PBM Best Practices Series: Pharmacy benefit claims auditing
To ensure that pharmacy benefit managers (PBMs) are complying with contract terms, managing trends, and delivering the expected claims processing and quality of service, plan sponsors must conduct a pharmacy benefit claims audit. This paper discusses the value of the pharmacy claims auditing process and best practices for plan sponsors to better manage their drug spend through a comprehensive PBM audit plan.
Value of pharmacy benefit claims auditing
The primary objective of a pharmacy benefit claims audit is for a plan sponsor to meet its fiduciary responsibility by verifying that the claims adjudicate accurately according to the plan’s summary plan description (SPD) and contractual agreements. To accomplish this goal, the audit tests are conducted on 100% of the claims to identify systemic adjudication errors or anomalies, such as paying claims for non-covered items and claims payment amounts greater than the contracted amounts. Revealing simple data-entry errors as well as isolated or systemic issues and noncompliance with contract terms, the claims audit identifies how a pharmacy plan can be improved.
PBM claims auditing is beneficial to monitor for payment integrity and fraud, waste, and abuse for health plans, employers, Medicare Advantage Part D plans, brokers, Taft-Hartley funds, and other pharmacy plans.
The audit helps plan sponsors by:
- Providing an opportunity to assess the potential recovery of funds that were lost due to overpayment or system errors.
- Possibly providing information on important trends and data that will help negotiate future PBM contracts to drive down costs.
- Exposing any gaps between the benefits applied, the clinical intent, and the claims experience.
- Identifying any potential adjudication errors that might result in unnecessary member disruption and/or program costs.
- Ensuring the PBM responds to any disputes that might arise if the program’s pricing and claims administration do not meet the plan sponsor’s expectations or the PBM’s guarantees.
In addition, auditing on a regular basis builds confidence that the PBM is adhering to its contractual requirements, which leads to a better, more transparent relationship between the PBM and the plan sponsor.
Types of pharmacy benefit claims audit tests
Depending on a plan’s needs and budget, a plan sponsor can choose from a list of audit tests, which can include the following:
| Name | Description |
|---|---|
| Invalid NDC Claims | Identifies claims with submitted National Drug Codes (NDCs) not found in the industry-standard master drug database. The audit considers the NDC invalid if an NDC from the claims data does not match an NDC in the reference database. |
| Questionable AWP Claims | Identifies paid claims for which the submitted average wholesale price (AWP) is inconsistent with the published AWP in the industry-standard master drug database. |
| Dispensed as Written (DAW) Penalty | Identifies claims for brand-name products where there was a generic product available for substitution and the PBM did not charge a penalty to the member to drive generic utilization. The financial impact is the sum of the calculated DAW penalties that were not imposed. |
| Incorrect Copay | Identifies claims where members paid more or less than the contractual copay amounts based on the plan sponsors benefit design. |
| Duplicate Claims | Identifies claims dispensed to the same member, on the same day, for the same drug. |
| Refill-too-soon | Identifies claims as being “refilled-too-soon,” as defined by the plan sponsor’s SPD. |
Additional audit tests can focus on quantity limits, excluded drugs, member eligibility, step therapy requirements, and drugs requiring prior authorization.
PBM claims audit process and timeframe
Depending on the complexity of the plan design and which tests the plan sponsor elects, the entire claims audit and recovery process is typically completed within six to nine months. It takes about a month for the auditor to collect all the data from both the plan sponsor and the PBM and review the agreed-upon contractual terms for pricing, guarantees, administration, and other items.
The auditor then runs the tests the plan sponsor requested, on 100% of the claims data. The auditor reviews the test results and selects a representative sample of claims for the PBM to manually review. To maximize the effectiveness of the manual review, the auditor selects the sample from the universe of claims identified by the electronic audit as being potentially problematic or incorrectly adjudicated. When that process is complete, the auditor sends the samples to the PBM for review.
The PBM reviews every claim identified, line by line, and lets the auditor know whether they agree or disagree with the findings. Once the PBM responds, the auditor determines whether the audit tests need adjustment, or if additional data is required. Then the auditor extrapolates the impact, if any, of these types of claims on the plan sponsor’s entire member population.
The auditor compiles the findings and issues a preliminary report for the PBM to review and provide comments and clarification. Once the PBM review is complete, the auditor finalizes the report, states its position on each item, and includes any recommendations for corrective actions as a result of the audit tests. The final audit report typically includes a discussion of the following categories:
- Audit process and findings
- Any systematic or repetitious errors, noncompliance with contractual requirements, or inadequacies in claims control procedures or clinical programs
- Financial impact of audit findings
- Specific problem areas warranting further investigation and/or additional focused auditing, if needed
After a PBM claims audit: Recovery efforts
Once the audit report is finalized, the recovery effort begins. This involves both recovering any funds that the plan sponsor or the plan’s members overpaid and providing corrective action plans to fix errors and ensure that overpayment does not happen again. Most PBMs have processes in place to conduct impact analyses of all issues found during the audit to identify claims incorrectly processed, provide their findings to plan sponsors, and make financial payments to the plan, if applicable.
In addition, the results of the audit and recovery provide the plan sponsor with a clear direction around whether to strengthen its PBM contract moving forward, or to improve and clarify its SPD. As a best practice, the plan sponsor might elect to perform a contract market check in conjunction with the claims audit. This will help clarify ambiguous contract terms, achieve better market rates and terms, and maximize the plan sponsor’s potential for cost savings.
Three-year comprehensive PBM audit plan
Over the life of the plan, consistent auditing is crucial to a well-managed pharmacy benefit program. Typically, PBM contracts are structured around a three-year master agreement, and regular audits are critical to accurate pharmacy plan administration throughout the contract term by:
- Identifying any potential adjudication errors
- Ensuring the plan sponsor receives timely payments
- Requiring that underperformance to the guarantees is promptly paid
Pharmacy benefit claims audit
As a best practice, plan sponsors should have their pharmacy claims audited. If the plan sponsor suspects the PBM is not adhering to the contract, or if the plan frequently changes benefits, then it is best to audit every year. In addition, plan sponsors should have claims audited in the plan year when a benefit change request or a new benefit design is implemented, such as added copays, lower deductibles, or increases in out-of-pocket maximums.
Pricing and minimum rebate guarantees, manufacturer rebate audit, and performance guarantee reviews
The pharmacy landscape is continuously changing, and drug price changes or brand-name/generic reclassifications are examples where those changes can affect the plan’s pricing and rebate guarantees. PBM contracts typically include guarantees in several pricing areas, and auditing these guarantees every year has the potential to deliver a significant return on investment to the plan sponsor.
A pricing reconciliation audit ensures the PBM meets the pricing guarantees specified in the contract for the audit period in the following areas:
- Discount guarantees by pricing component
- Maximum dispensing fees by pricing component
- Generic dispensing rate
A minimum rebate guarantee reconciliation determines whether the PBM met the minimum rebate guarantees by channel and type (specialty and non-specialty). The findings include the estimated impact of underperformance, and the audit verifies the PBM is:
- Paying at least the minimum rebate guarantees or passing through more rebates than the minimums
- Properly classifying brand-name drugs as defined in the contract
- Properly excluding and including claims
A manufacturer rebate audit, also known as a pass-through rebate audit, examines the administration of the pharmaceutical manufacturer rebate program to determine whether the PBM accurately invoiced the manufacturer and paid the correct rebate amount to the plan sponsor. By performing this audit every two years, plan sponsors can improve prescription drug affordability, boost their profits, and better manage their PBM contracts.1
Performance guarantee reviews are another way, in addition to auditing, for plan sponsors to hold their PBMs accountable for operational performance. Every PBM contract should include a list of yearly performance guarantees that the PBM is committed to meeting for the plan sponsor.2 Plan sponsors should audit the PBM’s performance yearly.
Next steps for plan sponsors
As a best practice, plan sponsors should implement a comprehensive PBM audit plan. This is key to helping plans manage drug spend by ensuring that the pharmacy benefits plan is set up correctly. Because pharmacy benefit setups are performed manually by PBM staff, there is potential for human error. If the plan is experiencing setup issues—for example, incorrect copay amounts or higher-than-expected drug costs—then the audit can reveal coding errors so the PBM can correct them. In addition, if plans are not achieving the expected discounts and rebate guarantees, an audit will identify the causes so the PBM can resolve them. As a result, plan sponsors will benefit from a more transparent relationship and reduce costs from audits with the PBM moving forward.
1 For more information, see the Milliman white paper, ”PBM Best Practices Series: Rebate audit services,” at https://www.milliman.com/en/insight/pbm-best-practices-series-rebate-audit-services.
2 For more information, see the Milliman white paper, ”PBM Best Practices Series: Performance guarantees,” at https://www.milliman.com/en/insight/pbm-best-practices-series-performance-guarantees.