Academic Detailing of Prescribers – Fact-based information about prescription drugs provided by credentialed clinicians to physicians and other prescribers. Traditional “detailing” refers to the process pharmaceutical manufacturer sales representatives use to promote their brand-name drugs.
Actual Rebate Amount Per Script – Actual dollar amount of rebate for each prescription adjudicated. The amount may vary for retail and mail scripts.
Adherence – The patient’s conformance with the healthcare provider’s recommendation with respect to timing, dosage, and frequency of medication taken during the prescribed length of time.
Administrative Fees – Per claim fees paid by clients to PBMs for services like claims processing. Also used to denote the fees paid by manufacturers to PBMs for administering formulary rebate contracts.
Administrative Services Only (ASO) – An arrangement in which an organization funds its own employee benefit plan but hires an outside firm to perform specific administrative services such as processing prescription drug claims.
Annual Out-of-Pocket (OOP) Limit –The cap on the total amount a plan member pays each year.
Average Manufacturer Price (AMP) – Defined as the average price paid to the manufacturer for the drug by wholesalers for drugs distributed to retail community pharmacies and by retail community pharmacies that purchase drugs directly from the manufacturer. Payments and rebates or discounts provided to certain providers and payers are included in the calculation of AMP.
Average Sales Price (ASP) – The revenue from a manufacturer’s sales of a drug to all purchasers in the U.S. in a calendar quarter divided by the total number of units of the drug sold by the manufacturer in the same quarter. The ASP is net of any discounts. Since January 2005, the Centers for Medicare & Medicaid Services has been paying for most Medicare Part B-covered drugs using a payment methodology based on ASP.AWP Discount % (AWP Minus %) – The negotiated amount a drug plan pays to pharmacies for the ingredient cost of a prescription, commonly expressed as a percentage off average wholesale price.
Average Wholesale Price (AWP) – A published suggested wholesale price for a drug, based on the average cost of the drug to the pharmacy. AWP is often used by pharmacies to price prescription drugs.
AWP Spread – The percentage difference between AWP price and WAC price. For brand products, retail pharmacies typically refer to AWP spread as either 16% or 20%, referencing a discount off AWP. Manufacturers view AWP spread as 20% or 25%, using WAC as a basis for a markup to arrive at AWP on branded prescriptions. For generics and multi-source products, there is no standard AWP spread. For non-MAC generic products and multi-source products, there is no standard AWP spread. For non-MAC generic products and multi-source products, the larger the AWP spread the greater the profit opportunity for the pharmacy on third-party prescriptions.
Biotech Drugs – Drugs manufactured through biologic processes to treat chronic, complex or life-threatening conditions; also called specialty drugs.
Brand Drug – a product marketed by the original holder of a new drug application (NDA) or biological license application (BLA) (or related licensees) for a given drug entity.
Brand Effective Rate (BER) – The average percent discount off the AWP for all brand drugs. If paid at NADAC or average sales price (ASP), ingredient cost is backed into the AWP to calculate the discount off the AWP.
Capitated Contract – A rare contract among PBMs. It is used when a PBM agrees to assume financial risk for a client’s drug spending. Capitation is a set dollar amount, established by analysis of pharmacy claims data. It is used to cover a member's prescription costs and usually set at a per member per month rate (PMPM).
Centers for Medicare and Medicaid (CMS) – CMS provides oversight of the following federally funded health care programs: Medicare, Medicaid, and the State Children’s Health Insurance Program.
Channel – Type of health care provider that may dispense a medication to a patient, including retail (community) pharmacy, mail order (mail service) pharmacy, specialty pharmacy, infusion pharmacy, and medical provider (e.g., physician, hospital).
Claims Adjudication – The online processing of a prescription drug claim. Most claims are submitted electronically at the point of service (the retail or mail pharmacy).
Coinsurance – The fixed percentage members pay of the cost of each prescription.
Compliance – Patient adherence to a prescribed medical treatment plan or drug regimen.
Copay – A fixed dollar amount paid for every prescription.
Copayment Relief or Waivers – Reduced or zero-dollar copayments commonly used as incentives for plan members to use generic drugs and adhere to medication regimens.
Cost Sharing – Cost sharing refers to the amount beneficiaries contribute to the cost of each prescription covered by their drug benefit plan. A cost share amount is established in the plan design for major categories of drugs such as brand, generic, or formulary classification. The amount may be a flat-dollar amount or a percentage of the total cost of the prescription.
Days’ Supply – The number of days' worth of medicine a doctor prescribes for a patient.
Deductible – A specific annual dollar amount that a member must pay out-of-pocket for prescription drugs before the drug benefit program begins.
Diabetic Supplies – Medical materials used in the treatment of diabetes, specifically glucose meter strips, syringes, and needles.
Disease Management Programs – Programs developed by PBMs to identify and categorize patients (especially those with chronic conditions) and to direct these patients towards a specific treatment protocol.
Dispensing Fee – Contracted amount in a traditional third-party prescription plan that is paid to the pharmacy in addition to the negotiated ingredient cost of the prescription.
Dollar Limit on Coverage – Price cap for amount of money plan will pay for prescription benefit.
Dose Optimization – Pharmacist-driven program to ensure patients are taking the best dosages and strengths of a given medication to manage costs of drug therapy.
Drug Price Benchmark – The value used to represent the ingredient cost of a prescription drug in reimbursement calculations. Reimbursement formulas vary by payer. Frequently used drug price benchmarks are Average Sales Price (ASP), Average Manufacturer Price (AMP), Average Wholesale Price (AWP), and Wholesale Acquisition Cost (WAC).
Fee-for-Services Contract – The most common pricing arrangement PBMs have with their clients. Under the contract, PBMs are paid for the administrative services they provide, and they do not assume the risk for the cost of the drugs dispensed.
Formulary – An approved list of branded (and generic) drugs developed by the PBM, or the client.
Fully-insured Plan – Plan that delegates financial risk of benefit claims to a third party.
Generic Dispensing Rate or Ratio (GDR) – The percentage of all prescriptions that are dispensed as generic. If there are 83 generic claims out of 100 claims, the generic dispensing rate or GDR is 83%, for instance. According to HealthPartners data, a one percentage point increase in use of generics could cut pharmacy costs by around 5%.
Generic Drug – A generic drug is defined as any drug product marketed by an entity other than the NDA or BLA holder or related licensees. It is comparable to a brand-name drug in dosage form, strength, route of administration, quality, performance characteristics, and intended use.4 Generics are typically less expensive and sold under the chemical name for the drug, not the brand name.
Generic Effective Rate (GER) – The average percent discount off the AWP whether paid at MAC, U&C, NADAC, or AWP discount. This performance metric is perhaps the most crucial. GER allows for the fairest comparison of PBM generic reimbursement rates which accounts for 90% of all prescription drug claims.
Generic Substitution –The dispensing of the generic or multi-source product in place of the original brand-name drug. Most drug benefit plans mandate or incent generic substitution as a cost-control mechanism. The U.S. Food and Drug Administration approves generic products. Generics with an “A” rating usually can be substituted for the brand product by the pharmacist without contacting the physician.
Generic Substitution Rate (GSR) – The rate at which generic drugs are dispensed in place of their brand equivalents. If a PBM is managing its clinical programs efficiently, GDR should be right at or above 90% and the GSR above 98%. According to HealthPartners data, a one percentage point increase in use of generics could cut pharmacy costs by around 5%.
Gross Cost of Script (Prescription) – Total cost of a prescription = AWP − AWP Discount + Dispensing Fee.
Guaranteed Rebate Per Mail Script – Flat-dollar amount of rebate guaranteed by pharmacy benefit manager for each mail order prescription.
Guaranteed Rebate Per Retail Script – Flat-dollar amount of rebate guaranteed by pharmacy benefit manager for each retail (community pharmacy) prescription.
Ingredient Cost – The cost to the pharmacy for dispensed drugs (AWP – discount %). It can also include the dispensing fee.
Injectables – Prescription drugs that are injected by patient or provider.
Legend Drug – Drug that, by law, can be obtained only by prescription and bears the label, “Caution: Federal law prohibits dispensing without a prescription” or “Rx Only.”
Lifestyle Drugs – Drugs that are not medically necessary but used to improve the quality of life.
Limited Pharmacy Network – In a limited network, prescriptions are covered only in a subset of stores, typically by eliminating at least one major pharmacy chain from the network.
Maximum Allowable Cost (MAC) – A pharmacy reimbursement limit for a particular strength and dosage of a generic drug that is available from multiple manufacturers with potentially different list prices. The MAC is established by the PBM or payer. The same MAC price applies to all versions of the identical generic drugs. MAC prices were created because the cost of identical generic drugs may differ from distributor to distributor. The price basis for generic drugs, which is typically 50–60% below AWP. PBMs can either set the MAC prices themselves or use the MAC prices set by HCFA for Medicaid beneficiaries.
MAC Effective Rate – The average percent discount off the AWP for drugs processed by the MAC list.
MAC List – A list of drug products that are generally available with a generic version, to which MAC pricing will be applied. Both pricing and scope (i.e., number of drugs covered) of MAC lists may vary considerably by PBM and sometimes among customers of the same PBM.
Mail Pharmacy – Licensed pharmacy established to dispense maintenance medications for chronic use in quantities greater than normally purchased at a retail pharmacy. The mail-service pharmacy usually uses highly automated equipment so that non-pharmacists perform many routine tasks. As a result, mail service can typically dispense medication at a lower cost per prescription. Mail pharmacies dispense a 90-day supply of drugs through the mail, typically for chronic conditions. Most pharmacy benefit plans offer a mail pharmacy service as a way to promote cost savings and improve access.
Maintenance Medications – Drugs used to treat chronic diseases or conditions, such as diabetes, hypertension, and high cholesterol.
Manufacturer – A company that manufactures branded and/or generic pharmaceuticals.
Medication Therapy Management (MTM) – A pharmacist-provided service that includes: (1) complete review of all medications, including herbals and over-the-counter products; (2) personal medication record (e.g., drugs, instructions, prescribers, allergies, problems); (3) medication action plan for the patient; (4) intervention and/or referral to other health care providers; and (5) documentation. Previously known as “pharmaceutical care.”
Member – A covered individual within a health plan.
Morphine Milligram Equivalents (MME) – Morphine milligram equivalents (MME) or morphine equivalent doses (MED) are values that represent the potency of an opioid dose relative to morphine. MME is intended to help clinicians make safe, appropriate decisions concerning changes to opioid regimens. Using a standard conversion factor developed by the CDC, the MME equates the many different opioids into a standard value that is based on morphine and its potency.
Multi-source Brand – A drug product manufactured by more than one company or source. Multi-source is commonly used to describe a brand drug where generic equivalents are available.
Multi-Tier Copay– A cost-sharing structure with three or more categories or tiers of copay. The lowest copays are for generics, with increased amounts for the remaining categories. Commonly used structures include:
Generic, Preferred Brand, Non-Preferred Brand
Generic, Preferred Brand, Non-Preferred Brand, Lifestyle
Generic, Preferred Brand, Non-Preferred Brand, Specialty
Narrow Network – Benefit design that encourages or mandates use of particular retail pharmacies, such as restricting prescription fills to one or two retail pharmacy chains or charging lower copays at certain pharmacies. Used by plan sponsors and/or PBMs to obtain better pricing terms in exchange for higher prescription volume. The most common types of narrow networks are preferred pharmacy networks and limited networks.
National Average Drug Acquisition Cost (NADAC) – The average invoice cost a pharmacy spends to purchase a medication is represented by the National Average Drug Acquisition Cost (NADAC) survey. The purpose of NADAC was to "create a national reference file to help State Medicaid programs in the pricing of Covered Outpatient Drug claims to reflect the Actual Acquisition Cost (AAC) of medications," according to the Centers for Medicare and Medicaid Services (CMS). The most thorough public measurement of market-based retail pharmacy acquisition costs is what NADAC seeks to achieve. For the benefit of CMS, Myers & Stauffer, an accounting firm that focuses on public healthcare and social service organizations, compiles NADAC. It is created from data collected from 2,500 randomly chosen retail pharmacies in a voluntary monthly invoice cost survey (with 450 to 600 respondents).
NADAC Effective Rate (NER) – The average percent discount off the AWP for drugs processed by NADAC + $12 to be applied to your organization.
National Drug Code (NDC) – Numeric system to identify drug products in the United States. A drug’s NDC number is often expressed using eleven digits in a 5-4-2 format (xxxxx-yyyy-zz) where the first five digits identify the manufacturer, the second four digits identify the product and strength, and the last two digits identify the package size and type.
Net Cost of Script – Gross cost minus the member cost-sharing amount. This is not necessarily the plan sponsor's net cost, as rebates are excluded from this calculation.
Nonformulary Drugs – Drugs not included on plan’s drug list or formulary.
Nonpreferred Brands – Brand name drugs not included on plan’s preferred drug list.
Orange Book – Authoritative source on therapeutic equivalence ratings of drug products approved by the U.S. Food and Drug Administration (FDA). The official name is the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations. The common name, Orange Book, is a result of the original color of the book’s cover.
Out-of-Pocket (OOP) – Patient paid portion of prescription costs, typically in the form of copays or coinsurance.
Over-the-Counter (OTC) Drug – U.S. Food and Drug Administration (FDA)-approved drugs that do not require a prescription to be purchased.
Pass-thru Pricing – An arrangement in which a plan sponsor pays the exact amount paid to the pharmacy (i.e., no mark-up).
PEPM – Per employee per month.
PMPM – Per member per month. In an employer plan, this includes employees and their covered dependents.
Pharmacy Benefit Manager/Management (PBM) – A company providing administrative and clinical services through a complex system that includes retail pharmacies, manufacturers, clients, physicians, and members. PBMs administer drug benefits and drug cost control programs for their clients, securing substantial discounts from retail pharmacies and drug manufacturers. PBMs establish and maintain large pharmacy networks with chain and independent pharmacies. Also, PBMs contract with manufacturers of branded products to receive rebates and administrative fees.
Pharmacy Network – Specifies which pharmacies are approved for members, and includes retail, mail, and in some cases specialty pharmacies.
Pharmacy and Therapeutics (P&T) Committee – Group of physicians, pharmacists, and other health care providers from different specialties who advise a pharmacy benefit manager, hospital, or managed care organization on the safe and effective use of medications. The P&T Committee manages the formulary, establishes drug use guidelines and policies, and often acts as the organizational line of communication between the medical and pharmacy components of a health plan.
Pill Splitting – Cutting prescription medications in half to double the number of days' supply from one prescription, thereby decreasing the cost of the drug therapy.
Preferred Brands – Brand-name drugs included on plan’s preferred drug list.
Preferred Drug List – List of drugs that have been designated as preferred by a plan, usually based on formulary review of efficacy, safety, and cost considerations. These drugs are often made available to plan members at a lower cost-sharing amount than are drugs considered nonpreferred.
Preferred Pharmacy Network – In a preferred pharmacy network arrangement, consumers pay a lower out-of-pocket cost-sharing amount in certain stores and/or chains.
Prescriber – The licensed clinician (a physician, nurse practitioner, or physician assistant) who writes a prescription for a patient. The type of clinician who is legally allowed to prescribe varies by state, as prescribing is governed by state law.
Prescriber Profiling – Assessment of prescribing patterns to identify areas to manage utilization and cost of prescription drugs. Drug claim data is cut by prescriber (physician, physician assistant or nurse practitioner) to identify outliers in prescribing patterns.
Prior Authorization – A prior approval process that allows prescription drugs to be dispensed to members only when specific conditions have been met.
Price Protection – A ceiling or cap put on the amount a manufacturer can increase the cost of a medication during the life of the rebate contract with the PBM. Depending on client contract terms, additional savings may or may not be shared with the plan sponsor.
Proportion of Days Covered (PDC) – Used to estimate medication adherence by looking at the proportion of days in which a person has access to the medication, over a given period of interest. The PDC goal for a group is > 80%.
Quantity Limits – A limit on the number of pills or dosages of a prescription drug that will be covered, either per claim or per unit of time (e.g., monthly).
Rebates – Paid by manufacturers to PBMs for the sale of branded drugs to PBM members.
Rebate Amount Per Script – Dollar amount of rebate for each prescription adjudicated. The amount may vary for retail and mail scripts.
Red Book – A commonly used database of pharmaceutical pricing information and clinical content used in the drug benefit industry. Red Book is published by Merative (formerly IBM Watson Health). This company also publishes Micromedex, a commonly used clinical reference database for pharmacists.
Reference-Based Pricing – Setting of the reimbursement for a health care service at a maximum level or capped amount; the patient can choose a higher-priced service but must pay the difference between the actual cost and the reference price.
Refill-Too-Soon Supply Limit – A system edit that rejects a drug claim if a refill is requested before a predefined number of days have passed since the last fill date of that prescription.
Retail 90 Benefit – A benefit design feature that permits the filling of prescriptions for up to a 90-day supply in a retail pharmacy.
Retail Cost Share – Cost share amount for 30 days of a prescription therapy dispensed at a retail pharmacy. The amount may be a flat-dollar amount or a percentage of the total cost of the prescription.
Retiree Drug Subsidy – Amount of money the U.S. Centers for Medicare & Medicaid Services pays employers to subsidize employers’ funding of drug benefits for Medicare-eligible employees and retirees.
Retrospective DUR – Drug utilization review conducted after a prescription is adjudicated.
Self-insured Plan – Plan that assumes financial risk for benefit claims.
Shared Savings Contract – A contract between a PBM and a client that provides incentives for both sides to collaborate and run the pharmacy benefit effectively and to share in the overall cost savings.
Single-source Brand – A drug product manufactured by one company or source.
Specialty Drugs – Drugs that treat chronic, complex, or life-threatening conditions, usually manufactured through biologic processes and/or targeting a specific gene. Typically, these medications are costly and require intensive clinical monitoring, complex patient actions, and/or special handling by the dispensing pharmacy. Although most commonly injected or infused, they may also be taken orally or inhaled. This important group of drugs and biologicals is not precisely defined, but it includes products based on one or more of the following: (1) how they are made, (2) how they are approved by the FDA, (3) conditions they treat, (4) how they are used or administered, (5) their cost, and (6) other special features.
Specialty Pharmacy Benefit – Coverage of specialty drugs, often using different utilization management techniques (e.g., PA, step therapy) and cost-sharing amounts than are used for traditional medications.
Spread Pricing – A type of contracting for PBM services in which the amount paid by the plan sponsor to the PBM for the prescription is greater than the amount paid by the PBM to the pharmacy.
Step Therapy –Treatment guidelines used to recommend drug therapy beginning with a drug that is less expensive and/or with which there is more post-marketing safety experience. More expensive therapies are used only when the patient fails to respond to the first-line drug or after a PA.
Therapeutic Substitution Programs – Typically operated in mail pharmacies to encourage physicians and patients to switch from the drug prescribed to lower cost, comparable drugs. Substitution requires physician and typically member permission.
Tier – Category used to establish the member’s cost-sharing levels for medications, with generic drugs typically in Tier 1 (lowest cost-sharing) and brand drugs in higher tiers.
Wholesale Acquisition Cost (WAC) – Defined by statute as the pharmaceutical manufacturer’s list price to wholesalers or direct purchasers in the United States.
Wrap Around Coverage – Drug benefit coverage provided by employers to Medicare-eligible employees and retirees to supplement Medicare Part D coverage.