An Arkansas pharmacy that opens a PBM audit notice is operating under two different state laws at once, plus a federal overlay that can narrow both. The Arkansas Insurance Department enforces the Arkansas Pharmacy Benefits Manager Licensure Act against the PBM itself. A separate statute, the Arkansas Pharmacy Audit Bill of Rights, controls how any entity, a PBM included, is allowed to conduct the audit. Federal law then decides how far either one reaches once the health plan behind the audit is governed by ERISA or Medicare Part D.
The Arkansas Insurance Department's Authority Over PBMs
The Arkansas Insurance Department licenses and regulates PBMs under the Arkansas Pharmacy Benefits Manager Licensure Act, codified at Arkansas Code § 23-92-501 et seq. The commissioner may audit a PBM's own books and records for compliance with the Act. That authority is separate from PBM audit defense, the pharmacy-facing work of responding when a PBM turns its audit tools on a pharmacy's claims. After notice and a hearing, the commissioner may impose a penalty of up to $5,000 per violation for a PBM's failure to follow the state's required drug-pricing rules, or suspend or revoke the PBM's license for a pattern of violations of the Act. The Department also administers Rule 118, the state's Pharmacy Benefits Managers Regulation, which fills in the operational detail.
The Arkansas Pharmacy Audit Bill of Rights
A second statute, the Arkansas Pharmacy Audit Bill of Rights, governs the audit itself whenever a managed care company, insurer, third-party payor, or PBM examines a pharmacy's records. The entity conducting an initial on-site audit must give the pharmacy at least one week's notice before each audit cycle. Any audit that turns on clinical or professional judgment has to be conducted by, or in consultation with, a pharmacist, and a clerical or recordkeeping error does not by itself amount to fraud. Outside specific exceptions, the statute limits a single audit to 25 randomly selected prescriptions.
Extrapolation, Recoupment, and the Right to Appeal
The same statute restricts how an unfavorable finding becomes a dollar demand. An auditor may project an overpayment from a sample of claims, but recoupment has to be based on the pharmacy's actual, documented overpayment, not the projection, unless the pharmacy agrees to settle on the projected figure. Every auditing entity must run an internal appeal process for an unfavorable preliminary report and cannot recoup disputed funds until that process ends. An appeal that shows a finding is unsubstantiated forces the entity to dismiss that part of the report outright, and a final audit report is due within six months of the preliminary report or the final appeal, whichever is later. That one-week notice window leaves little time to assemble records, which is why a pharmacy can self-audit before a PBM audit arrives.
Arkansas law lets an auditor project an overpayment from a sample of claims, but the money it actually recoups from the pharmacy has to be the real, documented overpayment, not the projection, unless the pharmacy agrees otherwise.
Where ERISA and Medicare Part D Limit Arkansas's Reach
These state protections do not reach every audit automatically. In Rutledge v. Pharmaceutical Care Management Association, the Supreme Court held 8-0 in 2020 that ERISA does not preempt Arkansas's PBM reimbursement-rate law, because the law regulates cost without dictating plan design. Medicare Part D works differently. Congress built it on a form of field preemption, letting a CMS standard displace a state rule covering the same ground, as the Tenth Circuit found for parts of Oklahoma's PBM law, a decision the Supreme Court left in place in 2025. Which protections apply turns on whether the plan behind a given Arkansas audit is self-funded under ERISA, a Part D plan, or neither.
Why Early Legal Counsel Is Critical
It is critical that Arkansas pharmacies promptly retain experienced healthcare defense counsel upon receiving a PBM audit notice, a preliminary audit report, or any related Arkansas Insurance Department inquiry. Early legal intervention can protect the pharmacy's rights, ensure an accurate and complete audit response, avoid inadvertent admissions, preserve relevant defenses, and allow counsel to communicate with the PBM or the Department on the pharmacy's behalf. Delaying legal representation can significantly affect the outcome of a matter and expose the pharmacy to recoupment exposure that proper handling could have avoided.
How Health Law Alliance Can Help
Health Law Alliance represents Arkansas pharmacies through PBM audits, from the first on-site notice through the internal appeal.
Health Law Alliance's attorneys have overseen 2,000+ audits and handled 5,000+ matters, with 25+ years of experience.
If an Arkansas pharmacy has received a PBM audit notice or an unfavorable preliminary report, contact Health Law Alliance's Arkansas pharmacy audit defense team for a free, confidential consultation before the response window closes.
