Pharmacy Audit Reforms Have Bipartisan Support in Many States; Time for Federal Action!

By John Coster, RPh., Ph.D.

The recent enactment of bipartisan pharmacy audit reform bills in several states reflects a national trend toward common sense changes to help protect pharmacists acting in good faith to fill a doctor’s prescription. Next week hundreds of independent community pharmacists are coming to Washington as part of NCPA’s Legislative Conference in support of a federal audit reform bill which would establish uniform, national pharmacy audit standards.

Approximately twenty states have implemented or strengthened laws to ensure that audits of community pharmacies are occurring for their intended purpose of identifying and penalizing true fraud, waste and abuse.  Make no mistake. Pharmacies expect to be audited. They just don’t want audits to serve as a “piggy bank” for pharmacy benefit managers (PBMs). Pharmacy audits should not be an excuse to increase the profits of PBMs by penalizing administrative discrepancies that result in no financial loss or harm to the health plan or the patient.  And even when pharmacies can clearly prove that to the PBM, the PBM often still recoups the monies.

Over the past two years Indiana, Kentucky, Maryland, Minnesota, Mississippi, North Carolina, North Dakota, Oklahoma, Tennessee and Utah have taken legislative action against the abusive auditing practices of the PBM industry. Of those, Indiana, Kentucky, Maryland, Minnesota, Mississippi and Utah acted in just the past two months. NCPA salutes the independent pharmacists and pharmacy groups that won support for these measures.

From the perspective of the small business community pharmacist, the need for audit reform is clear. When a pharmacist dispenses the right medication to the right patient at the right time as prescribed by a doctor, it shouldn’t be a punishable offense simply because of a harmless clerical discrepancy. Yet that appears to be happening far too often during pharmacy audits today.

In a recent NCPA survey, 1,850 community pharmacists identified significant problems with the auditing status quo. First, excessive audits are decreasing the time pharmacists can devote to patients, due to varying PBM audit requirements and a burdensome and unsatisfactory audit appeals process. Second, record keeping requirements go beyond state and federal law and minor noncompliance often is harshly penalized.

With a bipartisan federal audit reform bill pending in Congress, the Pharmacy Competition and Consumer Choice Act (H.R. 1971 / S. 1058), some have raised questions about the bill’s intent. NCPA addresses these questions in the following Myth-Fact analysis:


Top Myths about PBMs and Retail Pharmacy Audits


Myth    #1

Community pharmacies oppose pharmacy audits for fraud, waste and abuse

Fact      #1

Community pharmacists are strongly supportive of audits that focus on true fraud, waste and abuse and recognize that this is a part of doing business.

 Myth    #2

Incorrect data entry of required pharmacy claims information always has harmful care and financial effects on patients, payers and PBMs

Fact      #2

Many of these data entry errors have little to no negative impact on patient care or the cost of the drug.  They are simple human errors, and there was no intent to commit fraud. Therefore, the actual audits should be conducted in a manner that leads to continuous quality improvement of the services of the provider, rather than as a source of (PBM) revenue.

 Myth    #3

H.R. 1971 seeks to reduce the PBMs capability to audit for fraud, waste and abuse

Fact      #3

H.R. 1971 does not affect PBMs’ ability to effectively audit for fraud, waste and abuse.  In fact, the bill ensures that PBMs will have this as their primary focuses by eliminating the financial incentives to focus on harmless clerical errors.  These are errors that don’t negatively impact patient care or drive up cost.

Myth    #4

All pharmacy audits save money for the health plans and patients

Fact      #4

Auditing of pharmacy claims that are paid for as a percentage of findings may lead to overzealous interpretation and frivolous recoupment of payment.  H.R. 1971 requires that PBMs not audit pharmacy claims based upon this practice. Additionally, in commercial plans, the PBM don’t always pass along the full amount of recoupments to the plans, H.R. 1971 insists that these recoveries are passed on to the health plan or fully disclosed to the health plan if they are not passed through.

 Myth    #5

If pharmacies follow the rules, they will have no problems with PBM pharmacy audits.

Fact      #5

State dispensing regulations and published PBM claim submission requirements don’t always work in concert. PBM audit requirements should not require the pharmacy staff to act contrary to state regulations. However, the claim submission requirements regarding plan benefit design, and the audit of same, may be additive to state laws, rules and regulations to the extent that the PBM requires it to administer its defined benefit.

  Myth    #6

The number of times and how often pharmacies can be audited is limited.

Fact      #6

There is no current limit on how frequently or how many times a pharmacy can be audited. Because of this, responding to and cooperating with audits can be burdensome, costly and time consuming. It is important to note that not all pharmacy audits are the same.  Some require more resources, and are extremely disruptive to small business pharmacies with a small staff.  Subjecting small business pharmacy to these high-investment audits without limitations can be onerous and expensive. Community pharmacies often need to prepare from a staffing standpoint so that their day-to-day workflow – including the critical mission of taking care of patients – is not impacted by the audit.

 Myth    #7

PBMs are audited by plan sponsors in the same manner that pharmacies are audited by PBMs.

Fact      #7

Unlike PBM contracts with pharmacies, PBM contracts with payers (their clients) limit how often and how many times their clients can conduct audits. Payer/PBM contracts usually reserve the right for the PBM to “mutually approve” any third party auditors hired by the PBM clients. 

 Myth    #8

Fraud, waste and abuse only occur at retail pharmacies.

Fact      #8

PBM-owed mail order pharmacies often fill and ship prescriptions requiring 90day supplies, including for controlled substances! This leads to significant waste, and also could lead to diversion of these excess medications form mail boxes or medicine cabinets.

 As previously noted in Fact #8, PBMs strictly control how their operations are audited.  PBM business practices have resulted in over $370 million in lawsuit settlements both in association with their management of commercial health plans as well as government programs.   These settlements represent significant “recoveries” that have impacted patients and health plan costs. In February 2012, CVS Caremark settled a nationwide case charging fraud at its mail order pharmacies for nearly $20 million. 

 Myth    #9

PBMs can be trusted to objectively audit retail pharmacies based on the interest of the patients and payers

Fact      #9

Many PBMs own pharmacy operations that directly compete with retail pharmacies.  Because PBMs act as both auditors and competitors to retail pharmacies, it is not necessarily in the PBMs interest to objectively audit retail pharmacies.  Thus, it is essential that there be some regulation of the PBMs’ retail audit function that appropriately balances concern regarding fraud, waste and abuse with the reality of PBM practices that often place their profits above the interest of patients, payers and retail pharmacies.



1 Response to “Pharmacy Audit Reforms Have Bipartisan Support in Many States; Time for Federal Action!”

  1. 1 Jkeil August 8, 2012 at 4:16 pm

    Fact #2 is a bit misleading…Yes, the data entry errors have little to no impact on patient care or drug cost but combined together they have a massive effect on health plans, costing them millions every year. This is one reason healthcare remains so expensive and premiums continue to rise.

    This article mentions that audits should concentrate on fraud, waste and abuse. Well human errors and clerical typos ARE waste!

    Yes, there are some PBMs who audit as a source of revenue, which is the wrong way to go about it. All audits should be strictly for compiance without regard to the amount of money it will make the PBM. This is something a pharmacy should consider when doing business with a health plan. No one is twisting their arms to sign these unfair contracts. If a pharmacy can’t get business without a contract, then they have no business. For some reason, people have got an idea in their head that if you run a business, you are guaranteed success.

    The bottom line here is that while some PBMs are abusive and unfair with their audits, there are many who are not and truly make a difference to finding true fraud, WASTE, and abuse. The pharmacies are simply trying to get away with sloppy pharmacy work in an industry where sloppiness should not be tolerated in any way because people’s health and wellbeing is on the line. Imagine if all of the accounting firms wanted their typos and clerical errors to be ignored, too.

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