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Pharmacy Audits: State of the Industry & Knowing Your Rights!

pharmacy audit pbmBy: Michael Silverman

Pharmacy Benefit Managers (“PBMs”) act as the intermediary between insurance companies and pharmacies. PBMs contract with insurance companies on one hand and with pharmacies on the other, connecting the two so that an insured’s pharmaceutical claims may be processed at the rates set forth in the agreement between the PBM and supplying pharmacy. PBMs are paid on both sides of this transaction – by the insurance company for managing their insureds’ benefits – and by the pharmacy for processing the claims that are submitted. Processing claims for private, state, and federally funded insurance programs, PBMs play an integral role in vast majority of prescription drugs dispensed in the United States.

Part of a PBMs function is to audit a pharmacy’s claims to ensure that the claims submitted are in compliance with the PBM and insurance companies’ requirements.

Typical audits come primarily in two forms (1) desktop audit; and (2) field/on-site audit. A selected pharmacy usually will receive a letter or fax from the PBM informing an audit will be taking place.

If it presents in the form of a desktop audit, the pharmacy will receive a list of claims under review with a request for supporting documentation pertaining to each claim. The pharmacy will usually be given a 30 day period to provide the requested information, but the auditors are generally amenable to short extensions of time so do not be afraid to ask if needed. If presenting in the form of a field/on-site audit, the pharmacy will be informed of the date the auditor will arrive and they will stay on-site at the pharmacy location while the requested documents for specified claims are compiled.

The typical documents requested are: (1) copy physician’s prescription; (2) copy of prescription label (including patient name, drug name, NDC, and directions); (3) signature log or proof of delivery; and (4) proof of cost share payment/co-pay collection.

Receiving an audit from a PBM’s senior investigator or its Fraud Waste & Abuse (“FWA”) Department is typically a sign that a pharmacy is being closely scrutinized. Such audits may focus further on co-pay collection, and may require that the pharmacy’s drug wholesalers submit proof of purchase documentation directly to the PBM to evidence the pharmacy had the inventory of drugs it had submitted claims for. Sometimes the PBM will even reach out to the physician indicated on the prescription to confirm the authenticity thereof. These PBM auditing techniques are ripe with issues and commonly create confusion for the wholesalers and prescribers. This results all too often with inaccurate discrepancy reports being issued by the PBM requesting or offsetting monies that it is not entitled to.

After a desktop or field/on-site audit takes place, the pharmacy will receive an initial report of the findings. It is imperative that the pharmacy engages with the auditor to provide any additional documentation necessary to overturn a requested recoupment; the pharmacy will only have a limited amount of time appeal findings, which will be set forth in the initial audit results letter.

PBMs have been largely unregulated since their inception, but change has slowly begun to take place in a variety of forms. States are enacting ‘Any Willing Provider’ laws to protect patient choice and to combat the anti-competitive nature of PBMs that may have their own mail-order pharmacy. In such instances there is a seemingly blatant conflict of interest and incentive for the PBM to remove competing pharmacies from their network (we will revisit this discussion more thoroughly another day). Many states are also enacting laws requiring the PBM to register and comply with that state’s department of insurance regulation. Additionally, several states have codified regulations pertaining to a pharmacy’s rights when being audited by a PBM.

For example, in Florida, there is statute enumerating a pharmacy’s rights during audits. See Florida Statute § 465.1885. These rights apply regardless as to who is auditing the pharmacy provider, be it the PBM, insurance company, or any third party. Among the rights enumerated, a pharmacy has the right:

  • To be notified at least 7 calendar days prior to an on-site audit (unless the pharmacy is located in a HEAT zone and has been part of the provider network for less than 12 months);
  • To have the audit period limited to the preceding 24 months of claims;
  • To be reimbursed for a claim that was previously denied due to clerical, typographical, scrivener’s or computer error, so long as the prescription was correctly dispensed (unless a pattern of such errors exists or there is an actual financial loss to the insurer);
  • To receive initial audit results within 120 days after the audit concludes, and to receive the final audit report within 6 months after receiving the initial report; and
  • To have any recoupments based on actual claims submitted as opposed to the practice of extrapolation.

[Please note that these pharmacy rights do not apply to instances of suspected fraudulent activity with supporting evidence, to audits of claims submitted to federally funded programs, or to reviews done within three days of claim transmission where there is no chargeback or recoupment demand.]

While it’s inevitable that a pharmacy will be audited by a PBM at some point in its practice, the best way to prevent problematic audits is to abide by the PBMs provider manual (which outlines dispensing requirements) and to keep claim submission volume within allotted thresholds if engaging in home delivery. Clean audit findings typically results in fewer future audits by that PBM.

Failing to appeal negative audit results can have devastating impacts to a pharmacy. Any discrepancies or overpayments identified in the initial audit findings that are not successfully appealed will result in the PBM either requesting the monies back, or their withholding/offsetting those funds from future remittances owed to the pharmacy. Furthermore, depending on the discrepancies identified and whether the pharmacy is a repeat offender, the pharmacy may receive notices informing it: (1) to cease and desist certain activities; (2) that it is being considered for continued participation in the PBM network; (3) that it is being terminated at some future date; or (4) that it is immediately being terminated from the PBM network.

PBMs will often overstep their authority and the pharmacy must know its rights to protect its practice and patients. Make sure that the PBM is in compliance with both their contractual requirements (as set forth both in the applicable PBM Provider Manual and the contract between the PBM and pharmacy) in addition to any pertinent federal or state regulations applicable to pharmacy operations.