Back in 2020, I wrote a blog post on potential PBM audit issues and disciplinary actions based on purchasing diabetic test strips from unauthorized wholesalers. The problem is still prevalent. In fact, during these past few months, we have seen several manufacturers sending cease-and -desist letters to pharmacies demanding money for lost sales and threatening to report unauthorized sales to PBMs and Board of Pharmacies.
To remind, an “authorized distributor” means a supplier expressly authorized by the manufacturer to distribute test strips. I had cases when distributors had erroneously represented to pharmacies that they were “authorized,” but in fact they were simply licensed to conduct drug distribution business in the state and were VAWD-accredited (which is completely different from being authorized by the manufacturer to distribute test strips). Instead of asking your wholesalers and relying on their representation (which might be false), you should verify manufacturers’ lists of their authorized distributors for nonprescription diabetic test strips. Some states also publish such lists (eg. here is a list published by the California State Board of Pharmacy).
Several of my clients were recently contacted by various law firms representing test strips manufacturers explaining that their records show that the pharmacy dispensed X amount of their products but the pharmacy had purchased less from their authorized distributors. Therefore, the manufacturer concluded that the rest of the products were purchased on a grey market and the manufacturer had sustained certain damages in lost profits. The manufacturer demanded lost profits. Otherwise, it threatened to report pharmacies to PBMs and Board of Pharmacy. As discussed in my blog post on this subject, PBMs may terminate pharmacies purchasing from unauthorized distributors and Boards may commence an administrative action.
So why despite these grave consequences, pharmacies still continue purchasing products from unauthorized wholesalers? As one of my clients explained, purchasing from authorized dealers result in reimbursement below cost. But on the other hand, saving money in this manner may jeopardize your pharmacy business: there could be significant PBM chargebacks, terminations, and even administrative actions. If you dispense for less than your cost, maybe it is a reason to reconsider dispensing the product altogether.