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Independent pharmacists tell committee that Medicaid audit rules and extrapolation penalties threaten small pharmacies
Summary
Independent pharmacists told the Human Services Committee that Connecticut’s Medicaid audit system — and the practice of extrapolating sample errors across multi‑year claim universes — is producing runaway recoupments that can threaten small community pharmacies after clerical errors or software misconfigurations.
(continued) recoupments use broad extrapolation.
Independent and association witnesses described cases in which Medicaid desk audits found relatively minor documentation or clerical problems — for example, missing patient signatures after an emergency change in protocol — and then applied extrapolation across a multi‑year universe of claims. Because Medicaid reimburses most drug costs at or near pharmacies’ purchase price (via NADAC) and pays a relatively small dispensing fee, witnesses said extrapolation of entire claim amounts (not just the $10‑$11 dispensing fee) creates massive recoupments that can exceed hundreds of thousands of dollars for a small pharmacy.
Pharmacists described their experiences: Grieves Pharmacy in Darien reported a proposed ~$705,000 recoupment tied to a software setting that had not been reactivated after a COVID waiver expired. After appeals and legal counsel the amount was reduced, but speakers said the process left staff terrified and the business financially stressed. Other witnesses gave similar examples: audits citing a small administrative error (a stamp used instead of a signature, duplicate refills) then used extrapolation to recoup sums that threatened viability of otherwise compliant businesses. Speakers argued extrapolation should be reserved for verified fraud cases or repeated programmatic non‑compliance across multiple audits, not used as an automatic multiplier for technical or clerical mistakes.
Pharmacists and associations proposed several changes: (1) restrict extrapolation to explicit fraud investigations or to repeat, unresolved audit findings across multiple audits; (2) when an auditing error is clerical or administrative, limit recoupment to the dispensing fee rather than the full drug cost; (3) require DSS to adopt clear, mandatory receipt‑confirmation methods for policy or billing rule changes so pharmacies have documented notice of material changes; (4) create a mechanism to report and correct situations where NADAC pricing may reimburse pharmacies below their true acquisition cost.
DSS witnesses said pharmacy audits are not unusually punitive compared with other provider audits, that pharmacy audits extrapolate less often than other provider types, and that the statute and audit program provide avenues for auditors to evaluate individual findings (including clerical errors) rather than automatically extrapolating. DSS officials also said the audit process and NADAC price system are complex; the department recommended targeted statutory fixes rather than a wholesale change. Pharmacists replied that, in practice, the 1.75% audit‑error threshold and current NADAC‑based recoupment math almost guarantee extrapolation when claims include a small number of very high‑cost drugs (for example specialty biologics), since most of the reimbursement is for drug cost and not fee/profit.
Committee members asked whether the problem was statutory language or implementation. Pharmacists urged the committee to change the statute to remove extrapolation as a routine enforcement tool and to require more nuanced remedies for documentation or clerical errors so that small businesses are not put out of business by administrative mistakes. The committee requested written examples and documentation from pharmacies to explore statutory and regulatory solutions.
