Medicare, Medicaid, and pharmacy benefit manager (PBM) audits can result in substantial losses for pharmacies. If auditors uncover evidence—or apparent evidence—of overpayments, not only can they initiate recoupments, but they can potentially deny pending claims, impose pre-payment review of future claims, and impose other financial penalties as well.

Unfavorable pharmacy audit determinations are common. Too often, pharmacy owners and managers fail to approach these audits with the attention and resources they require. Medicare and Medicaid auditors and pharmacy benefit managers (PBMs) have a strong financial incentive to recoup as many “overpayments” as possible; and, when in doubt, they will typically err on the side of protecting payors.

But, even with a sound defense strategy and doing things in good faith, pharmacies can still find themselves facing unwarranted financial penalties following Medicare, Medicaid, and PBM audits. Oftentimes, pharmacies simply won’t be able to avoid unfavorable audit findings and determinations despite their best efforts to do so.

“Medicare and Medicaid auditors and PBMs routinely impose substantial recoupments and other financial penalties during pharmacy audits. However, these financial penalties are unjustified in many cases. Oftentimes, pharmacy owners and executives are left with little choice but to protect their pharmacies’ financial interests through the appeal process.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.

As a result, many pharmacies find themselves needing to file an audit appeal. While Medicare, Medicaid, and PBM audit appeals are all very different, some general principles apply across the board when seeking to reverse (or revise) the outcome of a pharmacy audit. With this in mind, here are 10 keys to a successful pharmacy audit appeal:

1. Independently Assessing the Pharmacy’s Liability for Overpayments

After receiving an unfavorable pharmacy audit determination, the first step is to assess the viability of an appeal. Are the auditor’s conclusions supported by the pharmacy’s billing record? Or, does it appear that the auditor’s conclusions are misguided (either in whole or in part)?

Assessing the viability of an appeal requires an independent assessment of the pharmacy’s liability for overpayments. In other words, the pharmacy must conduct its own internal billing compliance audit. When conducting this internal audit, the pharmacy must focus on arriving at an unbiased and fact-based outcome—not simply seeking to disaffirm the auditor’s conclusions. The pharmacy should engage outside counsel to oversee the audit, as this will allow for both: (i) reliance on outside counsel’s knowledge of the pertinent billing rules and regulations, and (ii) establishment of the attorney-client privilege.

2. Evaluating the Pharmacy’s Billing Compliance Program

Along with evaluating the pharmacy’s billing record, it will also be necessary to evaluate the pharmacy’s billing compliance program. The ability to demonstrate adherence to a comprehensive and up-to-date compliance program can be a highly-effective tool during the pharmacy audit appeals process, while compliance program deficiencies can exacerbate the challenges at hand. When deciding how to approach the appeal process, pharmacy owners and executives need to know whether any billing violations were the result of compliance program deficiencies or errors on the part of pharmacy billing personnel.

3. Identifying the Specific Billings that Created Issues During the Audit

When evaluating potential grounds for a pharmacy audit appeal, it is necessary to identify the specific billings that created issues during the audit. After identifying these billings, the pharmacy can then compare the auditor’s conclusions to the pharmacy’s conclusions reached during its independent assessment.

If the audit found a substantial volume of alleged overbilling, this can be a time-intensive task. However, it is also an extremely important task, as being able to point out specific flaws in the auditor’s processes and conclusions are essential for filing a successful appeal.

4. Looking for Mistakes in the Auditors’ Unfavorable Determinations

Since the goal of filing an appeal is to reduce or eliminate the financial penalties imposed, examining the auditor’s processes and conclusions for mistakes is a key step toward formulating an effective audit appeal strategy. Generally speaking, identifying mistakes will require the insights of outside counsel experienced in the areas of pharmacy compliance and pharmacy audit defense.

Mistakes during pharmacy audits can take a variety of different forms. Some of the more common examples include relying on flawed assumptions, using incorrect calculation methods, and applying billing rules that were not in effect at the time a particular reimbursement request was submitted for payment.

5. Looking for Patterns in the Auditor’s Unfavorable Determinations

When examining the specific billings that resulted in the imposition of recoupments and/or other penalties, looking for patterns can also help with formulating an effective audit appeal strategy. Did the auditor consistently make the same mistakes? Did the auditor focus on overbilling while ignoring under-billings? Did the auditor consistently dispute the same types of billings or billings for the same types of medications? If so, why (and was this reasoning justified)? These are all examples of issues that can potentially provide grounds for an appeal.

6. Comparing Current Billing Rules Against the Rules in Effect When Alleged Overpayments Were Made

As mentioned above, one common mistake pharmacy auditors make is applying the incorrect set of billing rules to the pharmacy’s billings. This most frequently involves applying current billing rules to billings submitted when a prior set of rules was in effect. Pharmacies cannot be held liable for failing to comply with rules that were not in effect during the relevant time period, but auditors often are not careful enough to ensure that they are applying the correct rules based on the timing of the billings that are under review.

Given that Medicare, Medicaid, and PBM billing rules change over time, it is entirely possible that identical billings could trigger different outcomes at different points in time. As a result, when looking for patterns as discussed above, uncovering the blanket application of a current (or outdated) billing rule to an entire tranche of billings may result in the identification of grounds for an appeal.

7. Speaking with Pharmacy Personnel Who Participated in the Audit Process

Speaking with pharmacy personnel who participated in the audit process can provide additional insight into potential appeal strategies. What documents did the auditor request? What documents did this personnel provide? What questions were asked and answered? Did the auditor ignore any objections to its methods or practices? The answers to these types of questions could provide key insights for formulating an effective appeal strategy.

When speaking with pharmacy personnel about an audit, a careful approach is necessary. To obtain honest, complete, and useful answers, any questions posed to pharmacy personnel must avoid framing this personnel as potentially having something to do with the pharmacy’s current situation. Likewise, if any personnel are potentially at fault for submitting improper billings to Medicare, Medicaid, or a PBM, it will be important to ensure that this personnel is not unduly involved in the appeal process going forward.

8. Formulating an Audit Appeal Strategy Based on the Facts at Hand

After conducting the necessary research, the next step is to formulate an audit appeal strategy based on the facts at hand. If errors pervaded the audit, or if the auditor made fundamental mistakes that invalidate the entire process, then a complete reversal may be warranted. Alternatively, if some of the auditor’s conclusions are valid and others are not, then the pharmacy’s appeal may need to focus on reducing, rather than eliminating, the financial penalties imposed.

9. Filing the Pharmacy Audit Appeal On Time

Pharmacy audit appeals are subject to strict deadlines. For example, Medicare audit appeals generally need to be filed within 120 days, and it may be necessary to file an appeal within 30 days to stay any recoupments. If there is any possibility that an appeal may be necessary, the pharmacy must take appropriate action to preserve its appellate rights.

In many cases, it will make sense to communicate with the auditor before filing an appeal (as long as there is still time to do so). If the auditor relied on flawed assumptions or made reasonably transparent mistakes, it may be possible to negotiate a favorable outcome without going through the formal appeal process. With that said, pharmacies that have received unfavorable audit determinations need to be prepared to protect their financial interests by all means available, and they must not waive their right to appeal in hopes of achieving a favorable informal resolution.

10. Preparing for the Future Stages of the Pharmacy Audit Appeal Process

While some pharmacy audit appeals will be successful on the first attempt, pharmacies will often need to go through several stages of appeals to achieve a favorable result. For example, there are five levels to the Medicare audit appeals process: (i) redetermination, (ii) reconsideration, (iii) administrative law judge (ALJ) hearing, (iv) Medicare Appeals Council (MAC) review, and (v) judicial review in U.S. District Court—and since the first level involves redetermination by the auditor itself, going beyond this level is often necessary.

Ultimately, the key to success in pharmacy audit appeals is taking a comprehensive and structured approach that takes into account the particular circumstances at hand. By devoting the necessary time and resources to the appeal process, pharmacies can protect their financial interests to the greatest extent possible.