Rise of Third-Party Pharmacy Audits

Pharmacy benefit managers (PBMs) conduct routine audits over pharmacies, whether directly or indirectly, through third-party agents. The audit appeal procedure is more or less the same. Regardless, the pharmacies must respond to the audits and subsequent audit findings to the fullest extent, as PBM audits can result in not only recoupment of reimbursement paid on the claims, but also network termination or suspension.

Leslie Lotano-Saba, RPh, vice president of pharmacy solutions at global management and technology consulting firm AArete, noted pharmacy audits are on the rise, which isn’t all that surprising.

“I think there are a few things happening here,” she said. “First, there was a lull in at least on-site auditing during COVID-19 and so there was a backlog of compliance monitoring that picked up last year. As we’ve moved to a more virtual world, more audits can be performed virtually, which may be easier and require less travel, so more audits can be done per year.”

There is also a general increased focus on healthcare fraud, waste and abuse (FWA), especially with the overall increase in healthcare costs.

“Continuous PBM legislative activity, as well as regulations around price transparency, fiduciary responsibility and accountability, is resulting in more oversight activity from payers to ensure PBMs are performing in the best interests of the health plan and its members,” Lotano-Saba said. “This oversight trickles down to the PBM-contracted pharmacies to ensure compliance, as well as looking for fraud, waste and abuse.”

Satish V. Poondi, co-chair of health law and pharmacy at Trenk Isabel Siddiqi & Shahdanian, is seeing a greater number of pharmacy audits originating not only from third party payors, but also from various government agencies, such as Medicare and Medicaid.

“Unfortunately, pharmacies are a low hanging fruit, due to the complex framework of regulations and contractual requirements inherent in the practice, and the audit process ends up generating revenue for these entities,” he said. “Additionally, during the height of COVID-19, there was a decrease in audits and now we are seeing a more aggressive push by both PBMs and other payors.”

Other contributing factors include growth in the 340B program and manufacturers’ concerns about duplicate discounts, lack of transparency, and program oversight—which is driving an increase in 340B audits.

Christopher Holler, PharmD, a pharmacist with Marley Drug, noted that to keep its star-rating up with PBMs, pharmacies, and remain within a network, it’s vital that pharmacies comply with these audits.

“It’s always good to look at what has been done in the past and to determine if something could have been done differently to help save our healthcare system some money or improve patient care,” he said. “Most audits are quite straightforward, as long as you have a pharmacy management system that allows for you to quickly pull reports. However, these audits can be time consuming, and they do pull a pharmacist off the floor, which means less time for us to interact with our customers and to fill prescriptions.”

Dae Y. Lee, PharmD, a pharmacist attorney in Frier Levitt’s life sciences department, noted pharmacies must respond to the audit requests and audit findings with supporting documents.

“It is important to note that PBM provider manuals detail the types of supporting documents that would be acceptable by the PBMs,” he said. “Responding to PBM audit is an onerous process that forces the pharmacy to invest its time and financial resources. However, if a pharmacy fails to resolve discrepancies identified in the audit findings, PBMs will recoup the entirety of reimbursement paid on the prescription claims. PBMs can also use the audit findings against the pharmacies and initiate network suspension/termination.”

Some mistakes pharmacists can make are failing to audit findings with the requisite documents, or deciding not to contest the audit findings with the mistaken assumption that “paying back” the discrepant amount would resolve the discrepancies.

“It is quite often the case that PBMs use previous audit findings, along with newer audit findings, to form a network termination basis, even where the pharmacies paid back the discrepant amount,” Lee said.

How to Prepare

To better prepare for audits, Lotano-Saba said pharmacists should make sure their technology is current and can handle the new regulatory and PBM requirements, including compliance with the Drug Supply Chain Security Act (DSCSA), which goes into effect in November.

“It’s also important to ensure that your pharmacy has the right data security and safeguards in place,” she said. “Pharmacies should have clear operational and administrative P&Ps, and proof they are being followed through a sound quality assurance program. Perform self-audits and consider using an outside company to perform mock audits as well.”

Other steps include establishing and maintaining thorough records, and assigning accountability for maintaining the highest standards of quality and integrity.

“Pharmacies should educate, train and involve staff in understanding the importance of documentation, how to manage an audit, the effect of regulations, and how non-compliance or poor audit results could potentially impact the business,” Lotano-Saba said. “Encourage staff to report issues without fear of retribution—‘If you see something, say something’—so management can correct issues and minimize the risk of negative audit findings.”

In light of rising DIR and GER fees, as well as increased costs of operations, a recoupment can be devastating to the pharmacy. In the context of government audits, there could be additional fines (e.g. treble damages) and penalties. Additionally, a “bad” audit can lead to long-term repercussions, including termination of a PBM contract.

“Those invested in multiple stores may also have to deal with termination of their other pharmacies due to contractual language relating to common ownership or control,” Poondi said. “Some PBMs have also penalized pharmacists, in their individual capacity, by denying contracts to other pharmacies that later employ the pharmacist.”