (but inclusive of purchases made a month before the audit timeframe) without noting that pharmacies place bulk orders or order in advance.  Of note, Caremark implemented a new bulk purchase requirementThird, major PBMs require pharmacies to source diabetic test supplies from manufacturers or manufacturer-authorized trading partners.  Fourth, PBMs have been increasingly requesting from pharmacies copies of Drug Supply Chain Security Act (DSCSA) track and trace documents, commonly known as “T3” documentation.

2. Copay Discrepancies

Copay discrepancies arise when PBMs allege that a pharmacy failed to provide proof of copayment collection. To illustrate, when a PBM alleges that a pharmacy failed to collect copayment for a given claim, and if the pharmacy cannot provide the PBM with the appropriate documentation to establish copay collection, the alleged discrepancy will not be reversed on audit appeal regardless of whether the pharmacy collected the copay in question.  Then the PBM will seek to recoup the entire amount of reimbursement paid on a discrepant claim. Pharmacies must include supporting documentation in their audit responses that address each discrepancy alleged by the PBM. However, as reported here, PBMs will not accept a given document simply because the pharmacy believes it proves their position. Instead, pharmacies must provide PBMs with specific types of documents that PBMs consider “sufficient” to reverse audit findings (e.g., patient attestation, merchant records).  Also, PBM Manuals prohibit the use of discount cards or manufacturer coupons in certain circumstances including, without limitation, government-sponsored claims (e.g., Medicare) as well as 510K products.  It is also worth noting that PBMs often require copays to be collected at the pharmacy’s location, which in turn, restricts the pharmacy from employing a third-party to help with the copayment collection process. 

3. Patient & Prescriber Denials

We have seen an increasing number of audit results seeking the recoupment of claims relating to patient or prescriber denials. This trend has shown that PBMs contacted patients and prescribers seeking information regarding their interactions with the pharmacy.  Critically, many (if not all) of the claims under the PBM audit relate to the details of a prescription dispensed years ago. When a patient fails to remember the specific details of a prescription or answers incorrectly, PBMs will view such prescription claim as discrepant. Worse yet, failure to respond—both by patients and prescribers—could be deemed a “denial” by the PBM. What follows, again, is the PBMs recoupment of each discrepant claim, and in an increasing number of circumstances, network termination. In addition, PBMs often request the pharmacy to submit documents demonstrating that prescriptions were prescribed according to a bona fide prescriber-patient relationship even when the prescriptions were facially-valid, consistent with state and federal law, and when the patient had already received the medication. 

4. Past Audit Findings

We have recently seen a significant increase in a particular PBM presenting pharmacies for network review based on outstanding audit findings dating back several years ago (even going back to 2016) through audit findings as recent as within the past month. The pharmacies are then tasked with submitting information and documents for review and consideration by the PBM’s network review committee.  The concern arises when a pharmacy’s participation in a PBM network is at risk over minor audit discrepancies or even discrepancies that were erroneously alleged by the PBM. If a pharmacy receives a notice of review, it is essential that the pharmacy takes this notice seriously as the network review committee will decide on the pharmacy’s continued membership in the PBM’s network. If the PBM elects to terminate the pharmacy, the decision will often be final and will limit the pharmacy from reapplying for admission for a period. It is crucial for a pharmacy subjected to a network review to provide any documentation not previously presented to dispute the outstanding audit findings, but also to demonstrate that the pharmacy substantially meets the PBM network’s terms and conditions. If a pharmacy does not submit a response to the network committee, the PBM will likely expedite an adverse decision to terminate the pharmacy.

How should pharmacies prepare for PBM audits?

1. Maintain Robust Policies and Procedures

Pharmacies should maintain thorough policies and procedures which detail the pharmacy’s internal operations. Robust policies and procedures help a pharmacy comply with applicable laws and its obligations owed to PBMs according to PBM Provider Manuals and Provider Participation Agreements. In turn, maintaining and complying with policies and procedures drastically reduces the risk of discrepant audit findings and adverse PBM actions, including but not limited to, the recoupment of funds and/or network termination.  In addition to billing procedures, pharmacy policy and procedures should cover virtually all aspects of pharmacy practice including, but not limited to, the following: (i) record/documentation maintenance; (ii) copay collection procedures; (iii) purchasing and inventory management; and (iv) dispensing practices.

2. Proper Record Keeping

Perhaps the most important aspect of avoiding unwarranted PBM audit findings and recoupment of funds is to maintain proper documentation to prove the pharmacy dispensed a claim in accordance with PBM terms and applicable state and federal laws. Pharmacies should retain sufficient documentation including, without limitation, the following:

  1. proof of prescription delivery (e.g., signature logs and/or delivery confirmation)
  2. copay collection (e.g., itemized register receipt)
  3. prescription copies, including any alterations made to the prescription (e.g., changes to medication, authorization for early refills, etc.)
  4. inventory purchase histories

3. Conduct Self-Audit

A pharmacy should periodically conduct a “self-audit” to ensure that it is following policies and procedures and to identify any discrepancies that may exist before a PBM does so. When performing a self-audit, pharmacies should review the same documentation that PBMs would review during a routine audit. If a pharmacy discovers certain discrepancies during a self-audit, the pharmacy should take proactive measures to address the discrepancies.

4. Be Familiar with PBM Audit Protocol

Each time a PBM performs an audit, it will follow a specific protocol.  Often, the protocol the PBM will follow is determined by the type of audit being performed. There are several different types of audits that a PBM may conduct—desktop, in-person, inventory reconciliations, prepayment reviews, and more recently, virtual audits. In some instances, PBMs may couple audits, and it is common for a PBM to conduct a desktop audit of a pharmacy’s prescription records as well as an invoice audit of the pharmacy’s purchase and dispensing history (i.e., invoice reconciliation audit). Further, when PBMs conduct audits, they are rarely transparent in communicating what might have initiated the audit of the pharmacy. Audits are a standard part of a pharmacy’s participation in the network, and an extensive audit of prescription records and purchase history generally occurs every two to three years. 

Regardless of the type of audit performed, PBMs will require pharmacies to submit specific documentation for review. Pharmacies must pay particular attention to the type of records requested and adhere to the deadline to submit the documents imposed by the PBM.  Submitting inapplicable or untimely documentation exposes pharmacies to the risk that the PBM will not accept the documents and impose significant audit findings. As such, if pharmacies feel they will not be able to compile the necessary documents by the deadline imposed by the PBM, pharmacies are encouraged to request an extension of time. Indeed, some state laws require PBMs to grant reasonable requests for an extension of time to submit documents. 

5. Appeal Discrepant Audit Findings

If a PBM identifies discrepancies after performing an audit of a pharmacy, the pharmacy should appeal and dispute any audit findings to the fullest extent possible. Although PBM audits are intended to identify and prevent fraud, waste and abuse or overpayments, PBMs often use audits as a weapon to seek recoupment. As discussed above, even if an audit results in relatively small clawback amounts, PBMs often combine small audit findings to justify terminating a pharmacy from its network in the future. Critically, termination from one PBM’s network often leads to additional action, including network termination from other PBMs. Accordingly, pharmacies must make every effort to reverse unwarranted audit findings to avoid more significant PBM actions in the future.

How Frier Levitt Can Help

If you receive notice of a PBM audit and are subject to results that include the discrepancies discussed, or any others, you must consult with an experienced legal counsel. Frier Levitt attorneys have extensive experience combatting abusive PBM audit practices and their investigatory allegations. Our attorneys have assisted hundreds of pharmacies in overcoming these results with positive outcomes. Pharmacies should emphatically contest audit discrepancies and demand transparency from PBMs, especially when the pharmacy provided sufficient documentation to overturn the discrepancies. If your pharmacy is facing a PBM audit, contact us to speak to an attorney.