Epic RX

Community Pharmacy Definitions

The independent pharmacy industry is full of terminology that is important to understand. Here are some common pharmacy terms and definitions that will be helpful to know.

Medicare Part D: The part of Medicare that covers most outpatient prescription drugs, Medicare Part D was implemented on January 1, 2006, under the “Medicare Prescription Drug, Improvement, and Modernization Act of 2003.”

Medicare Prescription Drug Plans (PDP) do not offer hospital or medical coverage. This drug coverage is offered by stand-alone companies. These plan sponsors have a four-digit identifier beginning with the letter “S.” The four-digit identifier indicates which Medicare plan the insurance is under.

Medicare Advantage Prescription Drug (MAPD) offers hospital, medical, and prescription drug coverage under a single policy. There are four MA-PDs: Health Maintenance Organization (HMO), Preferred Provider Organizations (PPO), Private Fee for Service Plan (PFFS), and Special Needs Plan (SNP). MAPD plan sponsors have a four-digit identifier beginning with the letter “H.”

Employer/Union Sponsored Part D Retiree Plans may be offered by employers to eligible employees/retirees. These plans’ sponsors have a four-digit identifier beginning with the letter “E.”

Standard (Non-Preferred) In-Network Pharmacy prescriptions may have a higher cost-sharing amount for the patient. Preferred In-Network Pharmacy prescriptions may have a lower cost-sharing amount for the patient. Pharmacies agree to give plans a large discount.

Third-Party Payments: Organizations that reimburse a pharmacy or patient for a portion of the patient prescription drug costs are referred to as third parties.

National Council for Prescription Drug Programs (NCPDP) is a unique seven-digit national identification number that assists pharmacies in interacting with federal agencies and third-party providers. NCPDP sets the adjudication standards for all pharmacies.

Processor Bank Identification Number: A six-digit primary identifier that indicates the insurance provider. This number is issued and maintained by NCPDP.

Processor Control Number: A second identifier used for routing claims.

Group Number: assigned by a health insurance company to identify a member’s group health plan.

Reimbursed Below Cost: PBMs use multiple options for claim reimbursement.

Maximum Allowable Cost (MAC): this list includes the upper limit or maximum amount a plan will pay for generic drugs and brand name drugs with generic versions available.

Contracted Rates: this list is based on Average Wholesale Price (AWP) or Wholesale Acquisition Cost (WAC). The National Average Drug Acquisition Cost (NADAC) reflects monthly purchasing trends across participating retail pharmacies in the United States.

AWP refers to the average value at which wholesalers sell drugs to physicians, pharmacies, and other customers. AWP is accepted as the standard measure for calculating the cost of a particular medication.

WAC is the estimated list price paid by a wholesaler, distributor, and other direct purchasers. Generally, it is the price put out by the manufacturer of the drug before any rebates, discounts, allowances, or other price concessions are offered by the supplier of the product.

NADAC (National Average Drug Acquisition Cost) is based on the retail price survey and focuses on the retail community pharmacy acquisition costs. Not all drugs have a NADAC price. The Centers for Medicare and Medicaid Services (CMS) define a process to survey chain and independent pharmacies to obtain invoice copies.

Usual and Customary (U&C): average cash price paid at a retail pharmacy. Part of every claim is submitted for reimbursement. The reimbursement is based on AWP plus a set fee/percentage.              

Effective Rates: Based on AWP, these rates are set at the network level for brands, generics, and dispense fees. There are three plan/claim types: commercial, Medicaid MCO (Managed Care Organizations), and Medicare D.

Knowing these pharmacy industry terms can help make running your independent pharmacy operations run more smoothly. For more information and to learn more about a better way of doing business, contact EPIC Rx.