Health Law Alliance addresses the complexities of defending against inventory shortfalls in the context of PBM audits, emphasizing the common sources of discrepancies and potential legal implications. The article underscores the importance of a well-organized defense strategy to limit liability and navigate potential consequences for providers facing network suspension, administrative proceedings, civil lawsuits, or even criminal charges arising from inventory management errors.

PBM audits often reveal inventory discrepancies, or “shortfalls,” that may lead to broader investigations and significant legal consequences. Providers should understand how to resolve these allegations and limit liability arising from inventory management errors.

Medical pills

Common Sources of Inventory Discrepancies

First, it is important to note that the vast majority of inventory discrepancies arise from inadvertence or human error. Many pharmacists fail to timely update their pharmacy management software when NDCs change, particularly generics, because the focus is on dispensing the correct drug. Nonetheless, the PBMs do not accept that AWP may be the same across all products, and thus immaterial.

In addition, automatic refill prompts may cause prescriptions to be placed in the "will call" bin for medications that patients may not need, particularly if their underlying medical condition involves variable levels of adherence, such as for diabetics and patients with lung or bronchial disorders.

Other common mistakes involve the dispensing of generics in place of brand, particularly where the same manufacturer markets both a generic and branded version of the drug in virtually identical packaging, i.e., certain insulins. Similarly, discrepancies may result from employee misconduct and theft.

Finally, billing discrepancies may or may not result from inventory discrepancies, but our focus for purposes of this discussion is the billing of medication that was never dispensed or ordered.

Inventory Shortfalls Involving Controlled Substances

Second, different requirements apply with respect to shortages of controlled substances, which will be closely scrutinized given the regulatory climate. DEA regulations require the filing of a Form 106 that discloses the theft or significant loss of controlled substances within one business day of discovery.

In addition to PBM audits, DEA Diversion Investigators are required by annual work plans to conduct regulator inspections/audits of DEA registrants, and any unexplained inventory discrepancies likely will referred for further investigation by law enforcement. Due to intense scrutiny around the opioid epidemic, these referrals are more likely to be pursued.

Potential Solutions to Identified Inventory Shortfalls

Third, following a PBM audit or DEA inspection that uncovers inventory shortfalls, there are a number of possible outcomes. Providers may need to fight network suspension or termination; administrative and licensing proceedings; civil lawsuits; and potential criminal charges.

At this stage, the focus should be on limiting liability and the more severe potential consequences through a well-organized and strategic defense strategy. Consideration should be given to whether the inventory discrepancy can credibly be described as an operational issue, or whether other factors, such as referral relationships, lack of medical necessity, and high-reimbursing products, will require some attention and explanation.  

Finally, mistakes are just that, and we all make them. Inventory discrepancies are serious challenges, but they can be resolved satisfactorily, with no or limited consequences to your business or livelihood. Here at HLA, we rely on our attorneys' experience as former top-level McKesson executives and prosecutors to approach these cases with more insight and knowledge than the other side. This equation is our formula for success because it allows us to explain to the other side the ways in which their analysis is flawed, leading to resolution. Please do not hesitate to contact us for a free consultation to learn more about our approach.

Frequently Asked Questions

Semaglutide Compliance Program: A Must Have

The semaglutide industry is relatively new, and significant regulatory enforcement typically lags by at least two years. Accordingly, all participants involved in the semaglutide supply chain should implement well-designed compliance programs now to reduce the risk and severity of future regulatory action.


Federal Prosecutors Focus on Ozempic Violations

Intense semaglutide demand has now drawn the attention of regulators beyond the Food & Drug Administration (FDA) and state boards. Last month, a woman was charged by federal prosecutors with violations of criminal law related to misbranded and adulterated weight loss drugs. This prosecution marks the first of many to come.


Express Scripts FWA Investigative Alert: Crackdown on CoverMyMeds Provider Accounts

Express Scripts is targeting prior authorization Fraud, Waste & Abuse involving the use of CoverMyMeds provider accounts by pharmacies. Pharmacies and physicians beware.


Corporate Advice: Asset Deals – Advantages & Disadvantages

In the final Part Three of a three-part series on corporate transactions, we describe important considerations around structuring the sale of a business as an "asset" sale.