Toolkit · Healthcare

The PBM Contract Audit, Formulary Appeal, and Plan Fiduciary Review Toolkit

29 U.S.C. § 1104

Type
Toolkit
Jurisdiction
National
Date
2025-05-23
Topic
Healthcare

This toolkit provides the documents that move money in a pharmacy benefit dispute. It opens with a definitions rider that fixes the terms which otherwise decide the economics, and a data rights schedule that makes verification possible instead of theoretical. It includes an audit demand letter, a service provider compensation disclosure request, and a fiduciary committee charter built for the record a defense requires. For pharmacies it supplies a maximum allowable cost appeal template and an audit response that raises procedural defenses before substantive ones. For patients and prescribers it supplies a coverage criteria request and a formulary exception letter organized around the criteria rather than the therapy. It closes with a market check clause, a preemption analysis memorandum, and the intake questions that establish posture in one conversation.

The PBM Contract Audit, Formulary Appeal, and Plan Fiduciary Review Toolkit

Healthcare > Pharmacy Benefit Managers and Drug Pricing | Published 23 May 2025 - Updated 16 March 2026 | UpLaw - uplaw.us

Tool 1 — Definitions rider

Attach to any request for proposal and require every bidder to price against it. A bid priced against the bidder's own definitions cannot be compared to anything.

Rider A — Controlling definitions

"Generic Drug" means a drug classified as a generic by [named source], [named version], as of [fixed date or the date of dispensing per the version then published], without adjustment by Vendor. Vendor shall not reclassify any drug between Brand and Generic for purposes of any guarantee.

"Brand Drug" means any drug that is not a Generic Drug under the preceding definition.

"Manufacturer Revenue" means all consideration of any kind received by Vendor or any Affiliate from any pharmaceutical manufacturer, wholesaler, or group purchasing organization in connection with Plan claims or Plan formulary placement, however denominated, including rebates, market share payments, price protection, administrative fees, data fees, formulary management fees, service fees, purchase discounts, grants, and any fee paid to a purchasing or negotiating entity.

"Affiliate" means any entity controlling, controlled by, or under common control with Vendor, including any pharmacy, purchasing organization, insurer, or data entity.

"Specialty Drug" means a drug on the list attached as Exhibit [ ], which may not be amended without Plan's written consent.

"Excluded Claim" means only the claim types enumerated in Exhibit [ ]. No other claim may be excluded from any guarantee, and the list may not be amended without Plan's written consent.

"Channel" means each of retail 30-day, retail 90-day, mail, and specialty, measured separately.

☐ ⚠️ Guarantees are measured by Channel, never in aggregate ☐ ☐ Rider incorporated into the executed agreement, not merely into the bid ☐

Tool 2 — Data rights schedule

Schedule [ ] — Data

Vendor shall deliver monthly, within [days] of month end, a claim-level file in the layout attached, containing for each claim: date of service; national drug code; drug name; brand or generic classification as applied by Vendor; quantity; days supply; ingredient cost; dispensing fee; administrative fee; member cost-share; plan paid amount; pharmacy identifier and name; channel; 340B indicator; and rebate eligibility indicator.

Vendor shall deliver an annual reconciliation file supporting each guarantee calculation, showing every claim included and every claim excluded, with the reason for each exclusion.

Plan may share all data received with its auditor, its consultant, any prospective vendor, and any successor vendor. No confidentiality obligation limits Plan's use of its own claims data.

On termination for any reason, Vendor shall deliver, within [days], all data described above for the entire term, in the same layout, without charge.

☐ ⚠️ A data right with no format specification produces summary reports in an unusable form. ☐ Confirm the layout is attached and machine-readable ☐

Tool 3 — Audit demand letter

Notice of audit under Section [ ]

Plan exercises its audit right for the period [dates]. Plan has engaged [auditor], who will act as Plan's agent.

Within [days], produce:

  1. Claim-level data for the audit period in the layout specified in Schedule [ ], without redaction of ingredient cost, dispensing fee, or classification fields;
  2. The Generic classification source and version applied to each claim, and any instance in which a drug's classification changed during the period;
  3. All guarantee calculations, showing every claim included and excluded and the basis for each exclusion;
  4. All Manufacturer Revenue received in connection with Plan claims, by manufacturer, by category, by month, including amounts received by any Affiliate;
  5. Contracts or summaries evidencing the Manufacturer Revenue arrangements applicable to Plan claims;
  6. The maximum allowable cost lists applied during the period, and every revision;
  7. All amounts paid to network pharmacies for Plan claims, at the claim level;
  8. Any amounts retained by Vendor or an Affiliate on Plan claims, however characterized;
  9. All fees paid to any broker, consultant, or advisor in connection with this arrangement.

Plan reserves the right to reprice claims and to recover any amount by which the amounts charged exceeded the amounts payable under the Agreement. Nothing in this notice waives any right, and Plan does not accept any confidentiality condition beyond the terms of the Agreement.

☐ Audit conducted by an auditor of the plan's choosing ☐ Cost allocation per the agreement ☐ ☐ Findings preserved for use in the next procurement ☐ ☐ Fiduciary basis for the exercise — 29 U.S.C. § 1104; 29 C.F.R. Part 2550 ☐

Tool 4 — Compensation disclosure request

Request for service provider compensation disclosure

As a fiduciary of the [plan], we request the disclosure of direct and indirect compensation required for brokerage and consulting services provided to the plan, covering [period]. Please provide:

  1. All direct compensation received from the plan or the plan sponsor;
  2. All indirect compensation received from any other source in connection with services to the plan, identifying the payer, the amount or a reasonable estimate with the formula, the services rendered, and the arrangement under which it was paid;
  3. All compensation received by any affiliate or subcontractor;
  4. Any override, bonus, contingent commission, or volume-based payment attributable to the plan;
  5. Any compensation received from a vendor recommended to the plan.

If any element cannot be provided, identify it specifically and state why.

☐ ⚠️ A plan that cannot obtain the disclosure has a prohibited transaction problem — 29 U.S.C. § 1108 ☐ ☐ Receipt and review documented in committee minutes ☐ Action taken recorded ☐ ☐ Participant-facing disclosure obligations checked — 29 U.S.C. § 1024; 29 C.F.R. Part 2520 ☐ ☐ Gag clause attestation made after the contract has been read ☐ Group health plan requirements — 29 U.S.C. § 1185d; 29 U.S.C. § 1191; 29 C.F.R. Part 2590 ☐ ☐ Excise tax exposure for failures noted — 26 U.S.C. § 4980D ☐

Tool 5 — Fiduciary committee charter

Pharmacy Benefit Committee — charter

Purpose. To discharge the plan's fiduciary responsibilities under 29 U.S.C. § 1104 with respect to the selection, monitoring, and compensation of pharmacy benefit service providers.

Membership. [Roles]. Members acknowledge fiduciary status in writing.

Meetings. Quarterly, with minutes recording the analysis performed, the alternatives considered, and the basis for each decision.

Annual agenda. Compensation disclosure review; guarantee reconciliation; audit results; formulary changes affecting participants; utilization management denial and overturn rates; participant complaints; benchmarking; fiduciary insurance review; training.

Decisions requiring documented rationale. Vendor selection or renewal; any benefit design change shifting cost to participants; any formulary exclusion affecting a therapeutic class; any decision not to conduct a market check.

Advisors. The committee shall obtain independent advice where an advisor's compensation depends on the outcome of a recommendation.

☐ ⚠️ In fiduciary litigation the process is the defense. Minutes that record attendance are not a record; minutes that record analysis are. ☐ Statutory framework — 29 U.S.C. § 1001; 29 U.S.C. § 1002; enforcement 29 U.S.C. § 1132 ☐ ☐ Fiduciary scope authorities reviewed with the committee — Varity Corp. v. Howe; Pegram v. Herdrich ☐

Tool 6 — Market check clause

Market check

Beginning [date] and annually thereafter, Plan may engage a third party to solicit competing proposals for the services, using Plan's own claims data and the definitions in Rider A. Vendor shall cooperate, including by providing the data described in Schedule [ ] within [days] of request.

If a competing proposal, normalized to Rider A definitions and repriced against Plan's claims, would reduce Plan's net cost by more than [percent], Vendor shall either match the competing terms for the remainder of the term or, at Plan's election, Plan may terminate on [days] notice without penalty, with the data return obligations of Schedule [ ] applying.

☐ ⚠️ A plan that cannot credibly leave has no leverage regardless of what the pricing section says. ☐ Termination and transition mechanics confirmed workable mid-year ☐

Tool 7 — MAC appeal template

Maximum allowable cost appeal

Pharmacy: [name, NPI]. Claim: [number], date of service [date]. Drug: [name, NDC, quantity].

Reimbursement received: $[amount]. Acquisition cost: $[amount], evidenced by the attached wholesaler invoice dated [date]. The reimbursement is below acquisition cost by $[amount].

Pursuant to [state statute], we appeal the maximum allowable cost applied to this claim and request: (1) an increase in the applicable MAC to at least acquisition cost; (2) retroactive adjustment of this claim and all claims for the same drug during the affected period; (3) identification of the national drug code of a therapeutically equivalent drug available for purchase at or below the applied MAC from a wholesaler in this state; and (4) a written response within the statutory period.

☐ File systematically, not selectively ☐ Attach the invoice every time ☐ ☐ Track outcomes; a pattern supports a regulatory complaint ☐ ☐ State authority to regulate reimbursement confirmed — Rutledge v. Pharmaceutical Care Management Association; preemption clause 29 U.S.C. § 1144 ☐

Tool 8 — Pharmacy audit response

Raise procedure before substance. Most audit disputes are decided on procedure.

Response to audit notice dated [date]

1. Procedural objections, asserted and preserved. [Pharmacy] notes the following and does not waive any of them by responding substantively:

(a) Whether the notice satisfied the advance notice period required by [state statute]; (b) Whether the audit period exceeds the lookback permitted by statute; (c) Whether the response period afforded complies with the statute; (d) Whether extrapolation from a sample is permitted; if not, any extrapolated finding is objected to in its entirety; (e) Whether any alleged discrepancy is a clerical or recordkeeping error that the statute makes non-recoupable absent actual financial harm; (f) Whether the auditor is a licensed pharmacist where the statute so requires; (g) Whether the audit was initiated within the period permitted after the date of service.

2. Documentation produced. [List by claim: prescription record, signature log, day-supply calculation, prescriber verification, dispensing record.]

3. Substantive response. [By claim.]

4. Appeal rights. [Pharmacy] requests a written preliminary report, the full appeal period afforded by statute, and identification of the specific contractual or statutory provision alleged to be violated for each finding.

☐ Notice date and every deadline logged the day the notice arrives ☐ ☐ Arbitration clause and class waiver checked before any collective strategy — AT&T Mobility LLC v. Concepcion ☐ ☐ Regulatory complaint route evaluated in parallel ☐

Tool 9 — Coverage criteria request

Send before the prior authorization, not after the denial.

Request for coverage criteria

Member: [name], ID [number]. Drug: [name, strength]. Prescriber: [name, NPI].

Please provide, in writing and before submission of any authorization request:

  1. The written clinical criteria applied to requests for this drug under this plan, in the version currently in effect;
  2. Any step therapy requirement, identifying each preferred agent and the required duration and documentation of trial;
  3. Any quantity limit and its clinical basis;
  4. The formulary tier and any site-of-care requirement;
  5. The exception process, the standard for granting an exception, and the decision timeframes for standard and expedited review;
  6. The identity and specialty of the reviewer who will decide the request;
  7. The internal appeal process and deadlines, and the availability of external review;
  8. For ERISA plans, the plan document provisions and any internal guideline relied upon, as required by 29 U.S.C. § 1024 and 29 C.F.R. Part 2520.

☐ ⚠️ The criteria decide the outcome. The denial letter does not. ☐ Where ERISA governs, the administrative record built at the first submission is usually the entire record on judicial review — Firestone Tire & Rubber Co. v. Bruch ☐

Tool 10 — Formulary exception letter

Request for formulary exception — organized by criterion

Member: [name]. Drug requested: [name]. Diagnosis: [ICD code and description].

Criterion 1 — [quote the criterion]. Satisfied. [Evidence: dates, findings, records attached at Tab 1.]

Criterion 2 — [quote]. Satisfied. [Evidence, Tab 2.]

Criterion 3 — [quote: trial of preferred agent]. [Either: Satisfied — trial of [agent] from [date] to [date], outcome [result], records at Tab 3. Or: Exception requested. The preferred agent is contraindicated because [specific clinical reason with supporting record], and therefore this criterion cannot be satisfied without harm to the member. An exception is requested on that basis.]

Requested action. Approve coverage of [drug] at [quantity] for [duration].

Timeframe. [Standard / Expedited — expedited review is requested because applying the standard timeframe could seriously jeopardize the member's life, health, or ability to regain maximum function, for the following reasons: [specific].]

☐ ⚠️ Address each criterion by name. An appeal that argues the merits of the therapy without engaging the criteria loses. ☐ Where a criterion is clinically inapplicable, request an exception on that ground rather than disputing it ☐ ☐ Part D timelines calendared where applicable — 42 U.S.C. § 1395w-104; 42 C.F.R. Part 423 ☐ ☐ Medicaid managed care route where applicable — 42 C.F.R. Part 438; 42 U.S.C. § 1396a ☐ ☐ Relief and preemption posture noted — Aetna Health Inc. v. Davila; 29 U.S.C. § 1132; Great-West Life & Annuity Insurance Co. v. Knudson; Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan; Conkright v. Frommert; Egelhoff v. Egelhoff ☐

Tool 11 — Preemption analysis memorandum

Memorandum — application of [state statute] to [plan]

1. Plan structure. Self-funded / insured / mixed. [If insured, state insurance regulation applies independent of the preemption analysis.]

2. Provision-by-provision analysis. For each provision of the statute:

Provision What it regulates Rate regulation or plan administration Conclusion
Reimbursement floor What the PBM pays pharmacies Rate Likely applies
Appeal process for MAC Vendor process Rate-adjacent Likely applies
Reporting to the state Plan data submission Administration Likely preempted
Network composition mandate Who must be in the network Contested Analyze
Formulary content mandate Benefit design Administration Vulnerable

3. Governing authority. Rate regulation that increases costs is not preempted — Rutledge v. Pharmaceutical Care Management Association. Reporting and administration mandates are — Gobeille v. Liberty Mutual Insurance Co.. Clause: 29 U.S.C. § 1144.

4. Conclusion by provision. [State separately for each.]

☐ ⚠️ Never answer "does this state law apply" at the statute level.

Tool 12 — Federal program interaction map

Combination The problem Check
340B entity, contract pharmacy, PBM network No third-party beneficiary claim, Astra USA, Inc. v. Santa Clara County; differential reimbursement and duplicate discount exposure — 42 U.S.C. § 256b; 42 U.S.C. § 1396r-8 ☐
Medicaid managed care with spread State dollars funding an unobservable margin — 42 C.F.R. Part 447; 42 U.S.C. § 1396b ☐
Part D post-sale price concessions Cost-share computed on the higher number — 42 U.S.C. § 1395w-102; 42 U.S.C. § 1395w-103 ☐
Part D and Medicare Advantage overlap Two appeal frameworks — 42 C.F.R. Part 422; 42 C.F.R. Part 417 ☐
Rebates in federal programs Safe harbor posture — 42 U.S.C. § 1320a-7b; 42 C.F.R. Part 1001; 42 U.S.C. § 1301 ☐
Biosimilar preferred against reference product Rebate incentive in plain view — 42 U.S.C. § 262; 21 U.S.C. § 355; 21 C.F.R. Part 314 ☐
Transparency file benchmarking Independent comparison — 45 C.F.R. Part 147; 45 C.F.R. Part 149; 45 C.F.R. Part 156 ☐
Concentration and exclusivity Competition theories — 15 U.S.C. § 1; 15 U.S.C. § 45; PBM transparency 42 U.S.C. § 1320b-23 ☐

Tool 13 — Intake questions

  1. Is the plan self-funded or insured?
  2. Pass-through or traditional pricing?
  3. Who controls the generic classification, and from what source?
  4. Does the rebate definition reach affiliate and purchasing-entity revenue?
  5. Are guarantees measured by channel or in aggregate, and what is excluded?
  6. Has the audit right ever been exercised, and what did it produce?
  7. Has the compensation disclosure been received, read, and acted on?
  8. Was the gag clause attestation made before or after anyone read the contract?
  9. Which state statutes are in play, and are they rate regulation or administration?
  10. If a denial: what are the written criteria, and were they addressed?
  11. If a pharmacy dispute: what procedural requirements applied, and were they met?
  12. Is there an arbitration clause with a class waiver?
  13. Can the plan actually leave, and can it take its data?

☐ ⚠️ Questions 3, 4, and 5 explain most of the cost variance. Ask them before discussing rates.

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