Exploring Updates in Fraud Waste and Abuse Audits Featuring Brad Howard, Esq. Brown & Fortunato

Fraud, waste, and abuse audits are becoming more common in the pharmacy industry, and pharmacies need to be prepared to protect themselves.  

In this episode of The Bottom Line Pharmacy Podcast, Scotty Sykes, CPA, CFP® sits down with Brad Howard, Esq. With Brown & Fortunato to discuss:  

• Tips for protecting your pharmacy from these audits 
• What these Fraud, Waste and Abuse Audits are 
• Reasons for these increasing audits 
• Navigating Copayment Waivers 
• And more!

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If you prefer to read this content, the video transcript is below:

Scotty Sykes, CPA, CFP®: Welcome everyone to another episode of the Bottom Line Pharmacy Podcast. Today it’s just me and we got Brad Howard, partner at Brown & Fortunato. Is that right, Brad? I got that right.  

Brad Howard: That’s right. 

Scotty Sykes, CPA, CFP®: And always lovely to have you on. We appreciate you always jumping on our podcast. I think you’ve done a couple in the past. We work a lot with you guys, a lot with your firm and you guys do a great job for our clients. But today we want to talk about the hot topic that I’ve been hearing about is the fraud, waste and abuse audits that are popping up. So what’s kind of new in that space, Brad? And what should pharmacies be aware of to get going there? 

Brad Howard: Sure, yeah, thanks for having me on. I love the bottom line. I love talking about hot topics. And today right now, like 15 minutes before I logged on, got an email from a long-term client, a big national pharmacy, and they just got a big fraud, waste, and abuse audit. I never, never name names, but a lot of the things I’m going to touch on here in the next 20, 30 minutes, whatever we talk. A lot of those issues I’m seeing in emails from clients every day now. It’s a big deal. So, you know, kind of go backwards, reverse maybe 10 years ago or so. A lot of the payers, PBMs, government agencies that are paying claims for Medicare and Medicaid through commercial insurance, they started auditing the, you know, the heck out of pharmacies. That was kind of a new occurrence, you know, back in 2012, 13, 14. My pharmacy practice evolved into a big audit practice for a few years there. And then after Tricare quit paying for compounds, and a lot of the other payers buckled down on what they were going to pay for, there was a lapse. And then fraud, waste, and abuse audits. Man, that’s the big thing now. There are formal definitions for fraud, waste, and abuse audits. But I’m going to put it this way. The way that the payers are using fraud waste and abuse audits is the way they used to use regular old standard audits. And back in the day, it was to figure out do we have to pay all these claims or can we kind of carve it up a little bit. But now what the payers are doing through the government and through the PBMs is they’re obligated to the taxpayers or they’re obligated to their plan sponsors if they’re, you know, commercial payers, PBMs, they’re obligated to have a very robust fraud, waste and abuse practice, which means they got to ferret out the pharmacies that are doing things they shouldn’t be doing. And what used to be an audit is now in a lot of cases a fraud, waste and abuse audit. But the difference is stark because, you know, in the old days on an audit, a passing grade, a C you know, B minus that might, might kind of cut it. In the fraud, waste and abuse audit world, you got to get an A plus.  

Scotty Sykes, CPA, CFP®: Gotta be perfect. 

Brad Howard: Man, if you’re not getting a 98, 99, 100, you may be getting reported to the government. They’re certainly going to recoup money. They may put you on not even double-seeker probation anymore. They throw you on the probation list. They might suspend you. They may put you on a corrective action plan. In a lot of cases, we see these kind of creative caps, all because you got a 91 or an 89 on a fraud, waste and abuse audit. So the stakes are really high. You know, in some cases, I’ve seen pharmacies that otherwise were valuable network members that had a, you know, less than stellar grade on a fraud, waste, abuse audit. They were termed because the plan sponsors got to be able to say, the PBM has got to say to the plan sponsors, hey, we you know, we fared out, we weed out the bad actors, the bad apples. So, you know, you can get termed now and if you get termed now, then you got to report it to your other payers and you can get termed again and again. So the stakes are a lot higher, which is why I’m glad I get to talk about this with you for a while. 

Scotty Sykes, CPA, CFP®: So, is this just a tactic kind of where they’re just being more aggressive and I mean why the increase in this fraud, waste and abuse audits? You know versus just a regular audit like you were just talking about. I mean. 

Brad Howard: Yeah. Well, let me tell you what I’m seeing a lot of is that, and this is my viewpoint, but I’ve been doing this with Jeff Baird down the hall and a bunch of my colleagues for the last 30 -something years. And what we’re seeing, the reason we think a lot of the fraud, waste, and abuse audits are coming out, and a lot of pharmacies are having to deal with those, is because there are more and more kind of shortcut pharmacies out there that aren’t really abiding by the same rules as all the pharmacies that you work with and that I work with. Not going by the same rules, not really vetting their marketing practices, kind of cutting corners on their suppliers and wholesalers and the way they get their business. A little fast and loose in the way they bill their claims. And the problem is that a lot of the payers, especially the government payers, have now kind of lumped a lot of pharmacies into one big group and said, you know, these are all bad actors here. They’re making a lot of money at our expense with a lot of claims that shouldn’t be paid. So, the real challenge for the pharmacies that I represent that Jeff and everybody in our group represents, you know, who mostly have pharmacy operations regionally or all around the country, the but also, you know, a good number of, you know, state and, you know, mom and pops that have been around for 20, 30, 40 years. You got to distinguish yourselves from the kind of fly by night operations that are getting investigated. You know, the other day the government came out and indicted a bunch of health care providers. They indicted a bunch of pharmacy owners, some marketers, some telemarketers. And, you know, their viewpoint is that the good guy pharmacies have to prove that they’re not those guys and fraud, waste and abuse audits are a good way to do that. 

Scotty Sykes, CPA, CFP®: So how can pharmacies, I guess, Brad, how can pharmacies set themselves apart? And what are some kind of best practices or what’s step one here for a pharmacy out there that’s listening in? I want to make sure I’m protected. I don’t want anything to do with any of this fraud, waste, and abuse. I want to be able to get that A plus grade. What was something? Check the box, type things. 

Brad Howard: Yeah, I can give them a few ideas of things, just things I see coming in my email every day that might give them some pretty good tips on how to handle things. You know, the audits that we’re seeing, you know, still quite a few over the invoice audits where they make you approve, you know, if you billed 400 claims last month for this particular drug, they make you prove you had inventory sufficient to fill 400 claims for the particular drugs. I know you’ve seen these and you’ve had a lot of pharmacies call you and go, hey, what in the world is this thing, Scotty? I mean, of course I filled the prescriptions. The challenge and the tip here is a lot of times the wholesalers, the manufacturers, they get the request from the PBM, hey, you know, prove to us you sold Scotty’s Pharmacy enough of this drug to fill 400 claims. So the manufacturer, the wholesaler in their spare time puts together the documentation they think and they provide it to the payer, to the PBM. But maybe they didn’t find every invoice. Maybe it wasn’t the most important thing on their desk that day. So, they account for 90% of what they sold Scotty’s Pharmacy. And then, you know, Scotty’s Pharmacy doesn’t know that’s all that got submitted on their behalf. And then Scotty’s Pharmacy gets a big, you know, recoupment letter, a discrepancy letter that says, hey, we know we validate, you know, a quarter or a third of the prescriptions that you claim to have billed for this particular drug. So we’re going to take it all back or we’re going to take back all of those and then the burden is on Scotty’s to appeal to prove that they actually had all that inventory. So, you know, it’s kind of a no brainer in the sense of the good guy pharmacies all have the inventory. Whenever one of my clients gets an invoice audit, first thing I say is, hey man, pick up the phone, call your manufacturers, call your wholesalers, let them know, hey I just got an invoice audit, of course I buy all my stuff from you or I buy a lot of my product from your company. Please make this priority number one to provide all these records and while you’re doing it, provide me a copy. If you don’t mind just shoot me an email with a copy of everything you’re going to give to the PBM or to the payer or the plan sponsor so that I can run that against my own records and be sure that you provided everything. 

Scotty Sykes, CPA, CFP®: Right. 

Brad Howard: Kind of a basic tip, but here’s the problem is that the pharmacies that they don’t do that end up on the wrong side of one of these invoice audits, then you got to appeal. And when you’ve got to appeal at that point, you’re having to spend a bunch of time and money. 

Scotty Sykes, CPA, CFP®: And you’re working uphill. Yeah. 

Brad Howard: Yeah, to prove to prove you had all the product that you needed. You know, another thing I see a lot of our with our clients are multi store pharmacies, maybe they got operations in 30 or 40 states, they transfer inventory among one another when there are shortages. But they don’t contemporaneously document all that. It’s not time stamped for July 7. You got Scotty and you got Ollin. They’re related pharmacies. And so, Ollin’s pharmacy transferred some inventory to Scotty’s, but we didn’t write it up. I mean, we’re family. We’re all one big business. We’re not going to worry about that. Well, then the audit comes in and you got to account for why Scotty only has manufacturer invoices for this much product, but he dispensed that much. So, then Scotty says, well, I got it from Ollin. I can prove it to you with an affidavit, you know, dated the day of the audit. Not quite as compelling as the contemporaneous documentation. So we have all of our clients document those transfers in real time with the amount of product transferred, the exact kind of product, time stamped. You know, if it’s a control, of course we do that because DEA requires it. But even with the commercial claims, the non controlleds, we do that. And then when it comes time to prove why Scotty had all this inventory between the manufacturer’s invoices, the wholesaler invoices, and the intercompany, intracompany transfers, we can prove 100% you had the invoice, the inventory to fill all the scripts. And we get an A plus on the invoice audit and then we go off their invoice audit list for the next two, three, four or five years. 

Scotty Sykes, CPA, CFP®: This is interesting because I guess this is just me being dumb, I guess, but they’re looking at the invoice side, the supply side. They’re not even looking at the prescription and you know, these valid prescriptions, they’re just going straight towards, did you have the inventory for these prescriptions? I mean, 

Brad Howard: That’s getting to be a lot more common. I’m seeing a bunch of those. And then what I’m seeing a lot of is to the point you made, like, well, you filled the prescription because you had a prescription to fill. I’m seeing a lot more audits that make the pharmacies valid. These are fraud, waste, and abuse audits. Make the pharmacies validate there is actually a valid prescription and there’s medical necessity for the prescription. So, you know. I’ve been around for a long time, you know, for many, many years of my practice, we weren’t required to prove, that’s what doctors prove. Pharmacies fill prescriptions. I’m seeing a lot more of these fraud, waste and abuse audits that will question because, you know, maybe they did an inventory. They made a few phone calls, the payer did. Their special investigations unit, SIU made the phone calls and maybe Scotty Senior is a patient. But he can’t remember getting that prescription nine months ago. He’s like, I don’t know if I got that prescription or, no, I’m not so sure I did. I don’t think I ever had that drug. So a couple of things like that, or a competitor turns you in, or your number comes up, and then the PBM is doing an audit to say, hey, validate these 100 prescriptions here. So show us the prescriptions. Show us what you filled them with, show us that there is scientific data to support what you’re filling and also that the patients needed that. So that kind of an audit, which in a lot of cases is a fraud, waste and abuse audit, man, that’s a part-time job for the pharmacy. 

Scotty Sykes, CPA, CFP®: Yeah, well, how are you supposed to document the data in terms of the medical reasoning behind that? I mean, that’s again, that’s the doctor, right? I mean. 

Brad Howard: That is the doctor’s job, but to the payer and the… 

Scotty Sykes, CPA, CFP®: So is the pharmacist is picking up the phone and calling all these doctors and… 

Brad Howard: There are…so a tip I’m going to give all the pharmacies that are watching this. I mean, I know they would want to do this anyway because it’s good business, but keep close tabs on your prescribers, especially those that write a lot of scripts for the pharmacy. Keep close tabs on those, keep good contact with them because when one of these audits comes in, what I tell the pharmacy, hey man, pick up the phone, call the doctor and tell him you’re gonna need some help to validate some of these. You’ve got prescriptions in your file, but you don’t keep medical records, you’re a pharmacy, right? Scotty’s Pharmacy doesn’t keep medical records for Brad Howard. But if Scotty’s Pharmacy doesn’t want to lose that contract, they’re going to find a way to get some validation for those prescriptions for Brad Howard and the other 99 patients on the audit. So you pick up the phone and you talk to the doctors. They have to deal with some BS. I got an audit here to prove that you sent me valid prescriptions. Need your help, here’s what I need and I’m going to make it easy for you as I can. So one of the tips I give pharmacies is, you know, get you an attestation or an affidavit. It’s called something different about every place, but get you an attestation that the doctors, not the doctor’s nurse, but the doctors can sign and date to validate these prescriptions. But here’s something I see that’s a tip, you know. A lot of the pharmacies will pull out an attestation that they might have used 10 years ago. It’s got a couple of typos in it. Maybe they had to put some white tape over it and change a few words. And like, it just looks like crap. It looks like junk. And then they do that times, you know, 45 for the medical records they got to provide or times 100 or whatever the number is. And they send all those into the payer and then wonder why the payer is not thinking they validated all the all the prescriptions. So, you know, what I always advise is, hey, we put together a draft attestation for you, you make sure that’s 100% going to work for Scotty’s Pharmacy. You make sure it’s going to work for Dr. White, you know, down the street who sends you a lot of business. And then when we’re on the same page about that, you send it to Dr. White and say, does this attestation accurately reflect the prescription here, Dr. White says, yeah, that’s it. I’m going to send you 99 of those because they’re all your patients. But then you keep the email chain and you might end up providing that to the payer as a part of your audit response, which demonstrates, look, I talked to Dr. White. We didn’t keep medical records in our file, but Dr. White validated all these prescriptions, then we got no fraud, waste and abuse issue whatsoever. But the pharmacies that call me, not a lot of them do this, but the ones that call me on Friday afternoon at three, they’re like, hey man, this, hey Brad, this audit response is due Monday, and they’re audited in 25 scripts. Do you have a attestation I can use? Okay, sure, we’re gonna make that work over the weekend, but that’s not A plus work.  

Scotty Sykes, CPA, CFP®: Yeah, so you want a professional, you know, good looking attestation to make it look like you’re on top of these things, right? 

Brad Howard: Well, you do, you do. And if maybe your argument, because I know you talked a lot of pharmacies about this, if maybe your argument is, hey, under state law, PBM, you can’t really ask for all this. We’re in Tennessee, we’re in Oklahoma, we’re in Texas, we’re in Arizona, whatever state, and we all have our own pharmacy laws. A lot of those are passed. You know, Scotty, in 2019, 20, 21, 22. So let’s say, hey, under Arizona law, you know, they can’t ask for medical records from pharmacies. Well, then what you got to do in the audit response is lead with that. You know, lead with, hey, under Arizona law….. cut and paste the law there. I mean, make a really robust response that demonstrates why, if you’re not going to provide the attestations. Even if you are, I think you at least lead with, hey, the law says you really aren’t supposed to do this. And that’s where a lawyer can help you kind of wordsmith it so it’s you know, direct but not offensive. I mean, you know, none of us like doing the work. So it’s pretty easy to be a little bit more direct and offensive than maybe we want to be. So, you know, we lead with the law. And then if we’re gonna leave the attestations, great. If we’re not gonna do 100 attestations, because the law doesn’t require that, but we still want to prove that 100 valid scripts that we do, you know, I might advise the pharmacist, hey, work with me on an affidavit that we’ll send over to Dr. White. One affidavit that lists all the patients, dates of service, dates of the prescriptions or whatever. And then he can have somebody on his staff validate every one of those in their records. He’s going to sign off on overarching affidavit for 100 scripts. It’s not exactly what they asked for, but if Arizona law says they don’t get what they asked for, we give them Arizona law. We give them something that should satisfy them. Anyway, it’s fraud, waste and abuse. So we’re gonna go the extra mile or so to give them what they need to say, you know what, we’re gonna check the box on Scotty’s Pharmacy. He’s one of the good guys. 

Scotty Sykes, CPA, CFP®: Yep. Yeah, I know, you know, when we when we’re working with the IRS, we make it as absolutely as easy as possible. I mean, it is like, it’s kindergartener can do it like A, B, C, one, two, three, and a lot of times  they do the audit or whatever it is, and it’s no change. And you’re done in a few days, a few weeks versus several months. 

Brad Howard: Man, you’re. Yeah, because they check the box that you had all the stuff they needed. And you know what? I mean, I know a lot of pharmacies are listening. You know, some have had bad experiences with PBMs and payers, the government, Medicaid. Maybe they don’t share this viewpoint. I understand that I deal with aggrieved pharmacies and audits all day long. So I certainly understand the sentiment. But the reality is the easier you can make their job to check the box that you’re one of the good guys, the more work you can put in to do that, like with the IRS, the more likely they’re going to give it a few weeks. They’re going to come back and go, because I see these all day long because we work in a lot of audits and a lot of appeals. No discrepancies. Your recoupment amount is, it’s always the same letter, right? Your recoupment amount is dollar sign, and it has either a blank with nothing on it or a blank with a zero. You want to frame that thing. That’s beautiful. But because you did the work, because the pharmacy did the work to demonstrate. And so, the pharmacies that just fax in 100 pages with some little attached to a record, you got to do more. I mean, I’ve ghostwritten 10,000 letters  that are nice and official and say all the right things you check all the boxes you make it easy for them to read and go these are one of the good guys there’s no fraud waste and abuse here you make it easy to look at your records you make it easy to talk to Scotty if you have any questions about what Scotty provided… 

Scotty Sykes, CPA, CFP®: And then you’re on your way, hopefully. Hopefully. 

Brad Howard: Yeah if you’re not you got appeals and you got appeals and you know if you’re gonna appeal a fraud waste and abuse audit result you know, if you want to win, you better do all these things I’m talking about in the initial response because in a lot of cases, the payer, the PBM, the plan sponsor is looking at the appeal level just to kind of rubber stamp what the auditor did. So you got to give the appeal level where there’s usually a higher level of review, usually a little bit better people on the team at the pay or looking at those records, make it easy for them to go, you know what, auditor might have gotten kind of aggressive because Scotty did a bang up job providing all the things that demonstrate no fraud, waste and abuse. 

Scotty Sykes, CPA, CFP®: Yeah. What about some co-payment waivers? I know that’s kind of a topic that pops up from time to time and where the fine line is there and best practices with that. Any tips on that one, Brad? 

Brad Howard: Yeah, I’d like to give you some tips. I’m gonna tell you a story just for a second, because this will kind of bring it to home for the pharmacies. I got hired last month. Look, there was a pharmacy under investigation. They got indicted. The owners all got indicted. They’re going to be indicted. It’s not anybody I represented before, but it all started with a fraud, waste and abuse audit for these drugs they were providing during COVID and then they did a pretty sorry job of responding to the audit. One of the things that was audited were copay waivers. And so, they asked them, the fraud, waste and abuse audit, do you always collect copayments? If not, why? That’s not the best place to demonstrate why. But they had a chance and said financial need. And then they asked them, what about financial need or whatever? Patients didn’t have the money to pay the copayments. And so, and they’re gonna get indicted for that because they had a lot of other issues with the way they got their business. So, I had to give the criminal defense lawyer an opinion he didn’t love, which is, hey, if these guys had come to see me at the outset, we wouldn’t have done it like this. We would have fixed it all. It wouldn’t look like this. So, I think you get your work cut out for you if you wanna take this pharmacist’s case to trial because I don’t think they have a very good shot. Well, the fraud waste and abuse part, that relates to co -payments. It’s not easy, but it’s important. The first thing is to figure out who is your payer because there are different laws, federal, state, and all the commercial plans have different laws about what you can do with copayments and with waivers. There’s some PBMs that say you can’t waive copayments at all. Period. End of story. But most say there’s got to be demonstrable financial need. So, the tips that we give all pharmacies when they come work with us is let’s take a quick look at your copayment waiver paperwork that you would present to a patient. What does it look like? Are you advertising this? Are you marketing this? Because you shouldn’t. And if you are, let’s be very careful. You can mention that it’s a possibility, but don’t be selling that as a service to get patients to come to Scotty’s pharmacy. But then the more important thing is somebody tells Scotty, I can’t afford the co-payments, the specialty drug. It’s $250 out of my pocket. I don’t have that kind of money. You know, the pharmacy is required to collect to the plan sponsor insists upon that patient hasn’t got $250. What does the paperwork look like that says the patient hasn’t got $250? We  prepare all different kinds of co-payment waiver, financial need paperwork, but the things they all have in common are that the patient provides financial information to Scotty and it’s not going to be Scotty. Scotty’s too busy, you know, running all the pharmacies, but Scotty’s got a person, an accounts payable person or accounts receivable person who’s going to be there, you know, talking to patients about, you know, what can you pay? You got to collect some information on their financial status. What does it look like? Usually you want to collect some documents, even if it ends up just being at a minimum, some kind of a statement from the patient. You want to be able to figure out, can they pay some based on these numbers? Some but maybe not all? What is that some? So the advice I always give on the copay waivers is collect them all. If you can’t collect them all, collect them all with the passage of a little bit of time and work something up. So if you’re audited, you know, to the extent you gave them a little bit of time, there’s a set time there and you’re not going to fill the scripts if they don’t oblige by their payments. You know, if you’re going to reduce it somewhat, what is the financial paperwork that supports the reduction? Did you collect the part they can pay? You know, it sounds like kind of basic, but when you got, you know, 900 patients you’re filling for every week and, you know, 30 or 40 of them have some financial issues and you’re going to consider waivers for some of them, maybe not all of them. It’s a time suck. But it’s important. 

Scotty Sykes, CPA, CFP®: So, what if a pharmacy uses house charge accounts, which we don’t recommend, let the credit card companies carry that balance, not you at the pharmacy. But what if pharmacies, a lot of pharmacies still have those kind of baked in, before maybe you allow patients to use that, maybe you get a financial form them to that their solvency or whatnot and then what about those they go through that and then it’s you know 180 days later they still haven’t gotten the copay and you’re gonna write it off. I mean, this is kind of the same thing? 

Brad Howard: Yeah, yeah, it’s a good question because they’re not everybody comes through on what they say they can do. I mean, maybe it’s more wishful thinking like really need the drug. And I think I can pay this over this much time or whatever, and then they don’t do it. So, the first thing in audits I’ve seen where we can’t prove, you know, they might audit 100 patient right, and of those 100 patients, maybe we have eight that we didn’t collect copayments. Well, I’m not advising to do that. That’s not a good number in the PBM world. But let’s say we have eight that we didn’t collect full copayments on. And some of those are, half of those are people who said I’ll pay you out over time. Well, if they missed the first payment in August 2024. You have got to cut them off. You can’t fill the script anymore. And at least you can demonstrate to the PBM if you’re audited, hey, look, we had this arrangement. We had this financial information, financial need, hardship. And based on that, we came up with this payment plan on the co-payment, but they missed the first or second payment. We sent a notification. We called them. We documented that in our file. We didn’t fill any more scripts. So, do we collect 100% of the co-pays for that patient? We didn’t. But do we have a good track record of proven that we made an effort to collect it. And then when we couldn’t collect it, we didn’t fill it any longer. Yeah, we have that. And I’ve successfully navigated a number of audits with evidence like that. But, you know, it requires that be the pharmacy policy and that the people that, you know, enforce the policy, people that collect the money, they understand the policy and they’re, they’re consistent, you know, because the when the PBMs do audit the co-payments, they’re not going to audit 10 patients, they’re going to audit 150. 

Scotty Sykes, CPA, CFP®: Yeah. Now what about marketing efforts? Because I know a lot of pharmacies from time to time, whether they’re already doing some marketing activities or they’re looking to expand their marketing into different areas. Where does that come into play? Because I know there’s a lot of anti-kickback and stark law and things like that. That’s beyond my expertise. 

Brad Howard: Well, I think you probably know more healthcare law than any accountant in the country just based on what you deal with all the time. But yeah, yeah, with marketing you’re seeing and we’re seeing it, I saw it in that investigation I talked about a few minutes ago where I’m kind of grading the papers of the pharmacy but after the fact I had to give them a D, D minus. But marketing was a part of their problem. So, what they and they’re kind of an extreme example. They were getting indicted. I mean a lot of the people that are going to watch this nobody’s ever going to get probably ever get indicted. Maybe they don’t know anybody who’s ever going to get but you might lose big contracts. You might get cut off by big payers, but you could get in trouble with the government. You could have a false claims act filed by somebody that Scotty’s Pharmacy fired, you know, six months ago and he wasn’t too thrilled about it. And so, he turned in Scotty’s Pharmacy to the government going, hey, look, the way they get their business, I think it’s kind of sketchy. I remember reading some law about kickbacks and you know they’re paying a bunch of independent contractors who steer their business, get them a bunch of doctor’s prescriptions, and then they pay these independent contractors you know by the prescription. Well, that’s you know you would think that’s kind of gone by the wayside, but it is not. I mean it was in the file I reviewed last month. I still get pharmacies that will hire me to do a compliance check on them. Hey, how good are we on things? We don’t want to get in trouble and figure out we had some problems. So, I’ll go through all the usual suspects with them and make sure that they’re good on things. And they say, we have some part-time sales reps. My first question is, are they bona fide W2 employees? Well, they’re contract. Ok, well, we got a problem there because the kickback statute is a really nice safe harbor for bona fide employees. There’s not a no brainer to satisfy. You got to do a lot of things to prove they’re really bona fide employees, a part-timer that you’re calling a contractor, that ain’t going to qualify. So there’s a pretty good chance if somebody turns you in for that, turns in Scotty’s pharmacy for that to the government or to a payer, they’re going to figure out, hey, what are all the prescriptions that independent contractor, part-time mom, part-time dad brought to the pharmacy, they’re gonna pull all that stuff back. And if it’s got a lawyer attached to it, because maybe the guy that you fired six months ago got mad and got a lawyer and they filed a claim, a false claims act lawsuit. Now you gotta deal with some multiples and you’re dealing with some penalties and some lawyers fees. So what wasn’t a lot of money to Scotty to get this business to the contractor is multiplied three, four times over. And it’s a real problem. And that’s, you know, the more obvious thing that I’m seeing now is that the pharmacies call these sales representatives to go see all the doctors and talk about, hey, you know, here’s our, here’s our prescription pad. We have all these really kind of cutting edge products that you ought to prescribe to your patients. So they go talk to all these doctors and they really are able to convince them it’s a great product. You really should be, you know, get your patients on these prescriptions. But then these employees don’t check into the home office. They’re not bound by a handbook. They’re bonused in ways that I would not condone as a health care lawyer. If you ask me upfront, hey, should we do this? I’d say no, it’s a bad idea. One thing I do with a lot of pharmacies is we put together sales representative employment agreements where we lay out exactly how they do get paid, but also the things they’re not getting paid for. We make it crystal clear so that if there’s ever an issue about, hey, did this business come to Scotty’s Pharmacy through a bona fide employee? We can demonstrate these are bona fide employees. They have to go to the home office. They have a boss. They’re held accountable. They get reviews. At the end of the year, all the things that make them a real employee so that they can be marketing on behalf of the pharmacy. 

Scotty Sykes, CPA, CFP®: And they’re paid via payroll. They’re not paid as independent contractor 1099. 

Brad Howard: You know this stuff all too well in your role. 

Scotty Sykes, CPA, CFP®: Yeah, I mean, if I see a 1099 on a P&L for a pharmacy, that’s one of the first questions we’re asking. What are you doing with this person? Yeah. Yeah. There you go. 

Brad Howard: Man, I’m like, that guy better be cutting grass more. Yeah, they better be cleaning out the gutters if they’re doing anything inside the pharmacy. If they’re not cleaning it, then I’m not sure why they’re on the, why you’re paying them anything. 

Scotty Sykes, CPA, CFP®: Yeah, that seems like it’s out there more often than not because of the, I think a lot of pharmacy owners don’t really understand or grasp the difference between maybe a 1099 independent contractor and a W2 employee. Those kind of get interchanged somewhat and you gotta be careful with that. 

Brad Howard: Yeah, well you do and you know you see see lot of these like these employment agreements I see them all the time. I kind of collect this stuff for fun I know I’m kind of a law nerd, but I collect all these things that over the years I’m like man I’m glad I didn’t put my name on that thing is because thing is a piece of trash, but I’ll see these agreements, I’ll see these employment agreements and you know these handbooks, I’ll see these things that try to define why somebody is a bona fide W2 employee and sometimes they make it worse than not having anything in writing at all, but the more important takeaway is this, if a pharmacy is out marketing itself to physicians, which 99% of all the pharmacies I work for market to physicians. I mean, that’s where they get the business. They got to demonstrate value, why they stand apart from all their competition, right? So if they’re marketing to these physicians, besides the obvious, you know, don’t, you know, don’t spend more than you should in non-monetary comp to entertain them and take them to ball games to get their business. I mean, obviously those are the kind of basics, but then above and beyond that, the people that you send to market need to be bona fide employees. You got to be sure they’re not doing things underhanded or behind the scenes to make those doctors happier. Some examples might be that I’ve seen, I’m not gonna give any names, but they might do the steak dinner, the drinks, the football tickets, things like that. And you gotta keep that under a number. And I’m seeing where’s the indictments that were served last week. There’s some references to ball game tickets, expensive dinners, things like that. I mean, the government looks at that sort of stuff. But what I’m saying is like keep really good records and as an accountant you can appreciate this, but keep really good records of what you do spend on the physician practices. Be sure you’re not going over the limit. Be sure you keep track of what you provide to patients so that nothing looks like an improper inducement. I mean, keep track of the numbers, get a compliance program in place upfront so that your marketing is clearly prescribed what your marketing people can do and what they can’t do, then you gotta audit them to be sure they’re doing it. I mean, it’s a lot of work that I kind of take for granted after having done this for so many years, but there are so many pharmacies that they’re great pharmacies, they just haven’t focused on that of late. And then when they get the audit, the fraud, waste, and abuse audit, and they’ve got to prove that they’re one of the good guys, it’s a lot more challenging. 

Scotty Sykes, CPA, CFP®: Yep. Well, as Jeff Baird says, if it talks like a duck, walks like a duck, it’s a duck. I don’t know how he says it, but he nails it every time, and that’s wonderful. Man. 

Brad Howard: I can hear him saying it right down the hall. 

Scotty Sykes, CPA, CFP®: Well, Brad, anything else you want to add about this FWA audits? 

Brad Howard: I think the main thing I’d like to add here is that, so fraud, waste and abuse, like there are legal definitions for what it is, but here’s the way the PBMs and the payers and the government, because I deal with a lot of government investigations around the country and I can see what pharmacies get in trouble for. And so the old quote back in the 60s from the Supreme Court case was Justice Stewart, who was asked to define hardcore pornography, he’s like, “I can’t define it, but I know it when I see it.” That’s kind of the way the payers and the PBMs think they see fraud, waste and abuse. They know it when they, when they see it. The advice I like to give pharmacies and you know, I represent a bunch of good guy pharmacies. Our firm represents a bunch of good guy pharmacies, compliant pharmacies with compliance officers and lawyers and all kinds of things. But even all of the really, really good guys when you’re put to the test on a fraud, waste and abuse audit, invest the time, invest the resources, make it look perfect, then have somebody else look it over and proofread it and redline it and make it look even more perfect. And then pass with the 98 or 99 and avoid the appeal and everything else that comes with it. 

Scotty Sykes, CPA, CFP®: Amen to that. Couldn’t have said that any better. I can relate to that 100%. You know, when you got good books, you got good records, you got mileage log, you got depreciation schedule tied down, you’ve got all that, you’ve put in a nice package with a bow on top to the IRS, they move right on. They’ll stamp it and you’re out of there. 

Brad Howard: We’re the same way with healthcare companies, pharmacies, the PBMs and the government auditors and the agents. Put it all with a nice bow, wrap it up, open it up every so often to look at and make sure it’s up to date. And you’re caught up in 2024 with the way things ought to be. And then pay attention when the audits come in and put all your effort into them. 

Scotty Sykes, CPA, CFP®: There you go. Well, Brad, thanks again for hopping on. Always a pleasure to have you on. And you and Jeff and your team is just fantastic to work with. We appreciate all you do for our clients and just for in general in the industry. So we’ll have to do this again sometime soon. 

Brad Howard: Thank you. Appreciate it. We appreciate you guys. It’s great to see you. It’s good to be on the bottom line. Thank you for inviting me.