October 3, 2022

Volume XII, Number 276


October 03, 2022

Subscribe to Latest Legal News and Analysis

September 30, 2022

Subscribe to Latest Legal News and Analysis

How Pharmacies Can Defend Against PBM Audits

Pharmacy benefits managers, or PBMs, are a double-edged sword for many pharmacies. On the one hand, PBMs work between pharmacies and health insurance companies, and drug manufacturers, drastically reducing the headaches that come with negotiating with these parties. PBMs also provide more experienced advocacy on the pharmacy’s behalf during the negotiations that take place in the industry. On the other hand, PBMs possess lots of power, have little accountability, and stand between the pharmacy and the companies that pay the pharmacy.

This all comes to a head during pharmacy benefit manager (PBM) audits. When PBMs review the claims made by pharmacies, they are often extremely aggressive in labeling payments as improper, frequently claiming that accurate billing statements are somehow incorrect. Many pharmacies feel pressured to acquiesce because of the role of the PBM in the payment system. Unfortunately, this only emboldens PBM auditors into making more frivolous claims against the pharmacy.

A strong defense once pharmacies receive audit requests and during the PBM audit process is essential for pharmacies that want to protect their bottom line and not get bullied around by their PBM.

How PBM Audits Work

Pharmacy benefit managers (PBMs) conduct audits to review the claims for payment that a pharmacy has made through the pharmacy benefit manager (PBM) to the private insurance companies that the PBM deals with. These pharmacy audits can happen in-person, with a PBM Auditor showing up at the pharmacy’s door and requesting access, or can happen solely through the documentation provided to the PBM, such as a pharmacy invoice audit. 

The list of claims that the audit flags as improperly paid, though, is usually bloated with false positives. PBMs know that pharmacies are unlikely to object, and may even see this recoupment process as a source of revenue to pad their bottom line.

To make matters even worse, PBMs have increasingly turned to third-party contractors to conduct the actual audit. They frequently pay these auditing companies with a portion of the claims that get clawed back from the pharmacy, effectively giving the auditors a financial incentive to flag as many claims as it thinks they can get away with.

Given these disturbing elements behind PBM audits, the need for an effective defense strategy is critical.

How Pharmacies Can Defend Themselves in a PBM Audit

While it may seem like the deck is so stacked against pharmacies that they do not have a choice but to pay what the auditor calls for, they can protect their interests by hiring a skilled PBM audit lawyer to intervene in the process, monitor the audit, and scrutinize the results.

The first step in a successful defense is to hire an attorney or legal counsel to represent the pharmacy. Doing so does not just bring in a better advocate for the company; it also creates attorney-client privilege for a subsequent internal investigation. If that investigation uncovers improperly-filed claims, it will be protected from forced disclosure because of the privilege.

Once a lawyer is on board, the next step is to actively intervene in the audit. By acting on behalf of the pharmacy, a defense lawyer puts a shield between the PBM auditor and the pharmacy’s executive staff. Keeping the auditor from interacting with personnel with less experience in the auditing process, can reduce the odds that incriminating information is accidentally or unknowingly disclosed. It will also ensure that the PBM auditor stays within the contractual and legal scope of the audit. This can keep the audit from finding violations that it never should have seen or had access to.  

It is also essential to conduct an internal compliance assessment. This review of the pharmacy’s practices and billing procedures can find out what issues the PBM audit is likely to uncover. This prevents specific allegations from coming as a surprise. Even better, any discrepancies between the internal review and the results of the audit can flag potential overreach by the PBM.

Once the audit results are in, the experience of a PBM audit attorney becomes even more important. The results of the audit should color the pharmacy’s response. There is no one-size-fits-all approach that will always serve the pharmacy’s interests. In some cases, it may be in the pharmacy’s interests to voluntarily disclose billing violations that were discovered in the internal review. In most others, though, it will be a mixture of admitting and challenging the findings of the audit. Many of these important decisions will be influenced by a cost-benefit analysis, which weighs the severity of the violation against the costs and likelihood of successfully challenging it.

Some Audits Can Turn Into Legal Action and Litigation

The penalties of a failed PBM audit are substantial. Even if the only thing that is at stake is a retraction of payments made by the PBM, those amounts can be staggering – often in the hundreds of thousands of dollars. However, PBMs can also end with the pharmacy being dropped by the PBM, which can make it far more difficult for the pharmacy to continue to conduct business. The potential for termination can be immediate or delayed: Many PBMs will use a prior audit failure, even one that happened years ago, to justify terminating a pharmacy.

Because of the potential for such extreme penalties, it can be wise to challenge the findings of a PBM audit. Pharmacies can pursue an injunction, or court order, to stop the PBM’s retraction of funds or its imposition of penalties until the audit can be reviewed. Pharmacies can also try to get a court to overturn the results of the audit, completely.

Oberheiden P.C. © 2022 National Law Review, Volume XII, Number 119

About this Author

Nick Oberheiden Criminal Defense Attorney Oberheiden PC
Federal Criminal Defense Attorney

Dr. Nick Oberheiden focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation. He has defended clients in PPP Loan Fraud cases and COVID-19 investigations. Nick also directs internal corporate investigations and he leads defense teams in whistleblower actions, corporate defense cases, as well as cases involving national security and elected officials.

Clients from more than 45 U.S. states have hired Nick to seek effective protection against government...