Government agency audits focused on Medicare, Medicaid, and pharmacy benefit manager (PBM) compliance can result in substantial losses for pharmacies. Each pharmacy is audited the same way it is done with other similarly situated pharmacies. If auditors uncover evidence—or apparent evidence—of alleged fraud, they can initiate recoupments and potentially deny pending claims, institute pre-payment reviews of future claims, and impose other financial penalties.
An unfavorable pharmacy audit involves clinical or professional judgment. Too often, pharmacy owners and managers fail to approach these audits with the required attention and resources. Medicare and Medicaid auditors and Pharmacy Benefit Managers have a strong financial incentive to recoup as many “overpayments” as possible, and when in doubt, they will err on the side of protecting payors. As a result, when pharmacies fail to execute an effective audit defense strategy, they will frequently face unnecessary (and often unwarranted) consequences under state or federal law.
However, even with a sound defense strategy, pharmacies and healthcare providers can still face unwarranted financial penalties following Medicare, Medicaid, and PBM audits. Despite their best efforts, pharmacies simply won’t be able to avoid unfavorable audit determinations.
“Medicare and Medicaid auditors and PBMs routinely impose substantial recoupments and other financial penalties during pharmacy audits. However, these financial penalties are unjustified in many cases. When facing unjustified penalties, pharmacies must seek appropriate redress through the pharmacy audit appeals process.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
Given that this is the case, many pharmacies find themselves needing to file an audit appeal. While Medicare, Medicaid, and PBM audit appeals are all very different, some general principles apply across the board when seeking to reverse (or revise) the outcome of a pharmacy audit. With this in mind, here are 10 keys to a successful pharmacy audit appeal:
1. Independently Assessing the Pharmacy’s Liability for Overpayments
After receiving an unfavorable pharmacy audit findings, the first step is to assess the viability of an appeal. Does the pharmacy’s billing record support the auditor’s conclusions? Or do the auditor’s conclusions appear misguided (in whole or in part)?
Assessing the viability of an appeal requires an independent determination of the pharmacy’s liability for overpayments. In other words, the pharmacy must conduct its own internal billing compliance audit. When conducting this internal audit, the pharmacy must focus on arriving at an unbiased and fact-based outcome—not simply seeking to disaffirm the auditor’s conclusions. The pharmacy should engage outside counsel to oversee the audit, as this will allow for both (i) reliance on outside counsel’s knowledge of the pertinent billing rules and regulations and (ii) establishment of the attorney-client privilege. When conducting internal billing compliance audits in response to unfavorable audit determinations, pharmacies must consider potential billing violations, including (but not limited to):
- Billing for non-covered medications
- Double-billing
- Overbilling
- Unbundling
- Upcoding
A key factor to remember is that filing an appeal will cause the entity conducting the audit to reopen its inquiry. If the preliminary audit report did not expose all violations warrant enforcement, initiating an appeal could lead to additional recoupment liability (among other penalties). As a result, informed decision-making is essential, and pharmacy owners and executives must be confident that going through the appeals process will not have the opposite of its intended effect.
2. Evaluating the Pharmacy’s Billing Compliance Program
Along with evaluating the pharmacy’s billing record, it will also be necessary to evaluate its billing compliance program. Demonstrating adherence to a comprehensive and up-to-date compliance program can be key during the pharmacy audit appeal process, while compliance program deficiencies can exacerbate the challenges at hand. When deciding how to approach the appeal process, pharmacy owners and executives need to know whether any billing violations resulted from compliance program deficiencies or errors on the part of pharmacy billing personnel. These are very different situations that require very different strategies during an appeal.
3. Identifying the Specific Billings that Created Issues During the Audit
When evaluating potential grounds for a pharmacy audit appeal, it is necessary to identify the specific billings that created issues during the audit. After identifying these billings, the pharmacy can compare the auditor’s conclusions to those reached during its independent assessment.
This can be a time-intensive task if the audit found a substantial volume of alleged overbilling. However, it is also an extremely important task, as pointing out specific flaws in the auditor’s processes and conclusions is essential for filing a successful appeal. In some cases, a single mistake or oversight can lead to multiple unwarranted allegations, which can help streamline the process of demonstrating that reconsideration is warranted. For example, if auditors applied outdated billing guidelines to recent reimbursement requests or new guidelines to reimbursement requests governed by a previous set of rules, this will warrant the revision of multiple adverse liability determinations in many cases.
4. Looking for Mistakes in the Auditors’ Unfavorable Determinations
Since filing an appeal aims to reduce or eliminate the financial penalties imposed during a pharmacy audit, examining the auditor’s processes and conclusions for mistakes is a key step toward formulating an effective audit appeal strategy. Generally speaking, identifying mistakes will require the insights of outside counsel experienced in pharmacy compliance and pharmacy audit defense.
Mistakes during pharmacy audits can take a variety of different forms. Some of the more common examples include:
- Relying on flawed assumptions;
- Using incorrect calculation methods; and,
- Applying billing rules that were not in effect when a particular reimbursement request was submitted for payment.
But again, these are just examples. When considering the possibility of a pharmacy audit appeal, pharmacy owners and executives need to ensure that they are considering all possible grounds for challenging the outcomes of their facilities’ audits. This requires in-depth knowledge of both the relevant billing rules and the relevant audit guidelines—which requires the advice and insights of highly experienced legal counsel.
5. Looking for Patterns in the Auditor’s Unfavorable Determinations
When examining the specific billings that resulted in the imposition of recoupments and/or other penalties, looking for patterns can also help formulate an effective audit appeal strategy. Did the auditor consistently make the same mistakes? Did the auditor focus on overbillings while ignoring under-billings? Did the auditor consistently dispute the same types of billings or billings for the same types of medications? If so, why (and was this reasoning justified)? These are all issues that can potentially provide grounds for an appeal.
At the same time, pharmacy owners and executives must also acknowledge any patterns related to valid findings of noncompliance. If systemic billing issues need to be addressed, addressing them promptly will be critical for avoiding additional liability and presenting a strong case for reconsideration during an appeal.
6. Comparing Current Billing Rules Against the Rules in Effect When Alleged Overpayments Were Made
As mentioned above, one common mistake pharmacy auditors make is applying the incorrect set of billing rules to the pharmacy’s billings. This most frequently involves applying current billing rules to billings submitted when a prior set of rules was in effect. Pharmacies cannot be held liable for failing to comply with rules that were not in effect during the relevant time period, but auditors often are not careful enough to ensure that they are applying the correct rules based on the timing of the billings that are under review.
Given that Medicare, Medicaid, and PBM billing rules change over time, it is entirely possible that identical billings could trigger different outcomes at different points in time. As a result, when looking for patterns as discussed above, uncovering the blanket application of a current (or outdated) billing rule to an entire tranche of billings may result in the identification of grounds for an appeal. Even if some of the auditor’s findings are accurate, disputing a portion of the auditor’s findings could still more than justify the costs of pursuing a pharmacy audit appeal.
7. Speaking with Pharmacy Personnel Who Participated in the Audit Process
Speaking with pharmacy personnel who participated in the audit process can provide additional insight into potential appeal strategies. What documents did the auditor request? What documents did these personnel provide? What questions were asked and answered? Did the auditor ignore any objections to its methods or practices? The answers to these types of questions could provide key insights for formulating an effective appeal strategy.
When speaking with pharmacy personnel about an audit, a careful approach is necessary. To obtain honest, complete, and useful answers, any questions posed to pharmacy personnel must avoid framing these personnel as potentially having something to do with the pharmacy’s current situation. Likewise, if any personnel are potentially at fault for submitting improper billings to Medicare, Medicaid, or a PBM, it will be important to ensure that these personnel are not unduly involved in the appeal process. At this stage, it is critical for pharmacy owners and executives to be confident that they are making sound decisions based on complete and accurate information.
8. Formulating an Audit Appeal Strategy Based on the Facts at Hand
After conducting the necessary research, the next step is to formulate an audit appeal strategy based on the facts at hand. If errors pervaded the audit, or if the auditor made fundamental mistakes that invalidate the entire process, then a complete reversal may be warranted. Alternatively, if some of the auditor’s conclusions are valid and others are not, then the pharmacy’s appeal may need to focus on reducing, rather than eliminating, the financial penalties imposed. Here, too, these are very different situations that require very different approaches.
9. Filing the Pharmacy Audit Appeal On Time
Pharmacy audit appeals are subject to strict deadlines. For example, Medicare audit appeals generally need to be filed within 120 days, and it may be necessary to file an appeal within 30 days in order to stay any recoupments. If there is any possibility that an appeal may be necessary, it is imperative that the pharmacy take appropriate action to preserve its appellate rights. Once the deadline to file an appeal has passed, the right to appeal unwarranted recoupments and other penalties will be lost.
In many cases, it will make sense to communicate with the auditor before filing an appeal—as long as there is still time to do so. If the auditor relied on flawed assumptions or made mistakes that are reasonably transparent, it may be possible to negotiate a favorable outcome without going through the formal appeal process. With that said, pharmacies that have received unfavorable audit determinations need to be prepared to protect their financial interests by all means available, and they must not waive their right to appeal in hopes of achieving a favorable informal resolution. As a result, in some cases, it may be necessary to file an appeal before the applicable deadline while simultaneously engaging with the auditor regarding the possibility of an informal resolution.
10. Preparing for the Future Stages of the Pharmacy Audit Appeal Process
While some pharmacy audit appeals will be successful on the first attempt, pharmacies will often need to go through several stages of appeals to achieve a favorable result. For example, there are five levels to the Medicare audit appeals process: (i) redetermination, (ii) reconsideration, (iii) administrative law judge (ALJ) hearing, (iv) Medicare Appeals Council (MAC) review, and (v) judicial review in U.S. District Court. Since the first level involves redetermination by the auditor itself, going beyond this level is often necessary.
Ultimately, the key to success in pharmacy audit appeals is taking a comprehensive and structured approach that addresses the particular circumstances at hand. By devoting the necessary time and resources to the appeal process, pharmacies can protect their financial interests to the greatest extent possible. Given the financial stakes involved, pursuing an appeal (and even pursuing multiple levels of appeals) will be well worth it in many cases.
