Many pharmacies ask if they need to notify PBMs of a disciplinary action and if so, when? Many fear that PBMs may terminate their contracts with the pharmacy. As a result, only some end up providing notices, while some are terminated for failure to provide a timely notice of a disciplinary action.
If we look at PBM agreements and manuals, virtually all of them require a notice of a disciplinary action. Some even require a notice of any audit or investigation that may potentially lead to a disciplinary action. Most PBM manuals require immediate notice, while some require a notice within 5-14 days.
So what happens if a pharmacy does not notify PBM in fear of being terminated? After all, most manuals provide that PBM may terminate the pharmacy if in PBM’s judgement it “may jeopardize the health of the members.” And a disciplinary action implies that the pharmacy engages or has engaged in some sort of wrongdoing. Therefore, it makes sense to keep quiet.
A disciplinary action usually becomes apparent during a re-credentialing process (most PBMs perform them on a 12-36 month cycle). During re-credentialing, the pharmacy must answer questions regarding any disciplinary action. It will have to disclose such or deny. If the pharmacy discloses it, the PBM may terminate the pharmacy for breach of contract for failure to promptly notify the PBM (because the notice was not provided at the time the Accusation was filed).
On the other hand, if the pharmacy wrongly denies it, the PBM is likely to obtain this information through its own investigation. (PBMs must validate the credentials of pharmacies to ensure they are in good standing with state and federal laws and meet quality performance standards.) Therefore, if the pharmacy misrepresented any information on its re-credentialing application, the PBM is very likely to terminate the contract with the pharmacy and it will be difficult to get reinstated any time in the future.
This is why, notifying PBMs is recommended. But when should a pharmacy notify PBMs? When the Accusation is filed or when the disciplinary action is finalized? The answer will depend on the contractual language. Most PBMs provide that the pharmacy must “immediately notify … if any disciplinary action has been taken against the pharmacy.” A disciplinary action arguably begins when the Accusation is filed (some PBMs have argued that it starts with the Board of Pharmacy’s inspection if any alleged violations were discovered).
Some manuals, however, require a notice when the pharmacy “receives notice of any proceedings related to Pharmacy Services that may lead to disciplinary action.” This requirement is too broad and unclear. Any Board of Pharmacy inspection may lead to a disciplinary action. Does it mean that the pharmacy must provide a notice to the PBM as soon as it is inspected by the Board? Not likely, as it would lead to a notice each time the pharmacy is inspected. I doubt that PBMs want to be notified of every inspection. Therefore, a notice when an Accusation is filed or when a settlement is reached is a right time to provide a notice (depending on the exact requirements of each PBM).
However, be careful in how you provide notice. I recommend that your legal counsel write a letter describing the Board’s allegations and mitigating evidence. If you provide a notice after a settlement has been reached, explain that the settlement was entered solely for financial considerations and does not constitute an admission of any quilt.
The main take-away point: make sure you understand your PBM contracts. If you had a disciplinary action taken against your pharmacy, review all the contracts to determine the notice requirements.