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With more than 4.5 billion pharmacy claims occurring each year, it is easy for a consumer or health plan to just pay the claims, assuming they are accurate. Because most pharmacy claims are automatically adjudicated electronically, even a minor coding error could result in a large volume of incorrectly paid claims with a serious financial impact. Common errors may include duplicate billing, incorrect or missing discounts and rebates, and mistakes in member eligibility.

  • A PBM audit is a potential opportunity to recover funds lost through overpayment or system errors.
  • Even a minor coding error can result in a large number of incorrectly paid claims.
  • Audits verify that the benefits spelled out in the contract are being provided.
  • On average, the return on investment in an audit is six to ten times the price of the audit.
  • A comprehensive audit usually involves electronic testing of all available claim data, followed by a manual evaluation of claim issues that the electronic testing flagged.
  • An implementation audit should be done soon after a plan has been set up, followed by a claim audit every one to two years.

The most important aspect of auditing focuses on pricing—verifying that the benefits spelled out in the contract are in fact being provided, especially the discounts that may apply to average wholesale price (AWP) or other forms of pricing.
Additionally, a claim audit should review manufacturer contracts regarding rebates and reconcile rebate payments received with the plan sponsor’s contractual guarantees. The approach to the audit may vary depending on whether the client has spread pricing (where the PBM charges its client more than the PBM pays the pharmacy for filling a prescription) or pass-through pricing (the PBM charges the client the same price the PBM paid the pharmacy) returns in place.

Goals of the Audit

The primary goal of our PBM audit is to verify the accuracy of claim payments according to the pharmacy plan’s parameters and contractual agreements. This process covers several other contractual terms and parameters as well. The audit will have the following specific objectives:

  • Verify that the plan is being administered in compliance with contractual obligations and that the plan sponsor is receiving all benefits of the contracted arrangement
  • Confirm the proper application of various pricing elements related to claim cost determination, such as negotiated discounts and maximum allowable cost (MAC) applications
  • Identify errors, propose solutions, determine the efficiency of administrative practices and assess the recovery potential
  • Review whether claim cost-management features and clinical protocols are being administered appropriately and are providing the intended value
  • Compare vendor performance against guaranteed standards to ensure quality administration
Audit Recommendations

A comprehensive PBM audit can help identify cost savings opportunities and ways to enhance your existing benefit strategy. The following provides a general overview of the types of reviews and audits available to support employer efforts.

Operational Review typically covers:

  • Accuracy of discounts provided
  • Accuracy of eligibility and plan benefit administration
  • Duplicate payments
  • Contract compliance
  • Retail (including specialty) and mail-service dispensing fees
  • Formulary savings and rebates
  • Pricing formulas
  • AWP discounts
  • Maximum caps
  • Brand versus generic usage

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Plan Performance Assessment: Provides a more in-depth analysis of cost drivers, utilization patterns and PBM value, while providing the opportunity to assess potential savings that can be realized through benefit design changes utilizing alternative co-insurance or co-pay structures, generic and mail order management tactics.

Pharmacy Benefit Audit: May include a fixed fee and/or a performance fee component. The fixed fee payment for executing on specific audit criteria that should be proposed by an employer includes the following:

Claims audit re-adjudication/evaluation fees on a per claim basis, unless otherwise indicated. We include all the following benefit program elements in the per claim fee:

  • Administrative and clinical fees
  • Loading of eligibility, pharmacy claims data and other files
  • Benefit design (formulary, co-pay, networks, etc.)
  • PBM programs (quantity level limits, step therapy, prior authorizations, etc.)

The performance fee payment component is based on a percent of dollars recovered by the employer/plan sponsor from the PBM, ASO or integrated health plan managing the pharmacy program. A Pharmacy Benefit Audit can result in recommendations or savings opportunities that may include:

  • Formulary Savings – Determines economic effectiveness by comparing related savings with projected or guaranteed savings
  • Rebates – Assesses the financial and procedural accuracy of rebate reimbursement based on the plan sponsor’s contracted arrangement with the PBM
  • Co-payment Applications – Identifies claims with plan co-payments that have not been accurately calculated and charged
  • Pricing – Identifies claims in which pricing formulas have not been appropriately applied
  • Administrative and Dispensing Fee Applications – Insures that administrative, related charge-back and dispensing fees are applied properly
  • Brand vs. Generic Usage – Identifies claims in which cost-saving generic drugs aren’t being used
    • Average Wholesale Price (AWP) Discounts – Insures appropriate and accurate use of AWP and related discount formulas or methods
  • Fraud and Abuse – Identifies fraudulent and abusive claim submissions involving patients, pharmacist providers and prescribers; also identifies patients who are potential addicts or abusive users
  • Medical Consistency – Identifies pharmacy claims that misuse medical diagnostic or treatment codes
  • Proactive vs. reactive review of newly launched drugs against employer plan exclusions
  • Plan Design – Elements consist of:
    • Evaluates the accuracy of member cost sharing
    • Identifies any payments that exceed plan limits and maximums
    • Checks for compliance with formulary and generic product provisions, as applicable
    • Verifies that clinical edits are applied properly (e.g., step therapy, utilization reviews, etc.)
    • Reviews prior authorization history for the proper application of designated plan protocols for selected medications
    • Determines whether covered and excluded medications are being properly handled
    • Validates early refills and compliance with frequency limitations
    • Ensures proper application of quantity limits established for selected medications and other plan features as defined by either the PBM setup document or the plan summary plan description (SPD).
  • Use of compounded drugs
  • Eligibility – Compares plan eligibility files to claim files to verify claims were paid only for covered members and their dependents from their effective dates to their termination dates
  • Performance Guarantees – Measures the extent to which the PBM has complied with any contract guarantees such as ID card production turnaround time, mail-service turnaround time, dispensing accuracy, customer service response time, member satisfaction, etc.

The Auditing Process: First Stage

The comprehensive audit takes place in two stages. The first entails a thorough electronic testing of all available claim data, including claim adjustments and reversals. The second stage is a manual evaluation of claim issues that the electronic testing identified.
Our computer-assisted audit tools and techniques make it possible to examine 100% of a plan’s data in the first stage. The efficiency and completeness make this far preferable to the earlier practice of manually reviewing only a sample. Reviewing all the electronic claim records, including claim adjustments and reversals, gives the plan sponsor the most accurate final audit report possible.

A comprehensive audit checks every claim during a fixed period (e.g., a plan year) to assure compliance with contractual guarantees.

The Auditing Process: Second Stage

In the second stage, we examine individual claims (or groups of claims) that the electronic testing flagged from the complete data set because of apparent discrepancies. The purpose of this stage is to determine whether the electronic testing of those claims was accurate. In addition, the auditor may go on site for a firsthand operational review of how the PBM is managing the plan.

Often, when issues are identified, the auditor finds groups of claims paid incorrectly for a single reason. The objective at that point is to determine if the PBM has a systematic error in its processing system for the plan and, if so, how to correct the issue.

Preliminary Report

At the end of the audit, the auditor compiles the findings and delivers a preliminary report to the plan sponsor and the PBM for review, comment and clarification. There follows a reconciliation assessment, in which the auditor reevaluates identified claim errors based on the PBM’s response to the preliminary report.

Final Report

The final report takes the review and reconciliation process into consideration, explains the auditor’s position on each item, and makes recommendations for any corrective action needed. The final audit report includes:

    • A description of the auditing process and its findings
    • A listing and description of any material systematic or repetitious errors, noncompliance with contractual requirements, or inadequacies in claim control procedures and clinical programs
  • An evaluation of the financial and service impact of the audit findings
  • An identification of any specific problem areas warranting further investigation and/or additional focused auditing

Return on Investment

On average, problems are found in 3% to 5% of paid claim costs, with recoveries of 1% to 2%. The return on investment is estimated to be six to ten times the cost of the audit.Moreover, one of the biggest returns is from prospective savings resulting from a contract market check review conducted in conjunction with the audit. The market check review helps to clearly define ambiguous contract terms to achieve more competitive market terms and rates.
Contract market check reviews are becoming increasingly more common. Market check provisions also come with a variety of contract considerations such as their timing (e.g., midterm with changes effective the next plan year); what pricing can be compared; whether the PBM or the consultant (or both) conducts the market check; and, if by the consultant, the amount of information the market check will require.
With both audits and market checks written into their contracts, plan sponsors are doubly armed to maximize their potential for savings, and PBMs will benefit from a more transparent relationship.

Conclusion

Thanks to electronic auditing, claim audits are more effective than ever before. They can identify workings of a plan that can be improved, whether it is a single isolated issue or systematic/repetitive errors, noncompliance with the terms of a third-party contract or simple data entry errors.
As noted, PBM audits are generally cost-effective. While certainly not guaranteed, it is not unusual to find savings exceeding the cost of the audit. At minimum, the plan sponsor can be rest assured that it has met its fiduciary responsibilities in the areas of managing its PBM contract and ensuring its plan participants receive the benefits to which they are contractually entitled.

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