In the last several years, independent pharmacies have faced escalating pressure from Pharmacy Benefit Managers (PBMs) over how they procure diabetic testing supplies such as glucose meters, test strips, and lancets. While this segment of durable medical equipment is critically important to patients managing diabetes, it has also become a focal point for audit scrutiny, policy enforcement, and legal disputes.
At the center of the issue is a growing trend: PBMs are requiring pharmacies to purchase diabetic testing supplies exclusively from manufacturer-authorized wholesalers. This may seem like a reasonable safeguard against counterfeit or diverted products, but in practice, it has created a minefield of compliance challenges for pharmacies. Chief among these are "drug invoice shortages"—audit findings in which the quantity of products dispensed exceeds the quantity supported by invoice documentation. These findings often result in financial recoupments and, in many cases, more serious consequences such as network termination.
This article breaks down why this issue is gaining traction, how
pharmacies are getting caught off guard, and what proactive
measures they must take to protect their operations and their place
in PBM networks.
I. PBMs Demand Sourcing Exclusively from Authorized
Distributors
Major PBMs have implemented or enhanced policies that require pharmacies to purchase diabetic test supplies only from entities listed as authorized by the original manufacturer. Manufacturers maintain strict distribution agreements with a select group of wholesalers. Under these PBM requirements, if a pharmacy purchases from a secondary source not explicitly authorized—regardless of whether the product is legitimate—it risks being penalized. This includes purchases from regional wholesalers, smaller discount distributors, or online platforms that may be licensed but not part of the manufacturer's authorized network.
PBMs claim these requirements are essential to ensuring product
authenticity and avoiding supply chain disruptions. But for
pharmacies, these rules often limit access to competitive pricing
or regional distributors that have served them reliably for
years.
II. The Compliance Trap: Drug Invoice
Shortages
The problem intensifies when PBMs audit a pharmacy and request invoice documentation for claims submitted over a specific period. If the pharmacy cannot provide invoices showing it purchased at least as many units of a product as it dispensed, the PBM will issue a finding of "drug invoice shortage." These shortages are treated seriously—even if they stem from administrative mistakes, shipping delays, or documentation gaps rather than fraud or diversion. PBMs often do not give pharmacies the benefit of the doubt.
Several common reasons for drug invoice shortages include:
Purchases from unauthorized wholesalers: Even if invoices exist, if the supplier is not on the manufacturer's authorized list, the PBM may disregard the purchase.
Invoice data mismatch: Differences in NDC, product name, packaging, or lot numbers between invoices and dispensed product may render the documentation noncompliant.
Improper invoice consolidation: Pharmacies that purchase bulk products but dispense individual kits may find it difficult to reconcile units dispensed with how they appear on invoices.
Inventory reconciliation issues: Poor inventory
controls or lack of real-time tracking may create unexplainable
variances during audit periods.
III. The Escalation: From Audit Findings to Network
Termination
While financial recoupments for invoice shortages can be substantial, the more existential threat comes from the PBM's right to terminate the pharmacy's participation in its network. Pharmacies that receive repeated findings of drug invoice shortages—or that purchase a significant volume of products from non-authorized sources—are frequently issued Corrective Action Plans (CAPs).
These CAPs may require the pharmacy to: (i) immediately cease purchases from unauthorized sources; (ii) provide proof of sourcing compliance for future claims; (iii) submit to a follow-up audit to verify corrective measures.
Failure to fully comply with a CAP—or additional findings in a follow-up audit—may result in permanent network termination.
A termination from one PBM often has a domino effect. Other PBMs
may become aware of the termination and initiate their own reviews.
Moreover, pharmacies that are terminated often must disclose the
termination when recredentialing with health plans, pharmacy
services administrative organizations (PSAOs), and other payer
networks, potentially resulting in wider reputational damage.
IV. Why This Issue Is Especially Dangerous for Independent
Pharmacies
The diabetic test supply market is high volume and relatively low margin, but for many community pharmacies, it represents a consistent stream of business. Any disruption to this product line can impact overall revenue and patient satisfaction.
For independent pharmacies that rely on multiple revenue streams to maintain operations, a PBM audit resulting in large recoupments—or worse, a network removal—can be catastrophic. Many such pharmacies operate on thin margins and do not have the resources to weather prolonged disputes or legal battles with PBMs.
Further complicating the issue is that independent pharmacies
are often unaware of changes in manufacturer-authorized distributor
lists. These lists may change frequently, and it's not always
clear which entities are approved for retail sales. Relying on
longstanding relationships with secondary suppliers without
re-verifying their authorization status creates risk
exposure.
V. Steps Pharmacies Must Take to Protect
Themselves
Pharmacies that want to avoid drug invoice shortages and protect their PBM network status should implement the following best practices:
Conduct Vendor Audit
Request written confirmation of authorization from manufacturers or
review manufacturer websites for approved distributor lists.
Discontinue purchases from any vendors not explicitly
authorized.
Improve Documentation and
Reconciliation
Implement systems that allow real-time inventory tracking linked to
purchasing and dispensing records. Ensure every invoice includes
all necessary information—NDC, product name, package size,
quantity, lot number, and delivery confirmation. Store and organize
documents for at least three years to comply with audit lookback
periods.
Prepare for Audits Proactively
Create a designated audit response team or assign specific staff to
manage audit-related requests. Conduct periodic internal audits to
verify that invoices match dispensed quantities. Train staff on how
to spot non-compliant purchase patterns.
Engage Legal and Regulatory Support
Early
When you receive an audit notice or corrective action plan, consult
with legal counsel experienced in PBM audit defense. Counsel can
help craft a written response, assemble evidence, and negotiate
resolutions—possibly avoiding termination. In cases of
termination, appeal rights may exist, but timeframes are often very
short (e.g., 10–15 days to respond).
Monitor Industry and Manufacturer
Updates
Regularly review bulletins from manufacturers, PBMs, and industry
groups. Stay informed about changes to sourcing policies and audit
practices that may affect your compliance standing.
VI. Conclusion: Complacency Is Costly
The heightened enforcement of sourcing restrictions on diabetic test supplies is not just a temporary policy trend—it reflects a broader shift in how PBMs exert control over their pharmacy networks. Independent pharmacies, in particular, are vulnerable to audit findings that may seem administrative in nature but carry severe consequences. Every pharmacy should assume that a diabetic test supply audit is not a matter of "if" but "when." Pharmacies that wait until an audit is underway to verify their sourcing compliance are already behind. The stakes are too high to gamble with invoices, vendor relationships, or documentation gaps. By taking a proactive approach—auditing vendors, improving records, preparing for audits, and seeking legal guidance when needed—pharmacies can protect themselves from the rising wave of enforcement and remain competitive in a complex and highly regulated marketplace.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
