Pharmacies today operate under constant scrutiny. Whether the audit originates from a Pharmacy Benefit Manager (PBM), a state Medicaid agency, or a commercial paper, one of the first areas of review is almost always inventory reconciliation. What may appear to be a simple bookkeeping exercise often becomes the focal point of an audit, and inventory discrepancies remain among the most frequent and financially devastating findings. Inventory issues routinely lead to reimbursement recoupments, network terminations, and, in more serious cases, referrals for investigation by outside agencies.

An inventory discrepancy, no matter how small, can quickly evolve into a major compliance problem. Whether the result of documentation errors, unit-of-use miscounts, or outdated reconciliation systems, PBMs and other payors commonly treat any variance between the quantities purchased and quantities dispensed as a potential indicator of Fraud, Waste, and Abuse (FWA). Even the most minor inconsistencies can trigger broad recoupment calculations that carry significant financial exposure. In some cases, a discrepancy involving just a few tablets can spiral into allegations of systemic non-compliance.

One of the most prevalent and costly iterations of this issue occurs when a pharmacy bills for a brand-name NDCs but dispenses the generic equivalent. What many pharmacists consider a simple clerical mistake, PBMs increasingly view as a material misrepresentation that raises red flags for potential FWA activity. Reimbursement for a brand product, when the generic was actually dispensed, is often characterized as an overpayment requiring full recoupment, or worse, as a potential false claim warranting referral to a governmental agency for further review. The failure to ensure NDC-level billing accuracy can expose a pharmacy to recoupments, network termination, and additional regulatory scrutiny. This has become one of the most aggressively enforced areas of PBM and payer oversight in recent years.

The recent release of generic Farxiga (dapagliflozin) exemplifies just how easily these errors can occur. The new generic versions are nearly indistinguishable from the brand product, featuring nearly identical color schemes, blister packaging, and labeling. In a busy pharmacy environment where hundreds of prescriptions are processed daily, it is easy for staff to inadvertently select or record the wrong NDC. When auditors later reconcile purchase and dispensing data, these seemingly trivial inconsistencies may appear to suggest improper billing. Unfortunately, auditors rarely extend the benefit of the doubt. Instead, they often interpret such variances as evidence of overbilling and/or potential fraud.

The consequences can be severe. Once a PBM identifies inventory discrepancies, recoupment demands always follow. Inventory variances can also serve as grounds for network termination, with PBMs citing them as evidence of non-compliance with contractual obligations. In more serious cases, matters may be referred to state boards of pharmacy, Medicaid Fraud Control Units (MFCUs), or federal agencies such as the Office of Inspector General (OIG). Even when the underlying issue stems from confusion or administrative oversight, the resulting financial and reputational damage can be long-lasting.

Pharmacies can significantly reduce their exposure by strengthening internal inventory and billing controls. Robust reconciliation between purchasing and dispensing data, careful oversight of NDC-specific billing, and ongoing staff education are essential. As new generic products enter the market, pharmacies should promptly update their standard operating procedures to reflect new NDCs and packaging changes. Maintaining supplier invoices and purchase records in compliance with federal and state retention requirements ensures the ability to substantiate dispensing data during an audit.

Equally important is early engagement of experienced healthcare counsel. Pharmacies should not wait until a network termination notice arrives. Retaining experienced healthcare counsel to conduct a proactive compliance review or to respond immediately when audit findings are issued, often make the difference between a manageable resolution and a costly enforcement action.

How Health Law Alliance Can Help

At Health Law Alliance, our PBM audit defense attorneys have successfully represented pharmacies nationwide in audits involving inventory discrepancies and NDC billing disputes. Our attorneys understand both the practical realities of pharmacy operations and the enforcement priorities driving today’s audit climate. Our approach is strategic and focused on preserving network participation, protecting licensure, and safeguarding business continuity.

If your pharmacy has received an audit notice, or if you wish to strengthen your compliance framework before the next audit arrives, contact Health Law Alliance today for a free confidential consultation.