Texas Pharmacy Audit Law: Rights When a PBM Audits You

A Texas pharmacy that opens a PBM audit notice is operating under one detailed statute, not scattered guidance. The Texas Department of Insurance enforces Texas Insurance Code Chapter 1369, Subchapter F, which sets the notice, sampling, and recoupment rules a PBM has to follow before auditing a pharmacy's claims. Federal law then narrows how far that statute reaches once the plan behind the audit is governed by ERISA or Medicare Part D.

The Texas Department of Insurance's Authority Over PBMs

The Texas Department of Insurance regulates PBMs as a category of third-party administrator. A PBM seeking to act as an administrator in Texas applies to TDI for a certificate of authority under Insurance Code Chapter 4151. Separately, Section 1369.502 requires every PBM to file an annual report on rebates, fees, and other payments, due by March 1, a duty distinct from PBM audit defense, the pharmacy-facing work of responding when the same PBM audits a pharmacy's own claims. The commissioner enforces Subchapter F directly.

Audit Notice, Scope, and the One-Year Completion Deadline

Subchapter F controls how an on-site or desk audit of a pharmacist or pharmacy may proceed. An on-site audit requires written, trackable notice no later than the 14th day before the audit, and a PBM must reasonably grant a pharmacy's request, made no later than the seventh day after that notice, to reschedule. Absent the pharmacy's written consent, a PBM may not schedule an audit before the 14th day after notice, more than twice a year for the same payor, or during the first five calendar days of January or December, and a desk audit cannot demand documents sooner than the 20th day after the request. These same notice and sampling rules apply when a PBM audits claims for a REMS-restricted drug; the separate certification audit that FDA or the drug's manufacturer runs is not covered by this chapter. Random sampling is capped at 300 prescriptions, and an audit of a given claim has to be completed within one year of the date the PBM received it.

Extrapolation, Recoupment, and the Pharmacy's Right to Challenge a Finding

Section 1369.259 bars a PBM from using extrapolation to complete an audit; recoupment has to track the actual overpayment the auditor documents, not a projection across the pharmacy's claim volume. A PBM cannot base a recoupment on paperwork the pharmacy was not required to keep, or on an error causing no actual financial harm, the same backstop a refill-too-soon finding can run into when the early fill caused no actual financial harm. Full recoupment of drug cost and dispensing fee is limited to a fraudulent claim, a duplicate payment, or a substantive error that put the wrong drug in a patient's hands; a clerical error caps the PBM at the dispensing fee alone. The PBM must send a preliminary report no later than the 60th day after the audit concludes, and the pharmacy then has until the 30th day after receiving it to challenge, Texas's version of an audit appeal, and a final report follows no later than the 120th day after that, with options for how a valid recoupment is paid.

Texas law lets a PBM flag a discrepancy from a sample of claims, but it cannot finish the audit, or calculate what the pharmacy owes, with extrapolation. The recoupment has to track the pharmacy's actual, documented overpayment.

Where ERISA and Medicare Part D Limit Texas's Reach

Subchapter F writes these federal carve-outs into its own text rather than leaving them to litigation. It does not reach the state Medicaid program, the federal Medicare program, the child health plan, TRICARE, workers' compensation coverage, or a self-funded ERISA plan. In Rutledge v. Pharmaceutical Care Management Association, the Supreme Court held 8-0 in 2020 that ERISA does not preempt a state PBM reimbursement-rate law, which regulates cost without dictating plan design. Medicare Part D sits on different footing: 42 U.S.C. § 1395w-112(g) applies the Part C preemption clause at 42 U.S.C. § 1395w-26(b)(3), so CMS standards supersede state law other than licensing and solvency rules. The Tenth Circuit applied that clause in Pharmaceutical Care Management Association v. Mulready to strike parts of an Oklahoma PBM network law, left in place on certiorari denial in 2025. Which protections apply turns on whether the plan behind a given Texas audit is self-funded under ERISA, a Part D plan, or neither.

Why Early Legal Counsel Is Critical

It is critical that Texas pharmacies promptly retain experienced healthcare defense counsel upon receiving a PBM audit notice, a preliminary audit report, or any related Texas Department of Insurance 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 Texas pharmacies through PBM audits, from the first on-site notice through the final audit report and any network termination dispute that follows.

Health Law Alliance's attorneys have overseen 2,000+ audits and handled 5,000+ matters, with 25+ years of experience.

If a Texas pharmacy has received a PBM audit notice or an unfavorable preliminary report, contact Health Law Alliance's Texas pharmacy audit defense team for a free, confidential consultation before the response window closes.