Pharmacy benefit manager (PBM) audits are becoming increasingly dangerous for pharmacies. While the role of the PBM was initially to reduce costs for all parties involved, abusive PBM practices have led to the opposite in many cases. The problem has become so significant that several states have adopted legislation aimed specifically at targeting abusive PBM practices, and the National Community Pharmacists Association (NCPA) and other organizations have launched wide-reaching lobbying and advocacy campaigns in recent years.

One major issue that negatively impacts both pharmacies and patients is the lack of transparency. As the NCPA explains, “[a] lack of transparency in PBM practices has led several states to implement licensure/registration, fair pharmacy audit, or generic drug pricing legislation to try to level the playing field for pharmacies and patients.” In a white paper discussing pharmacy benefit manager (PBM) abuses, the NCPA also notes that “[w]hile PBMs claim audits are used to detect fraud, waste, and abuse, examples show they recoup payments based on small clerical errors rather than focusing on whether the correct patient received the correct dosage of the correct medication on the correct date.”

These considerations impact how pharmacies need to approach Pharmacy Benefit Manager (PBM) audits. Rather than viewing these pharmacy audits as neutral inquiries focused on ensuring accurate billing and payment, pharmacies must view them as adversarial proceedings. While a certain amount of cooperation may be warranted, pharmacies targeted in PBM audits need to take a defensive posture—and they need to be prepared to dispute false and abusive retraction demands during (and potentially after) the audit process.

“PBM audits present major risks for pharmacies in 2023. When facing PBM audits, pharmacy executives and pharmacists-in-charge must be prepared to affirmatively demonstrate billing compliance, and they should assume that they will be forced to dispute false and unsubstantiated allegations of billing fraud.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.

With this in mind, what should pharmacy executives and pharmacists in charge do to prepare for PBM audits? Here are 10 key PBM audit defense strategies for pharmacies in 2023:

1. Prioritize Billing Compliance

First and foremost, pharmacies need to prioritize billing compliance. While there are a lot of issues with PBM audits, these audits do serve their intended function of uncovering invalid payment requests. The more legitimate issues auditors find, the deeper they will dig. By prioritizing billing compliance, pharmacies can not only avoid legitimate retractions, but they can mitigate their risk of facing enhanced PBM scrutiny as well.

This has implications for virtually all aspects of pharmacies’ operations. From managing prescriptions and patient records to ensuring accurate coding, pharmacies need to thoroughly assess all potential causes of inaccurate billing or audit discrepancies and make changes as necessary.

2. Ensure Compliance Policies and Procedures are Updated

In this same vein, pharmacies need to ensure that their compliance policies and procedures are up-to-date for 2023. Pharmacy Benefit Managers (PBMs) and payors regularly update their rules and regulations, and they expect pharmacies to keep pace. If a pharmacy is relying on a set of outdated compliance policies and procedures, this can be just as dangerous, in certain respects, as not relying on any compliance policies and procedures at all.

Evaluating a pharmacy’s compliance program requires an in-depth understanding of all pertinent legal, regulatory, and contractual requirements. If a review of a pharmacy’s compliance program reveals that any aspects of the program are outdated, the pharmacy should address these deficiencies promptly and determine whether they have resulted in any improper payment requests being sent to their PBMs.

3. Review Recordkeeping Practices

During a PBM audit, two main issues can lead to retractions: (i) records that reveal billing violations, and (ii) records that are inadequate to substantiate the pharmacy’s billings. As a result, effective recordkeeping is imperative, and pharmacies must ensure that they have the necessary documentation on hand to prove compliance when necessary.

With electronic prescriptions now commonplace, and with many pharmacies making efforts to go paperless, recordkeeping presents some unique challenges in 2023. But, while these may be issues, they are not excuses, and PBM auditors are more than willing to impose retractions based on recordkeeping failures.

4. Maintain Ongoing Documentation of Billing Compliance

One aspect of recordkeeping that is of particular importance concerning PBM audit defense is maintaining ongoing documentation of billing compliance. Pharmacies should have procedures in place that are designed to both (i) generate substantiating documentation for their billings automatically or as a matter of course, and (ii) ensure storage of this substantiating documentation.

Broadly speaking, PBMs’ approach to auditing can best be described as, “guilty until proven innocent.” If a pharmacy cannot affirmatively demonstrate that billing is compliant, then the assumption is that the billing is non-compliant. By being prepared with substantiating documentation on hand, pharmacies can streamline the PBM audit process and significantly reduce their risk of facing unwarranted retractions.

5. Prepare a PBM Audit Response Protocol

Given that pharmacies can expect to be audited by their Pharmacy Benefit Managers (PBMs), pharmacies should have PBM audit response protocols in place. By knowing what they need to do—and when and how to do it—pharmacy executives and pharmacists-in-charge can avoid being caught off guard and needing to play catch-up while PBM auditors comb through their billing records.

An effective PBM response protocol will include step-by-step procedures for how to handle an audit from the moment of notification. Identifying and documenting these steps proactively ensures that pharmacy leadership can take the helm immediately and focus everyone’s energy on working strategically and systematically toward a favorable outcome.

6. Assemble and Prepare a PBM Audit Response Team

A pharmacy’s PBM audit response protocol should identify all individuals who will be a part of the pharmacy’s audit response team. This includes internal personnel as well as outside counsel and consultants. Internally, a PBM audit response team should generally include executives, the pharmacist-in-charge, supervisors, billing and IT specialists, and any other person who can effectively contribute to the pharmacy’s defense.

Externally, as soon as pharmacies receive an audit notice, they need to engage defense counsel and consultants who are intimately familiar with the PBM audit process and who routinely represent and advise pharmacies regarding billing compliance. Just as the pharmacy’s internal personnel need to be able to follow the pharmacy’s PBM audit response protocol and hit the ground running, the pharmacy’s external advisors must be able to hit the ground running as well.

7. Conduct an Internal Billing Compliance Audit (or “Practice Audit”)

Before facing scrutiny from their PBMs, pharmacies should conduct internal billing compliance audits focused on identifying any issues that are likely to be uncovered during a PBM audit. While these are often referred to as “practice audits,” pharmacies should view these as much more than simple run-throughs. Instead, the goal should be to conduct a comprehensive and unbiased assessment of the pharmacy’s current risk exposure, and the pharmacy should use the information it obtains during its internal audit to make any necessary updates or changes to its practices, policies, and procedures.

8. Play an Active Role in the PBM Audit Process

Once a PBM audit begins, the pharmacy must interject itself and play an active role in the audit process. Pharmacy personnel must not let auditors take control, and they must not blindly follow the auditors’ instructions. Instead, they must make informed decisions based on the pharmacy’s response protocol and the advice of counsel, and they must ensure that they are acting with the pharmacy’s best interests in mind.

The reason for this is simple: PBM auditors do not have the pharmacy’s best interests in mind. Their job is to recoup as much money as possible for private insurance companies, Tricare, and other payors—whether based on technical deficiencies, inadequate documentation, or true billing fraud. Playing an active role is the only way for pharmacies to level the playing field and avoid unwarranted liability.

9. Proactively Challenge Auditors’ Flawed Methodologies and Assumptions

When playing an active role in the PBM audit process, pharmacies should proactively challenge auditors’ flawed methodologies and assumptions. While PBM auditors should be unbiased experts in pharmacy billing compliance, the reality is that many are not. Mistakes are common, and it is up to pharmacies to identify and address these mistakes so that they do not result in retractions.

PBM auditor mistakes can range from miscalculating payment liability to applying outdated (or post-dated) rules and regulations. Given the complexity and volume of issues that can lead to unjustified retractions, most pharmacies will need to rely heavily on their defense counsel and compliance consultants to identify issues for them.

10. Preserve Evidence for Post-Audit Litigation

Finally, recognizing that even pharmacies’ best efforts won’t necessarily be enough to prevent an unjust outcome from a PBM audit, pharmacies’ audit defense strategies should also involve preserving evidence for post-audit litigation. This may involve seeking injunctive relief to prevent the imposition of retractions while the pharmacy attempts to work out an amicable outcome, or it may involve pursuing statutory or contractual claims in court. In any case, preparation is critical here as well, and showing that they are prepared to litigate if necessary can also be an effective strategy for pharmacies to mitigate the costs of aggressive PBM audits.