Pharmacies today operate in an environment that demands compliance more than ever. PBM audits, investigations, and network reviews are increasing in frequency, and even small administrative issues can escalate into significant financial or operational consequences. This is particularly true as PBMs notoriously review pharmacies at year-end in an effort to “clean” up their networks for the next year.
During Frier Levitt’s recent webinar on maintaining PBM network compliance, Partners Harini Bupathi and Eric Knowles outlined the compliance pitfalls pharmacies face and the proactive measures they can take to protect their network status. This article highlights the key insights shared in the session and provides practical guidance for pharmacies preparing for 2026.
Why Small Issues Become Big PBM Problems
Many pharmacies assume a small audit chargeback is too minor to challenge, especially when balanced against the demands of day-to-day operations. In reality, PBMs do consider the dollar amount, but they focus heavily on the type of audit discrepancies. They often look for patterns of noncompliance and may compound findings over multiple years to justify network terminations, payment suspensions, clawbacks, denials of credentialing or recredentialing, and additional audits or investigations.
The message is clear: every audit finding matters and should be addressed.
The PBM Findings Most Likely to Trigger Termination
There are several concerning audit discrepancies that pharmacies should keep in mind.
Inventory Shortages
The most common audit discrepancies, and in turn, cause of termination continues to be inventory shortages. These findings occur when PBMs claim a pharmacy did not buy enough medications to support what it dispensed in a particular audit period. However, more often, pharmacies purchased sufficient quantities, but the PBM did not credit the pharmacy for its purchases for hyper-technical reasons. These reasons could include:
- Secondary wholesaler or marketplace purchases without sufficient documentation
- Purchases from wholesalers without certain accreditations
- Purchases outside a narrow audit period where the PBM otherwise limits the consideration of such purchases
- Purchase and invoice documentation that does not meet the PBM’s terms and conditions
Pharmacies can reduce exposure with stronger recordkeeping and more structured wholesaler due diligence.
Member Denials
Member denials arise when patients indicate to PBMs they did not request or receive a medication. These statements are often inaccurate or driven by confusion. Pharmacies should ensure they maintain as much documentation as possible to demonstrate patients requested and received their medications at the time of dispensing, and work to obtain as much confirmation, such as an attestation, from the patient, if a member denial discrepancy is alleged.
Copay Collection Concerns
PBMs also increasingly require detailed proof of copay collection. In addition to register receipts, it’s not uncommon to be asked to provide merchant processor reports confirming credit transactions and bank deposit records for cash payments. Pharmacies should also have written policies and procedures on copayment collection and financial hardship, as PBMs may also ask for a copy during an audit.
Failure To Follow Prior Corrective Actions
In addition, PBMs have also been looking to pharmacies’ past performance in the network as a measure of continued compliance. For example, if a PBM has previously issued a corrective action plan or a cease and desist notice, the pharmacy could be audited again, in order for the PBM to understand if the pharmacy has complied with a corrective action plan or cease-and-desist. If the pharmacy continues to demonstrate noncompliance, a PBM could not only cite a breach of the terms of the conditions of the Provider Agreement and Manual, but also a breach of the additional terms identified by the corrective action plan.
Disclosure Obligations That Many Pharmacies Overlook
Pharmacies are also required to disclose disciplinary actions involving the entity, owners, or employees. Disciplinary actions could include Board of Pharmacy actions, including the assessment of a minor, monetary fine, or even civil and criminal suits against the pharmacy, its owners, and/or employees. PBMs may also require disclosure of common ownership or affiliations with other pharmacies facing compliance issues. When disclosures are missed or delayed, PBMs may terminate a pharmacy for failure to disclosure, and extend that action to all related entities, even though such entities may not have been subject to the disciplinary action.
What To Do When You Receive a Termination Notice
A PBM termination notice can be overwhelming, but understanding the right steps is critical. Pharmacies should immediately review notices for some important information:
- The stated reason for termination (whether it is for cause, without cause, or immediate)
- The effective date of the termination
- Applicable appeal rights pursuant to the Provider Manual and applicable law
Many notices do not clearly explain the full administrative process, so pharmacies must rely on their contract and should certainly seek legal counsel to understand available remedies.
Administrative Paths for Challenging PBM Actions
Before pursuing arbitration or litigation, pharmacies usually have access to internal PBM processes. These may include:
- Opportunity to Cure – Used for non-material breaches. Pharmacies may be asked to cure breaches and are given 10 to 30 days to correct issues or submit missing documentation.
- Administrative Appeals – A written appeal allows the pharmacy to explain why a termination or audit finding that has led to termination is incorrect. In such submissions, documentation is essential.
- Dispute Resolution – Many PBMs require a formal dispute notice before legal action is permitted. Missing this step may prevent a pharmacy from later challenging the termination in arbitration or court.
Arbitration, Litigation, and Preliminary Injunctions
If internal remedies are not successful, pharmacies may need to pursue arbitration or litigation. Most PBM agreements require arbitration which is generally faster, private, and less expensive. In serious cases, pharmacies may also seek a preliminary injunction to remain in the network during the arbitration. To obtain an injunction, the pharmacy must demonstrate a number of factors, including, likelihood of success, irreparable harm, and that a balance of the equities favor continuation in the network. Pharmacies should always understand their legal avenues to challenge a wrongful PBM termination.
How Frier Levitt Can Help
Frier Levitt has extensive experience guiding pharmacies through every stage of PBM interaction from routine audits to high stakes terminations. Our attorneys include former prosecutors, litigators, and clinicians who understand the operational and regulatory pressures pharmacies face. Whether your pharmacy is confronting a time sensitive termination, looking to strengthen its compliance posture, or preparing for upcoming audits, our team can provide the guidance needed to protect your business. Contact our team for your pharmacy needs.
