How We Helped a New York Pharmacy Avoid PBM Network Termination – And What You Can Learn From It

Pharmacy Benefit Managers (PBMs) have long been a source of frustration for independent pharmacies, imposing stringent audit practices that often lead to recoupments, penalties, and even network terminations. PBMs justify these actions by claiming they are enforcing compliance and ensuring appropriate billing practices. However, in many cases, their findings are flawed, their methods are overly aggressive, and their penalties are disproportionate.

One of the most common reasons for PBM audits and terminations is an alleged drug invoice shortage—a finding that suggests a pharmacy has dispensed more medication than it has purchased. These findings are often the result of inaccurate audit methodologies, failure to account for valid explanations, or a fundamental misunderstanding of how pharmacies manage their inventory.

Recently, we successfully defended a New York independent pharmacy against network termination from a national PBM network due to an alleged drug invoice shortage. By leveraging strong documentation, legal arguments grounded in state law and contract provisions, and a well-structured Corrective Action Plan, we convinced the PBM to rescind the termination. This success is not only a victory for our client but also a powerful example of how pharmacies can push back against unjust PBM actions.

The PBM’s Allegations: Alleged Drug Invoice Shortage

The pharmacy we represented had been operating for years without issues when it suddenly received a termination notice from the PBM. According to the PBM’s audit findings, the pharmacy’s purchase records did not support the volume of certain high-reimbursement medications that had been dispensed over a specific audit period. This is what PBMs refer to as a drug invoice shortage, and it is one of their most frequently used reasons for terminating independent pharmacies from their networks.

When PBMs conduct invoice reconciliation audits, they compare the quantity of a drug that a pharmacy purchased from wholesalers against the quantity dispensed to patients. If they determine that a pharmacy has dispensed more of a drug than it has documented as being purchased, they claim that the pharmacy’s inventory records are incomplete or that the pharmacy may have engaged in improper billing practices. This often leads to demands for substantial recoupments or, in more severe cases, network termination.

For pharmacies, a termination of this nature can be devastating. Losing network access to a major PBM means losing patients who rely on that PBM for coverage, which can result in a significant loss of revenue. Additionally, a PBM termination can damage a pharmacy’s reputation and make it difficult to contract with other payors in the future.

Our Approach: Challenging the PBM’s Audit Findings

Understanding the severe consequences of PBM termination, we immediately took action to build a strong defense. The first step was to conduct a comprehensive review of the pharmacy’s purchasing records, dispensing logs, and wholesaler invoices to determine whether the PBM’s allegations had any merit.

After a thorough analysis, we identified multiple errors in the PBM’s audit methodology. The pharmacy had sourced some of its medications through secondary wholesalers, and the PBM had failed to account for these purchases. Additionally, the audit did not properly consider product returns, supplier delays, and other inventory fluctuations that can create the appearance of a shortage when, in reality, all transactions were legitimate.

Once we had gathered the necessary documentation, we prepared a detailed response challenging the PBM’s findings. In our response, we:

1. Demonstrated that the pharmacy’s purchase and dispensing records were fully supported by valid documentation.
2. Identified inconsistencies in the PBM’s audit methodology, including failure to account for secondary supplier purchases.
3. Cited New York state pharmacy audit laws, which provide important protections to pharmacies facing unfair audit practices.
4. Highlighted contractual provisions in the agreement between the PBM and the pharmacy, showing that the termination was unjustified.

The Corrective Action Plan: Strengthening Our Position

Even when a PBM’s audit findings are successfully disputed, they often want to see that a pharmacy is taking proactive steps to ensure ongoing compliance. To strengthen our case, we also proposed a Corrective Action Plan (CAP). This outlined how the pharmacy would implement additional safeguards to prevent future discrepancies, such as enhancing inventory tracking, improving documentation procedures, and conducting internal audits.

By presenting a CAP, we demonstrated that the pharmacy was not only compliant but also proactive in ensuring full transparency and accountability in its operations. This approach reassured the PBM that rescinding the termination would not create future issues.

The Outcome: PBM Rescinds Termination

After reviewing our submission, the PBM agreed to reverse its decision and reinstate the pharmacy into the network. This was a significant victory, allowing our client to continue serving its patients without disruption.

For independent pharmacies, this case underscores the importance of pushing back against PBM audits and terminations. PBMs often rely on pharmacies not knowing their rights or lacking the resources to challenge unfair audit findings. However, when pharmacies take a strategic and well-documented approach, they can successfully defend themselves and remain in business.

PBMs Are Becoming More Aggressive – Pharmacies Must Be Prepared

PBM audits and network terminations are becoming increasingly common, particularly against independent pharmacies. More and more, we are seeing PBMs use drug invoice shortages, prior authorization discrepancies, and billing errors as justification for removing pharmacies from their networks. Unfortunately, many pharmacies assume that they have no recourse and accept PBM decisions without challenge.

This case demonstrates that PBMs can be held accountable when pharmacies take the right approach. However, pharmacies must act quickly when facing an audit or termination notice. The key to success is having a strong legal strategy, thorough documentation, and a clear understanding of state and contractual protections.

How We Can Help

If your pharmacy has been targeted by a PBM audit, is facing recoupments, or has received a network termination notice, it is critical to act immediately. PBMs count on pharmacies either not responding or failing to mount an effective defense. With experienced legal representation, pharmacies can successfully dispute audit findings and protect their place in PBM networks.

We specialize in PBM audits, network terminations, contract negotiations, and regulatory compliance. We have successfully defended numerous independent pharmacies against unfair PBM actions, helping them stay in business and continue serving their patients.

When you work with us, we:

• Conduct a thorough review of the PBM’s audit findings and methodology.
• Identify errors, inconsistencies, and legal violations in the PBM’s audit process.
• Build a strong response supported by documentation, state laws, and contract provisions.
• Negotiate with PBMs to rescind terminations and reduce audit recoupments.
• Develop proactive compliance strategies to prevent future PBM issues.

PBMs continue to exert control over independent pharmacies, but pharmacies are not powerless. With the right legal strategy, it is possible to challenge unfair practices and secure a favorable outcome—just like our recent success in New York.

If your pharmacy is facing an audit or termination threat, do not wait until it is too late. Contact us today to discuss your case and learn how we can help protect your business.