Pharmacy Claim Reversals: Mitigating Risk Before, During, and After an Investigation

Oberheiden P.C.
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Oberheiden P.C.

Pharmacy claim reversals can be costly. Not only can they have an immediate impact on pharmacies’ cash flow; but, in many cases, they can lead to additional consequences as well. Pharmacies accused of improperly billing Medicare and Medicaid for medications (and especially those with high reversal rates) can face prepayment review, temporary or permanent loss of eligibility, and other administrative consequences—and, in some cases, improper pharmacy billings can trigger civil or criminal penalties.

With these concerns in mind, pharmacies need to take a proactive approach to Medicare and Medicaid billing compliance. In many cases, a claim reversal is not just a claim reversal. Furthermore, when the Centers for Medicare and Medicaid Services (CMS) or a CMS auditor issues a claim reversal, this means it already has evidence of noncompliance—and this means that avoiding further consequences requires a prompt and strategic defense.

“In today’s world, pharmacies need to take a proactive approach to managing billing compliance and avoiding claim reversals. Along with the Medicare and Medicaid billing rules, recent amendments to the Overpayment Statute regulations present new challenges; however, CMS has made clear that these challenges are not an excuse for noncompliance.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.

What can (and should) pharmacies do to mitigate their risk of facing claim reversals? Here are some important risk mitigation strategies for pharmacies to implement before, during, and after an audit or investigation:

Before: Implementing an Effective Billing Compliance Program and Complying with the Overpayment Statute

Fundamentally, the key to avoiding pharmacy claim reversals is taking a proactive approach to Medicare and Medicaid billing compliance. If pharmacies implement and strictly adhere to custom-tailored billing compliance programs when billing for prescription medications dispensed to covered patients, they can bill Medicare and Medicaid with confidence, and they drastically reduce the chances of an automated audit or review triggering claim reversals, further scrutiny, and perhaps additional penalties.

Several resources are available to help pharmacies understand and implement the Medicare and Medicaid billing rules within the context of their prescription medication dispensing practices and reduce their reversal rates. These include CMS’s Pharmacy Toolkits, among others. Ultimately, however, pharmacies must take a custom-tailored approach to Medicare and Medicaid billing compliance that addresses matters including (but not limited to):

  • A custom-tailored Medicare and Medicaid billing compliance needs assessment
  • Management commitment to Medicare and Medicaid billing compliance
  • Internal Medicare and Medicaid billing processes and procedures that apply to all prescribed medications dispensed to covered patients
  • Relationship management with prescribing physicians and third-party billing administrators (TPAs)
  • Internal compliance program dissemination and training for all personnel involved in billing and filling prescriptions from physicians and other healthcare providers
  • Internal compliance risk assessments, audits, and audits
  • Compliance with the federal Overpayment Statute and regulations in relation to filling prescriptions from healthcare providers for covered patients

The federal Overpayment Statute requires pharmacies (and other providers) to voluntarily report and return any improper payments they receive from Medicare or Medicaid in relation to providing prescribed drugs to covered patients. CMS has implemented extensive regulations under the Overpayment Statute, and it recently made important changes to these regulations that took effect at the start of the year.

At the core of the Overpayment Statute is the requirement for voluntary compliance. If pharmacies timely report and repay any and all Medicare and Medicaid overpayments for prescription medications dispensed to covered patients, this will help eliminate their risk of facing claim reversals (and mitigate their risk of facing additional consequences). However, there are two key issues that present compliance challenges for pharmacies:

Identification of Overpayments

The Overpayment Statute requires pharmacies (and other providers) to repay improper payments within a time period of 60 days of “identification.” Unless and until a pharmacy identifies and repays an improper payment, it will be at risk of facing a claim reversal. To timely identify overpayments, pharmacies must monitor and assess the efficacy of their billing compliance programs on an ongoing basis. This can be particularly challenging for pharmacies with high reversal rates or that do not effectively track their claims data.

Timely Repayment of Medicare or Medicaid

Once a pharmacy identifies an overpayment for a prescription medication dispensed to a covered patient, the clock to meet the 60-day deadline starts ticking. However, CMS’s recent amendments to the Overpayment Statute regulations make clear that “quantification” is not an element of “identification.” Under the revised regulations, identification occurs when a pharmacy “knowingly receives or retains an overpayment.” Thus, identifying a billing compliance program breakdown may be sufficient to trigger the Overpayment Statute’s 60-day deadline, even if the pharmacy doesn’t yet know which specific billings were improperly submitted.

Violations of the Overpayment Statute also constitute violations of the False Claims Act (as do improper Medicare and Medicaid billings generally). This is where the additional consequences beyond pharmacy claim reversals come into play. If an audit or investigation uncovers evidence that a pharmacy either failed to identify fraudulent billings or failed to timely repay known fraudulent billings, both of these are serious issues that can lead to not only claim reversals, but potentially prepayment review, loss of program eligibility, fines, and other penalties as well.

Another related concern that is unique to pharmacies is the issue of claim rejections and reversals by Part D sponsors. Under CMS’s regulations, Part D sponsors are only required (and only permitted) to pay claims that are “clean”—meaning that they comply with the Medicare billing rules. If a Part D sponsor rejects or reverses a pharmacy’s submitted claims, this can trigger additional scrutiny (and the potential for additional pharmacy claim reversals) as well.

During: Assessing the Risks Involved and Executing a Strategic Defense to Avoid Reversing Claims

Billing compliance audits and billing fraud investigations can both present risks for pharmacy claim reversals and other penalties. Once an audit or investigation is underway, responding to the inquiry effectively is imperative for avoiding unnecessary consequences.

When facing a pharmacy billing compliance audit or billing fraud investigation, assessing the risks involved is the first step toward implementing and executing an effective defense strategy. This involves conducting a comprehensive internal billing compliance audit—and, by engaging legal counsel at this stage of the process, pharmacies can ensure that their audit findings are protected by the attorney-client privilege.

Audits and investigations can both go back several years, and they can target all of a pharmacy’s program billings—not just those of the type that triggered the inquiry. As a result, when assessing the risks involved, a comprehensive approach is key. Once the full scope of the risks involved in a pharmacy’s audit or investigation is clear, then the focus can shift to executing a strategic defense.

While avoiding claim reversals may be a targeted pharmacy’s most immediate concern, the additional risks involved can have consequences that are much more profound. If an audit leads to pre-payment review, this can delay future payments by weeks—disrupting cash flow and increasing the risk of additional reversals. If an audit leads to loss of Medicare or Medicaid eligibility (or civil fines or criminal penalties), this could threaten the pharmacy’s viability as a going concern.

As a result, pharmacies should not simply accept responsibility for reversing claims and then attempt to move on. Auditors and investigators will continue to scrutinize a targeted pharmacy’s billing practices; and, if pharmacy owners or executives admit to submitting improper Medicare or Medicaid billings, this could have dire consequences.

Executing a strategic defense involves using the information gathered during the pharmacy’s internal billing compliance audit to identify a best-case outcome under the circumstances at hand—and then targeting this outcome by all appropriate means. Pharmacies can often facilitate favorable resolutions by playing an active role in the audit or investigation process and by suggesting remedial measures that they can successfully and cost-effectively implement to both come into compliance and maintain compliance going forward (as warranted).

After: Updating the Pharmacy’s Billing Compliance Policies and Procedures As Necessary to Reduce Reversal Rates

For pharmacies that bill Medicare and Medicaid, facing the risk of claim reversals is not a one-time event. Pharmacies continue to face enforcement risks on an ongoing basis, and those that have been found in violation of the Medicare and Medicaid billing rules or the Overpayment Statute will often be at heightened risk for facing additional scrutiny.

With this in mind, after going through an audit or investigation that results in reversing claims and/or other penalties, updating the pharmacy’s compliance policies and procedures is essential. Simply put, pharmacies cannot afford to make the same errors again. If pharmacies do not learn from their errors, overbilling Medicare or Medicaid again for the same reasons will raise serious red flags.

Updating a pharmacy’s Medicare or Medicaid billing policies and procedures involves many of the same mechanisms as putting an effective compliance program in place from the outset. Pharmacies need to have a clear understanding of their specific compliance obligations, and they need to address these obligations specifically within the context of their practices. What is effective for one pharmacy to maintain compliance won’t necessarily be effective for another—and adhering to “standard” practices won’t be enough if it doesn’t prevent Medicare and Medicaid overpayments.

With the ever-present risk of facing scrutiny from CMS and its fee-for-service auditors, pharmacies and other healthcare providers need to prioritize Medicare and Medicaid billing compliance in all aspects of their operations. They need to implement policies and procedures designed to prevent billing errors, they need to implement internal auditing procedures to promptly identify any billing errors, and they must comply with the Overpayment Statute when necessary. By taking these steps—and taking them consistently—pharmacies can substantially mitigate their risk of facing claim reversals, and they can substantially mitigate their risk of facing more-serious consequences as well.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.

© Oberheiden P.C.

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