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Sleuths at Utah Department of Health have audited 25 of the state's largest pharmacies, flagging $1.2 million in antipsychotic drugs that they say were wrongfully billed to Medicaid.

The crackdown comes after lawmakers scolded health officials for not doing enough to control costs and root out fraud, waste and abuse.

But pharmacy owners say the state is now going too far. They complain of heavy-handed efforts to recover $11,000 to $370,000 per drug store for clerical errors over which they have little control.

"I applaud the state for doing what it can to stop overbilling," said Cedar City Republican Rep. Evan Vickers, owner of Bulloch's Drug. "But we're talking about a situation where the right medications are going to the right patients as prescribed. Is that fraud?"

Vickers' stores haven't been audited. But problems have been found at each of the 25 stores examined, according to Dean Eborn, director of Medicaid's Internal Audit and Program Integrity unit.

Auditors targeted a narrow class of expensive drugs known as "atypical" antipsychotics, such as Seroquel and Zyprexa, which are used to treat schizophrenia and bipolar disorder. When writing prescriptions for these medicines, doctors are supposed to include a code verifying the patient's diagnosis.

Required since 2003, these codes are meant to guard against the "off-label" use of these drugs for conditions not approved by the U.S. Food and Drug Administration, explained health department spokeswoman Kolbi Young.

Medicaid spends more on atypical antipsychotics than any other drug class, Young said. And while doctors are free to write prescriptions as they see fit, she said, Medicaid is barred from paying for their off-label use.

As auditors discovered, however, some pharmacies are dispensing antipsychotics without the proper codes, which means Medicaid should not have paid for them. "These are the instances where the state is seeking recoveries," said Eaborn, referring to the fines, or state's efforts to claw the money back.

Pharmacy owners readily admit that very few orders come to them with the right coding, leaving it to them to fill in the blanks hours or days after filling the prescriptions.

Drug stores have done this for years, sometimes phoning up providers for the code or referring to past prescriptions, said Richard Barton, owner of Taylor Drug in American Fork. "If someone comes in on Saturday and they don't have a diagnosis code, what do you do? We do it in good faith, especially if we know the patient and the drug has been covered before."

Health officials are now clarifying that the practice is no longer allowed. Only doctors can assign codes, and retailers are barred from filling prescriptions without them unless it's a renewal of an active prescription, Young said.

Those who do will have to repay Medicaid the full cost of the drug.

Retailers say making low-income patients with severe mental illnesses wait for life-altering drugs is bad medicine and could invite lawsuits. And they contend it's unfair to hold them solely responsible for shoddy documentation.

"We're the scapegoat, because they can't penalize the doctors. They have to fix this at the point of sale," said Vickers, who fears the stiff penalties will force smaller shops out of business and create a patient-access problem in rural areas.

Barton agrees and said, "Our profit on some of these $500 medicines is only $5, but they claw back everything." He just finished pulling paperwork on 220 prescriptions for an audit of his store.

Legislators have made it clear that fraud prevention should be a priority. They shaved $31 million from the health department's 2012 budget, directing the agency to make it up by fining providers who overbill.

"These recoveries, and the field audit process, are consistent with recoveries and activities in other states," said Eaborn, noting that pharmacies have the right to appeal.

Dave Davis, a lobbyist for Utah's Retail Grocers Association, hopes it doesn't come to that.

"We're accustomed to third-party audits by private insurers, but when they find something they typically allow us to correct the record without clawing back the money."