One of the most dreaded notifications a pharmacy can receive is the prospect of an insurance company audit. Pharmacy Benefit Managers (PBMs) are notorious for trumped up reasons to refuse claims on the most ridiculous of reasons; auditors even get a percentage of the 'disputed claim' paybacks, so you know where their interests will lie. But the standard audits from typical insurers can be - well - let's call their mathematical algorithms

For example, here is the breakdown on how Blue Cross of Michigan determines its disputed claim payback. This was all carefully written down during the 'debriefing' phase of a recent audit, as the auditor would not leave a copy of the formula with the pharmacy.

175 prescriptions were chosen from 2012, 'at random' prior to the audit, with the instructions that the original prescription, signature logs, and dispensing history were to be made available to the auditor. A 'small number' of additional prescriptions were to be requested, with a dispensing history, at the start of the audit. This 'small number' turned out to be 20, or 11.4% of the initial number. This brought the number of prescriptions to 195 for this particular audit. It was explained that this represented one prescription for each day the pharmacy was open and doing business with Blue Cross of Michigan.

The trouble is, however, that the pharmacy was open 294 days in 2012. The ratio 195/294 is 0.663. This becomes important when considering the rest of their analytical algorithm.

The prescriptions that were found to be 'payable' mainly amounted to electronic prescriptions that were handed in to the pharmacy without a physical handwritten signature from the physician. In this case, three were noted (however, the three were true electronic prescriptions, but for purposes of argument, we'll let it ride).

These three prescriptions represented a total of $140 in payments from Blue Cross that they wanted back. That is fine, one could argue, but it doesn't end there. They EXTRAPOLATE this $140 in this manner:

1. Blue Cross adds up the dollar amount of all prescriptions in the audit. Here, those 195 prescriptions amounted to $45,000

2. They then take the disputed prescription value of $140 and divide that by $45,000. This yields 0.003111. Seems like a pretty small number, to most eyes, BUT...

3. They THEN take the dollar value of the ENTIRE YEAR'S BUSINESS with Blue Cross - here it was $6,600,000 - and multiply THAT by 0.003111. That number becomes .... 20,533.26

4. They then put a dollar sign in front of that number and say THAT is your payback bill to Blue Cross for the audit. Yes, you read it right - $140 is inflated to $20,533.26.

Now, back to the numbers themselves. First of all, the number 195 somehow representing the days a pharmacy is open. Again, this particular pharmacy was actually open 294 days in that year. This means the results are OVERestimated, even by their peculiar method of statistical analysis, by 32.7%. That alone would make the 20K damages more like 13.6K, still a hyperinflationary amount.

And then to examine the 'randomness' of the audit. Of the 195 prescriptions chosen, 155 were for those where the drug cost in the prescription was over $150. There were many ways to manipulate that total cost of $45,000. In addition, carefully choosing

This is why pharmacies go out of business. This is why pharmacies who deal with insurances (and that is all of them with the possible exception of two nationwide) cannot just fill prescriptions, they have to micromanage each of these scraps of paper. It doesn't matter if the drug is right, that the dose is right, that an interaction is uncovered or a life helped or saved. Place an initial in the wrong place, and this is the consequence. And Blue Cross is one of the 'better ones'...

Blue Cross of Michigan is currently regulated under the State of Michigan. This year, the State congress and Governor Snyder pushed through a series of their notion of reforms, under the guidance of Blue Cross, to convert it from its current form to one of less regulation and oversight by 2014.. the conversion will make Blue Cross a 'non-profit.' (an oxymoron in the insurance industry) The reason cited is to increase 'competitiveness' of Blue Cross. I doubt this sort of creative mathematics will be improved in such an environment, just as I suspect more and more will be done by Blue Cross to maintain its CEO's $3.4 million salary.

*poetic*.For example, here is the breakdown on how Blue Cross of Michigan determines its disputed claim payback. This was all carefully written down during the 'debriefing' phase of a recent audit, as the auditor would not leave a copy of the formula with the pharmacy.

175 prescriptions were chosen from 2012, 'at random' prior to the audit, with the instructions that the original prescription, signature logs, and dispensing history were to be made available to the auditor. A 'small number' of additional prescriptions were to be requested, with a dispensing history, at the start of the audit. This 'small number' turned out to be 20, or 11.4% of the initial number. This brought the number of prescriptions to 195 for this particular audit. It was explained that this represented one prescription for each day the pharmacy was open and doing business with Blue Cross of Michigan.

The trouble is, however, that the pharmacy was open 294 days in 2012. The ratio 195/294 is 0.663. This becomes important when considering the rest of their analytical algorithm.

The prescriptions that were found to be 'payable' mainly amounted to electronic prescriptions that were handed in to the pharmacy without a physical handwritten signature from the physician. In this case, three were noted (however, the three were true electronic prescriptions, but for purposes of argument, we'll let it ride).

These three prescriptions represented a total of $140 in payments from Blue Cross that they wanted back. That is fine, one could argue, but it doesn't end there. They EXTRAPOLATE this $140 in this manner:

1. Blue Cross adds up the dollar amount of all prescriptions in the audit. Here, those 195 prescriptions amounted to $45,000

2. They then take the disputed prescription value of $140 and divide that by $45,000. This yields 0.003111. Seems like a pretty small number, to most eyes, BUT...

3. They THEN take the dollar value of the ENTIRE YEAR'S BUSINESS with Blue Cross - here it was $6,600,000 - and multiply THAT by 0.003111. That number becomes .... 20,533.26

4. They then put a dollar sign in front of that number and say THAT is your payback bill to Blue Cross for the audit. Yes, you read it right - $140 is inflated to $20,533.26.

Now, back to the numbers themselves. First of all, the number 195 somehow representing the days a pharmacy is open. Again, this particular pharmacy was actually open 294 days in that year. This means the results are OVERestimated, even by their peculiar method of statistical analysis, by 32.7%. That alone would make the 20K damages more like 13.6K, still a hyperinflationary amount.

And then to examine the 'randomness' of the audit. Of the 195 prescriptions chosen, 155 were for those where the drug cost in the prescription was over $150. There were many ways to manipulate that total cost of $45,000. In addition, carefully choosing

*which*prescriptions to require a payback upon has a significant impact on that minute figure used in the final calculation - each 0.0001 represents $660 in the end. One could eye the term 'random' with suspicion.This is why pharmacies go out of business. This is why pharmacies who deal with insurances (and that is all of them with the possible exception of two nationwide) cannot just fill prescriptions, they have to micromanage each of these scraps of paper. It doesn't matter if the drug is right, that the dose is right, that an interaction is uncovered or a life helped or saved. Place an initial in the wrong place, and this is the consequence. And Blue Cross is one of the 'better ones'...

Blue Cross of Michigan is currently regulated under the State of Michigan. This year, the State congress and Governor Snyder pushed through a series of their notion of reforms, under the guidance of Blue Cross, to convert it from its current form to one of less regulation and oversight by 2014.. the conversion will make Blue Cross a 'non-profit.' (an oxymoron in the insurance industry) The reason cited is to increase 'competitiveness' of Blue Cross. I doubt this sort of creative mathematics will be improved in such an environment, just as I suspect more and more will be done by Blue Cross to maintain its CEO's $3.4 million salary.