Natalia Mazina, JD

While a visit from the Board is not something you look forward to, the pharmacy should nevertheless be ready for it at all times. 

What does it mean to be ready for an inspection? You might be surprised: not only does it include proper record-keeping, inventory maintenance, and drug security; but also such apparently trivial things as, among other things, dust-free shelves, staff appearance, and bathroom functionality (yes, bathrooms are often inspected too). 

If the inspector concludes that the pharmacy provides sub-standard services and does not comply with pharmacy regulations, the Board may commence an administrative action against the pharmacy or issue a citation/fine (depending on the inspector’s observations). Therefore, it is important to anticipate an inspection and prepare the pharmacy and its staff for the process. 

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The inspection process differs from state to state, but most pharmacy boards focus on a few common things. For example, virtually all boards require that the inspectors introduce themselves and state the purpose of their visit prior to commencing an inspection. Most states allow the inspectors to take pharmacy records off-site (provided they issue a receipt to the pharmacy). And the inspectors are required to provide the pharmacy with the inspection report or written observations after the conclusion of the inspection. 

The inspection report is the most important document during the inspection because it lists potential violations, suggestions for improvements, and other concerns of the inspector. An experienced pharmacy attorney, for example, can simply glance at the report and tell you whether it is likely that the Board will commence an administrative action against the pharmacy, issue a citation/fine, or if no further actions would follow. 

Therefore, it is imperative for the pharmacy to review the inspection report and address its allegations or observation, if applicable. If, for example, the inspection report states that the pharmacy has no policies and procedures on dispensing controlled substances, the pharmacy should draft such policies and send them to the inspector shortly after the conclusion of the inspection. On the other hand, if the inspector notes that there is expired inventory in stock, prepare a corrective action plan on how this issue had been addressed. I cannot stress enough the importance of the inspection report as an opportunity to avoid a costly license defense in the future. 

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The inspector may ask you for additional information and documentation as required by your state laws. I had cases where inspectors asked for financial business information (tax returns, billing records, etc.). However, most states provide that pharmacies must only provide access to 1) all stock of dangerous drugs and devices, and to 2) all records of manufacture, sale, acquisition, receipt, shipment, and disposition. Therefore, If the inspector asks anything that is not on the above list or not expressly authorized by a statute, you should discuss the request with your legal consultant to analyze the validity and the Board’s authority for such request.

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Do you remember the old practice of simply waiving copays if a patient could not afford them? If you do, forget it completely because waiving copays presents the following legal issues: 

 All PBMs’ manuals and third-party payer contracts require that participating pharmacies collect deductibles, copays, or coinsurance amounts. If during a PBM audit, the pharmacy cannot present evidence it collected copays or made a fair attempt to collect, the PBM usually initiates a recoupment of all reimbursements paid to the pharmacy for medications on which the pharmacy failed to collect copays. Then, PBMs usually terminate the pharmacy out of their network. 

. Under federal laws and most state laws, routinely waiving copays raises potential Federal Anti-Kickback Statute, Federal False Claims Act, and state law liabilities. 

 Waiving copays often constitutes health insurance fraud because the pharmacy misrepresents the correct charge for dispensing medications. Let’s say a patient has a $5 copay. The PBM will reimburse the pharmacy $45 for a $50 drug. If the pharmacy waived the copay, the actual cost of the drug is not $50 but $45. Waiving the copay in this scenario would affect the pharmacy’s usual and customary drug price. 

If a PBM discovers the pharmacy was routinely waiving copays, it usually raises all of the above legal issues. 

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I have represented pharmacies where PBMs claimed millions of dollars for overpaying the pharmacies. Not only did these pharmacies face significant recoupments and contractual terminations, they also faced criminal investigations. 

PBMs are obligated to report any suspected healthcare fraud to the U.S. Department of Justice and state departments of justice  for Medicaid. 

In a recent case, Express Scripts (ESI) terminated HM Compounding Pharmacy from its pharmacy provider network for misrepresenting during a recredentialing process, claiming that it never waived or discounted member copays. HM sued ESI asserting various statutory and common law claims against ESI. 

The evidence established that HM breached ESI’s agreement by failing to collect copays, and therefore submitted manipulated usual and customary cash prices for reimbursement. After four years of litigation, HM pharmacy lost the case and had to pay $20 million to Express Scripts. 

There are only two scenarios when a pharmacy may waive copays: 

 If a patient presents evidence of financial distress, the pharmacy must document such evidence with a financial hardship form and make copies of all information presented by the patient in support of waiving the copay, such as Medicaid cards, pay stubs, tax forms, etc. This practice should never be advertised and should be applied to all patients. In other words, if you allow Medicare patients to submit financial hardship forms, you should do the same for all patients. 

 This usually applies for delivered or mailed medications. Pharmacies must pursue debt collection against patients and record all conversations with patients regarding financial responsibilities. During an audit, the pharmacy should be able to provide evidence that a good faith effort was made to comply with the law and healthcare contracts. A typical procedure under this scenario is to send an invoice to the patient, follow up, send another letter notifying of collection efforts, and write off the amount as uncollectable copay. 

Collecting copays will continue to be a focus of government enforcement and PBM audits. Many PBMs require that pharmacies have policies and procedures describing its collection practice and circumstances under which copays may be waived. If you have such policies and procedure, review them, educate your staff, and enforce them regularly. If you do not have such policies in place, it is time to draft them.

Government and PBMs can pursue penalties for noncompliance. 

Author | Natalia Mazina, JD

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