PBM audit finds small rebate shortfalls; district to press Kyros on reconciliation

Gallagher auditor Sherry told the Scottsdale Unified School District Audit Committee that a prescription drug audit for July 2023–June 2024 found a small shortfall in guaranteed pharmacy discounts, and that the report raises questions the district will pursue with the purchasing trust.

At the meeting, Sherry said Gallagher’s independent calculations showed a $66,000 shortfall against guaranteed discounts while Maxor (the PBM) reported about a $59,000 shortfall. “For retail 90 discount, they were supposed to be 18.75% discount. We calculated… 18.09%,” Sherry said, and she contrasted that with Maxor’s internal calculation of 18.14%.

The discrepancy stems from how claims are bucketed and which items are excluded from guarantees. Sherry said differences of a few claims—limited distribution drugs or whether a claim was categorized brand versus generic—can shift totals materially. Gallagher also confirmed it could match payments from Maxor to Kyros with the payments Kyros made to Scottsdale, but it could not obtain remittances from pharmaceutical manufacturers to verify the manufacturer-to‑PBM leg of rebate flows.

District benefits coordinator Shannon urged caution about assuming a guaranteed payout. “I don’t want to assume that there’s going to be something that’s going to come back,” she said, noting Kyros may have performed at the book‑of‑business level so there might be no refund to clients even if an individual client’s data shows a shortfall. Shannon added the district is leaving the Kyros trust and moving to a direct contract (Blue Cross Blue Shield with Optum RX) on July 1 and that Kyros indicated a six‑month window to reconcile runout claims.

Committee members pressed Gallagher and staff to ask Kyros for a full book‑of‑business reconciliation so the district can determine whether any shortfall payment will be allocated to Scottsdale. Derek said the question of how Kyros allocates any payment across districts is central: “Scottsdale’s embedded in the overall relationship,” he said, and requested Kyros’ reconciliation and ledgers.

Gallagher recommended clarifying several tables and adding footnotes to explain per‑channel reconciliations and timing differences before the report is finalized. The audit team also identified minor issues elsewhere in the data: a 99.6% match on average wholesale price baseline testing, 65 claims with $268 in uncharged sales tax, and some ledger itemization gaps for administrative fees. On minimum rebate guarantees, Gallagher noted Scottsdale’s reported collected rebates exceeded the calculated guarantee, so no additional payment was due in that component for the audited period.

On pass‑through verification, Sherry said Gallagher was able to confirm that the amounts Maxor reported paying to Kyros matched Kyros’ ledger payments to Scottsdale, but Gallagher could not obtain manufacturer remittances broken out by client and therefore could not confirm that Maxor's stated collections from manufacturers exactly matched the amounts assigned to the Kyros book of business.

Committee members discussed whether Scottsdale should commission a comprehensive manufacturer rebate audit in future years; Gallagher replied that full rebate audits typically include manufacturer invoice review but require broader audit rights and scope than the current engagement allowed. Several members recommended strengthening audit and reporting language in future PBM and trust contracts.

Next steps: the committee asked staff to follow up with Kyros on the book‑of‑business reconciliation during the six‑month runout, to request clarifying footnotes and tables from Gallagher, and to report back with a management response and any recoveries. The committee also flagged the district’s July transition to a direct contract with Blue Cross Blue Shield/Optum RX as an opportunity to require clearer audit rights and reconciliation processes.

Outcome: No formal motion beyond approval of minutes and routine agenda business; staff committed to follow up with Kyros and to bring a management response to a future meeting.