Why Health Plans Should Audit their PBM Rebates

By Derek Frye
Tue, Jun, 25, 2019

PBM rebate potential has been growing rapidly due to increased utilization of specialty and other high-price brand drugs. In fact, billions of PBM rebate dollars are at stake each year for health plans, their clients, and, ultimately, members. From a financial standpoint, it is more imperative than ever that health plans audit their PBM rebates to ensure they are recouping the dollar amounts they are entitled to.

For Medicare Advantage plans, auditing the PBM rebate process is a must to ensure accurate reporting to CMS and regulatory compliance. Although some plans administer this process themselves, most plans have the PBM manage this for them. But if the PBM makes mistakes (as often happens), plans are potentially on the hook for CMS compliance actions, including stiff fines and penalties.

Download The Health Plan's Guide to Auditing PBM Contracts: Update for the 2019-2020 CMS Audit Season 

For Medicare and Medicaid plans that have Safe Harbor protection for PBM rebates, CMS has proposed changes in point-of-sale (POS) rules so that a portion of PBM rebates benefit consumers directly. The added layer of complexity in introducing this element is expected to increase errors in PBM rebate reporting and calculations.

Given how rapidly market dynamics change, and the complexity of the ever-shifting calculations involved, the best strategy is to audit your PBM rebates. If you hire an outside auditing team, make sure they have the right experience and expertise. The auditor should preferably have worked previously in a PBM rebate department and have a detailed understanding of PBM rebates and PBM financials.

Financial Implications of PBM Rebate Audits

A PBM contractual or guarantee rebate audit is the most commonly performed type of audit of PBM rebates. A majority of health plans with 50,000 lives or more conduct these regularly. Smaller health plans can also benefit, given the high dollar amounts often involved. PBM rebate audits are cost-effective because they can generally be done without a team having to go on site, provided the right financial and other data is provided for analysis.

In 2018, we conducted 31 audits involving all of the major PBMs in which we reviewed hundreds of millions of dollars in PBM rebates paid to health plans. Here is what we learned:

  • 65% of the PBM rebate audits uncovered PBM errors
  • For the errors uncovered, the PBMs agreed to adjust the rebate amounts paid to the health plans.
  • Most errors identified resulted in health plans collecting between $10,000 - $50,000. The next most frequent range was $50,000 - $100,000. A small number of audits found errors ranging from as low as $0 - $5,000 to as high as in the millions of dollars.

Here are the most common operational problems we identify during audits that result in errors and incorrect PBM rebate amounts being paid to health plans:

  • PBM reporting that doesn’t align with health plan reporting. This can include whether the PBM rebate guarantee is calculated on a per claim basis.
  • Claims processing and reporting cycles that get thrown off schedule.
  • Timing issues between guarantee payments and your contract’s stipulations
  • Misallocation of PBM rebates by product line or benefit code.

Based on what we learned from our 2018 audits, here are some questions health plans should ask their PBMs to get clarity on which claims are considered rebate-eligible.

  • Are medical devices/supplies processed through my PBM being invoiced for rebates?
  • Is my plan entitled to collect some or all of those rebates?
  • How are rebate-eligible brand claims defined?
  • Does my PBM rely on specific Medi-Span codes?
  • Are those codes monitored to determine if there’s significant volume of drugs going through that aren’t being rebated even if the manufacturer contract allows it (such as for new-to-market products)?
  • Do PBM rebates depend on whether the drug is FDA-approved for the indication being prescribed versus if it is prescribed off-label?
  • How are PBM rebates impacted by 340B? Are 340B claims defined based on static pharmacy lists, or by specific claim attributes also referenced? The latter might provide more granularity about whether or not a claim was truly invoiced under 340B rules.*

Download The Health Plan's Guide to Auditing PBM Contracts: Update for the 2019-2020 CMS Audit Season 

*The federal 340B Drug Discount Program requires drug manufacturers to sell outpatient drug products to a select group of “safety net” hospitals and other qualifying healthcare facilities and programs at a discounted price. Organizations that qualify for the discounts are called “covered entities.” The discounted price cannot be higher than the net price paid by Medicaid, after rebates, for the same products.