Nothing is as critical to the economic health of an independent pharmacy as successfully resolving inevitable audits by Pharmacy Benefits Managers ("PBMs"). While the PBM concept originated as a measure to cut back on fraud, waste and abuse, the current role played by a PBM can often be perceived as antagonistic to the interests of independent pharmacies. Indeed, over 80% of independent pharmacy owners polled stated that they had had a negative audit experience.

As every pharmacy operator knows, there are only a few PBM companies on the market, and each PBM controls a significant market share. As a result, independent pharmacies have no leverage with a PBM, and must operate within the framework of its mandates. Some examples include provisions that allow a PBM to suspend payments during the ongoing audit process, initiate abrupt provider termination on the basis of PBM's performance management's determination of pharmacy's non-compliance with the terms of the provider services agreement, and limit a pharmacy's dispute resolution process to an expensive, out-of-state arbitration.

A common concern expressed by independent pharmacy owners is that PBM provider services agreements in many instances impose greater obligations on pharmacies than those mandated by state or federal regulations. Indeed, a pharmacy's violation of these over-and-above obligations is often the cause for penalties including withholds, payment suspension, and possible termination of the provider services agreement.

Another cause for distress and frustration of independent pharmacy operators is the lack of regulatory oversight of the PBM audit process.

With that said, there are ways for independent pharmacies to prepare for, prevent and fight back when facing a PBM audit. Here are some essential steps that every independent pharmacy owner should take:

· Secure legal representation. Experienced legal counsel specializing in healthcare law can provide the pharmacy with much needed guidance in the vast array of regulatory and compliance requirements affecting the operations of a retail pharmacy. A knowledgeable attorney can assist with developing a proper compliance program, guide the pharmacy owner and the supervising pharmacist in presenting proper documentation in response to a draft audit report, counsel the pharmacy staff in the effective ways to handle desktop and on-site audits and, in an event of discrepancy findings, assist in developing an efficient submission challenging a final audit report. Finally, effective legal representation is often key when a pharmacy is faced with a payment suspension or possible termination from the PBM network.

· Get your house in order. The importance of proper record keeping policies, in successful operation of a retail pharmacy in today's regulatory climate simply cannot be overstated. Prescription records including delivery and pick-up logs, wholesaler orders and invoices, records of telephone communications with prescribers or clients, adequate logs of controlled substances inventory – these are only some of the numerous important records that must be accurately maintained by a pharmacy in order to assure compliance with its obligations under many state and federal laws, as well as the terms of its PBM provider services agreement.

· Be on top of the process. Once a notice of a PBM audit has been received, a pharmacy should make sure all of the requested documentation is compiled and submitted to the PBM investigator in a timely and orderly manner. Effective communication with wholesalers, prescribers and software vendors is key. Timeliness and efficiency in submissions throughout the different stages of the audit process is critical.

· Control the physical audit. If the audit is onsite, be prepared with exact information on what documentation must be provided to the PBM investigators, provide a separate room for the auditor, and instruct employees to refer all of the auditor's questions to a single designated person.

· Know the scope of the audit. A PBM can only request information relating to the contracted services provided by the PBM. A pharmacy that reveals unrelated patient information—even in response to a request for that information—can potentially be liable for a HIPAA violation.

If you have any questions or require legal guidance with respect to a PBM audit or any other legal issues facing your pharmacy or facility please do not hesitate to call one of our experienced healthcare attorneys at 212.668.0200 or email the firm at info@mdrxlaw.com. Our healthcare partners have years of experience representing pharmacies in PBM and governmental audits and investigations as well as numerous transactions including mergers & acquisitions, buy-ins/buy-outs, partnership formations/dissolutions, general commercial litigation matters, and defense of pharmacists, physicians and other healthcare providers in civil, administrative, disciplinary and criminal proceedings.