HOUSE BILL No. 5476

September 25, 2009, Introduced by Reps. Simpson, Mayes, Cushingberry, Spade, Sheltrown, Geiss, Womack, Huckleberry and Slavens and referred to the Committee on Health Policy.

A bill to amend 1977 PA 72, entitled

"The medicaid false claim act,"

by amending section 2 (MCL 400.602), as amended by 2008 PA 421, and

by adding section 10d.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 2. As used in this act:

(a) "Benefit" means the receipt of money, goods, or anything

of pecuniary value.

(b) "Claim" means any attempt to cause the department of

community health to pay out sums of money under the social welfare

act.

made under the social welfare act that contains a statement of fact

or that fails to reveal a fact, which statement or failure leads

the department to believe the represented or suggested state of

affair to be other than it actually is.

(d) "False" means wholly or partially untrue or deceptive.

(e) "Health facility or agency" means a health facility or

agency, as defined in section 20106 of the public health code, 1978

PA 368, MCL 333.20106.

(f) "Knowing" and "knowingly" means that a person is in

possession of facts under which he or she is aware or should be

aware of the nature of his or her conduct and that his or her

conduct is substantially certain to cause the payment of a medicaid

benefit. Knowing or knowingly includes acting in deliberate

ignorance of the truth or falsity of facts or acting in reckless

disregard of the truth or falsity of facts. Proof of specific

intent to defraud is not required.

(g) "Medicaid benefit" means a benefit paid or payable under a

program for medical assistance for the medically indigent in

accordance with the social welfare act.

(h) "Person" means an individual, corporation, association,

partnership, or other legal entity.

(i) "Pharmacy benefit manager" or "PBM" means a person,

business, or entity that performs pharmacy benefits management.

Pharmacy benefit manager or PBM includes a person or entity acting

for a PBM in a contractual or employment relationship in the

performance of pharmacy benefits management for a managed care

company, medical service organization, insurance company, third-

party payor, or a health program administered by a state department

and includes any person, corporation, business, company,

association, union, health care group, network, collective

bargaining group, or any other entity that provides prescription

drugs or medical supplies, or both.

(j) "Pharmacy benefits management" means the administrative

procedures involved in the delivery of the prescription drug

benefit, including, but not limited to, construction and management

of formularies, negotiation with and management of provider

networks, determination of consumer cost-sharing requirements,

communication of benefit status to consumers, claims processing,

and negotiated rebates and discounts.

(k) ~~(i)~~ "Social welfare act" means the social welfare act,

1939 PA 280, MCL 400.1 to 400.119b.

Sec. 10d. (1) The PBM or entity conducting an audit shall

follow these procedures:

(a) The pharmacy contract must identify and describe in detail

the audit procedures.

(b) The PBM or entity conducting the audit shall provide the

pharmacy with written notice at least 2 weeks before conducting the

initial on-site or off-site audit for each audit cycle.

interfere with the delivery of pharmacist services to a patient and

shall utilize every effort to minimize inconvenience and disruption

to pharmacy operations during the audit process. An entity shall

not conduct an on-site audit at a particular pharmacy more than 1

time annually. This subdivision does not apply when an entity must

return to a pharmacy to complete an audit already in progress,

there is a documented pattern of payment error sustained by that

specific pharmacy throughout the audited period, or there is

inappropriate or illegal activity that the entity has brought to

the attention of the pharmacy owner or corporate headquarters of

the pharmacy.

(d) Any audit that involves clinical or professional judgment

must be conducted by or in consultation with a pharmacist licensed

in this state.

(e) Any clerical or record-keeping error, such as a

typographical error, scrivener's error, or computer error,

regarding a required document or record shall not on its face

constitute fraud, but may be subject to recoupment. A claim under

this subdivision is not subject to criminal penalties without proof

of intent to commit fraud.

(f) A pharmacy may use electronic records, including

electronic beneficiary signature logs, electronic tracking of

prescriptions, electronic prescriber prescription transmissions and

imagery of hard copy prescriptions, and any other reasonably clear

and accurate electronic documentation, and these records are

acceptable for auditing under the same terms and conditions and for

the same purposes as their paper analogs. If paper logs are used,

auditors must look at least 14 days past the dispense date to check

for patient pickup. Point of sale electronic register data shall

qualify as proof of delivery to the patient.

(g) A finding of an overpayment or underpayment must be based

on the actual overpayment or underpayment and may not be a

projection based on the number of patients served having a similar

diagnosis or on the number of similar orders or refills for similar

drugs. Recoupment of claims must be based on the actual overpayment

or underpayment unless the pharmacy agrees otherwise as part of a

settlement.

(h) Recoupment or payment adjustments of claims must be based

on the actual overpayment or underpayment unless the pharmacy

agrees to a projection as part of a settlement.

(i) A finding of an underpayment shall be reimbursed with

interest for the time period between detection and payment.

(j) Each pharmacy shall be audited under the same sampling

standards, parameters, and procedures as other similarly licensed

pharmacies audited by the PBM or entity conducting the audit. The

pharmacy shall be provided samples of the standard parameters and

procedures for the audits being conducted.

(k) The period covered by an audit may not exceed 1 year from

the date the claim was submitted to or adjudicated by a managed

care company, medical service organization, insurance company,

third-party payor, or a health program administered by a state

department.

(l) An on-site audit may not be initiated or scheduled during

the first 7 calendar days of any month due to the high volume of

prescriptions filled in the pharmacy during that time unless

otherwise consented to by the pharmacist. The PBM is responsible

for confirming receipt of the audit notice by the pharmacy. The

pharmacy reserves the right to refuse to comply with any audit for

which the PBM did not confirm, and the PBM is prohibited from

taking any adverse action against the pharmacy due to the refusal

by the pharmacy under this subdivision.

(m) The PBM or entity conducting an audit may not receive

payment based on a percentage of the amount recovered. The PBM or

entity conducting the audit shall disclose to the plan sponsor any

money recouped in the audit.

(n) If the discrepancy exceeds $25,000.00 in overpayment,

future payments to the pharmacy may be withheld after finalization

of the audit.

(o) Underpayments shall be restored in the next payment cycle

upon completion of the audit.

(p) A finding of an overpayment shall not include the

dispensing fee amount.

(2) The PBM or entity conducting the audit must provide the

pharmacy with a written report of the audit and comply with all of

the following requirements:

(a) The preliminary audit report must be delivered to the

pharmacy not more than 90 days after conclusion of the audit.

(b) The pharmacy shall be allowed not less than 60 days

following receipt of the preliminary audit report in which to

produce documentation to address any discrepancy found during the

audit.

not more than 120 days after receipt of the preliminary audit

report or final appeal with the office of financial and insurance

regulation.

(d) The audit report must be signed and include the signature

of any pharmacist participating in the audit.

(e) Any recoupments of disputed funds and restoration of

overpayment shall only occur after final internal disposition of

the audit, including the appeals process as set forth in subsection

(3).

(f) Interest shall not accrue during the audit period.

(g) Each PBM or entity conducting an audit shall provide a

copy of the final audit report after completion of any review

process, to the plan sponsor.

(3) The national council for prescription drug programs or any

other recognized national industry standard shall be used to

evaluate claims submission and product size disputes. An appeals

process will be conducted by the office of financial and insurance

regulation before a neutral party. If, following the appeal, the

PBM or entity conducting an audit finds that an unfavorable audit

report or any portion of that report is unsubstantiated, the PBM or

entity conducting the audit shall dismiss the audit report or

portion in question without the necessity of any further action.

(4) Notwithstanding any other provision of this act, the PBM

or entity conducting the audit shall not use the accounting

practice of extrapolation in calculating recoupments, restoration,

or penalties for audits. An extrapolation audit means an audit of a

sample of prescription drug benefit claims submitted by a pharmacy

to the PBM or entity conducting the audit that is then used to

estimate audit results for a larger batch or group of claims not

reviewed by the auditor. Audit conclusions shall be based on

several of the following statistical considerations:

(a) The audit sample shall consist of randomly selected

prescriptions with dates of service included within the stated

audit period. The PBM shall reimburse the pharmacy for all time and

expenses incurred in providing documents for the audit.

(b) Claims in the sample, for which a pharmacy was underpaid,

are considered as well as any claims in the sample involving

overpayments.

pharmacy's claims, including, but not limited to, a random sample

that includes the same ratio of brand name to generic prescriptions

or proportion of compounding, specialty, high-cost medications, or

other unique characteristics of the profile of prescriptions

dispensed.

(d) The sample shall not include solely high-priced

medications or a preponderance of the same drug item.

(e) The sample size shall be appropriate and consistent with

established scientific principles assuring protection against

selection bias.

(f) The standard deviation or the standard error employed by

the specific auditing methodology shall be defined and consistent

with commonly accepted scientific principles.

(g) In the event of an impasse occurring over methodology,

sample size, or randomness that accompanies an audit conclusion,

the decision of the office of financial and insurance regulation in

consultation with a qualified statistician will be final.

(5) The audit criteria set forth in this section applies only

to audits of claims for services provided and claims submitted for

payment after January 1, 2010. This section does not apply to any