Do you purchase test strips from suppliers authorized by manufacturers to distribute these products? If not, you may face significant chargebacks and contractual termination when PBMs audit your pharmacy’s test strips invoices.

Virtually all PBM  require test strips to be purchased from the suppliers expressly authorized by manufacturers to distribute their products. Most PBM manuals also provide that when “the supplier is not recognized by the manufacturer as an authorized wholesaler of its DME products, including but not limited to diabetic supplier, testing strips, lancets, and glucometers, the supplier’s invoices will be rejected.” Therefore, if PBMs reject such invoices, they find drug shortages, which justifies immediate contractual termination. PBMs argue that such purchases raise well-founded concerns that the pharmacy bought products at deeply discounted prices on the gray market without the proper chain of custody while billing PBMs as for authentic products. Usually PBMs do not accept any documentation on the chain of custody of such test strips and any arguments that the test strips were purchases in compliance with all state and federal laws are fruitless.

The New York Times described the black market for test strips in its article “The Strange Marketplace for Diabetic Test Strips.” According to the article, a test strip is a lucrative commodity with highly manipulated prices. Many entrepreneurial suppliers purchase strips from insured patients who have unused strips and resell them to uninsured patients. But, as the article explains, the biggest profits come from returning strips to pharmacies, which sell them as new and bill the patient’s insurance the full price.

Some states have addressed this issue by enacting legislature mandating pharmacies to purchase test strips only from an authorized list of distributors. California is one of such states. AB 602 – signed into law on July 31, 2017 – classifies any purchases of test strips from unauthorized supplies as unprofessional conduct for which the California State Board of Pharmacy may start a disciplinary action. The law also authorizes a Board inspector to embargo nonprescription diabetes test devices that were not purchased directly from an authorized distributor or manufacturer.

So, who is an “authorized distributor”? It is a supplier expressly authorized by the manufacturers to distribute test strips. Manufacturers usually list such suppliers on their websites.  Some states also publish lists of authorized test strips distributors. In California, such list could be found on the Board of Pharmacy’s website.

Despite PBMs policies, state laws, and Boards guidance, many wholesalers continue to sell test strips without being accepted as authorized wholesalers by manufacturers. To avoid significant recoupments, contractual terminations, and Board of Pharmacy administrative actions, pharmacies must ensure that all test strips are purchased from the authorized suppliers by verifying this information on the manufacturers’ or Board of Pharmacy’s websites.