Drug Benefit Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

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.

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Actual Rebate Amount Per Script

Actual dollar amount of rebate for each prescription adjudicated. The amount may vary for retail and mail scripts.

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ACA

See “Affordable Care Act”

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ADD/ADHD

Attention Deficit Disorder/Attention Deficit Hyperactivity Disorder is one of the most common childhood disorders characterized by symptoms such as difficulty with focus and attention, difficulty controlling behavior, and hyperactivity.

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Adherence

The patient’s conformance with the health care provider’s recommendation with respect to timing, dosage, and frequency of medication taken during the prescribed length of time.

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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.

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Affordable Care Act

The landmark health reform legislation passed by the 11th Congress and signed into law by President Barack Obama in March 2010. This legislation, also know as the Patient Protection and Affordable Care Act (PPACA) includes a long list of health-related provisions that began taking place in 2010.

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Annual Out-of-Pocket (OOP) Limit

The cap on the total amount a plan member pays each year.

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Average Manufacturer Price (AMP)

Recently modified under the Affordable Care Act, the new definition is 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. Excluded from the calculation of AMP are payments and rebates or discounts provided to certain providers and payers.

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Average Sales Price (ASP)

Drug price benchmark used for Medicare Part B drugs, primarily injectable drugs administered by physician offices and infusion clinics, as part of the Medicare Modernization Act of 2003.

ASP* = Manufacturer’s Unit Sales of a Drug to all U.S. Purchasers in Calendar Quarter ÷ Total Number of Units of the Drug Sold by Manufacturer in Same Quarter
*Net of any price concessions such as volume, prompt pay, and/or cash discounts.

Section 303(c) of the legislation established the ASP drug payment system. Beginning January 1, 2005, drugs and biologicals were paid based on the ASP methodology. Payment to providers will be 106 percent of the ASP. The ASP methodology uses quarterly drug pricing data submitted to CMS by drug manufacturers.

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Average Wholesale Price (AWP)

A list-price benchmark for many pharmaceutical transactions that was created in the 1960s although there is no formal national legislative definition of AWP. Despite its name, the AWP does not represent actual marketplace transactions and does not accurately measure average prices from wholesalers to pharmacies. AWP is typically computed by multiplying WAC by 1.2.

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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.

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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 of 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.

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Beneficiary

See “Member”

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Benefit Design (Drug)

Group of features that determine coverage terms, such as cost-sharing amounts and utilization management requirements (e.g., prior authorization, step therapy).

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Biotech Drugs

Drugs manufactured through biologic processes to treat chronic, complex, or life-threatening conditions. Also called specialty drugs.

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Brand Drug

A prescription pharmaceutical product for which the Food and Drug Administration (FDA) has granted exclusive marketing rights to the manufacturers of the product.

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Capitation

A per member, monthly payment to a provider that covers contracted services to a defined population and paid in advance of service delivery. Example: Providers agree to provide specified services to HMO members for a fixed, predetermined payment for a specified length of time, usually a year. Many physicians are paid by health plans in this fashion.

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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.

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Channel

Type of healthcare 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).

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Claim Cost

See “Gross Cost of Script”

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Coinsurance

A type of cost-sharing design in which the member pays a percentage share of the cost of a prescription; sometimes combined with “min/max” provisions for minimum or maximum out-of-pocket amounts; for example, a 20% coinsurance with a minimum of $20 and maximum of $100 per prescription.

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Compliance

Patient adherence to a prescribed medical treatment plan or drug regimen.

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Copay

A form of cost sharing where a portion of the prescription drug cost is paid by the beneficiary. Copays often vary based on product classification such as brand vs. generic or preferred vs. nonpreferred. The copay is kept by the pharmacy as part of the negotiated rate with the pharmacy benefit manager (PBM). The copay is deducted from the total negotiated amount paid to the pharmacy by the PBM.

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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.

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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.

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Deductible

Amount that a plan member pays out-of-pocket before coverage begins.

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Detailing

The process pharmaceutical manufacturer sales representatives use to promote their brand-name drugs to prescribers (e.g., physicians, nurse practitioners, and physician assistants).

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Diabetic Supplies

Medical materials used in the treatment of diabetes, specifically glucose meter strips, syringes, and needles.

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Disease Management

A systematic approach to providing care to a population of patients with a specific disease. Patient and provider education, pharmaceutical care, continuous quality improvement, practice guidelines, patient monitoring, outcomes assessment, and case management may be included; however, program features vary widely.

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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.

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Dollar Limit on Coverage

Price cap for amount of money plan will pay for prescription benefit.

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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.

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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).

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Drug Utilization Review (DUR)

The process of evaluating prescribing patterns, and/or patient drug utilization against predetermined standards (e.g., treatment guidelines) to determine the appropriateness of drug therapy. Sometimes called drug use evaluation (DUE).

There are three types:
- prospective (before prescription dispensing),
- concurrent (at point of dispensing), and
- retrospective (after a prescription is filled).

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Experimental/Investigational Drugs

Prescription drugs being tested in clinical trials; may or may not be approved for sale by the U.S. Food and Drug Administration (FDA).

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First DataBank (FDB)

A commonly used database of pharmaceutical pricing information and clinical content used in the drug benefit industry. FDB is owned by Hearst Corporation.

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Formulary

List of drugs used to treat patients in a drug benefit plan. Products listed on a formulary are covered for reimbursement at varying levels. The most common types of formulary are:

  • Closed formulary: nonformulary products are not covered for reimbursement in the benefit
  • Incented formulary: formulary products are classified for reimbursement by product type including brand, generic, specialty, lifestyle, preferred, and nonpreferred. Incented formularies are increasingly popular because, when aligned with rational cost sharing levels, they help drive utilization to the lowest net cost drugs.
  • Open formulary: nonformulary products are covered at a defined level in the benefit

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Fully-insured Plan

Plan that delegates financial risk of benefit claims to a third party.

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Generic Drug

A product that is comparable to a brand-name drug in dosage form, strength, route of administration, quality, performance characteristics, and intended use. Generics are typically less expensive and sold under the chemical name for the drug, not the brand name.

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Generic Sampling

Providing samples of generic drugs to medical offices and clinics to encourage the prescribing of generic drugs when medically appropriate.

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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.

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Gross Cost of Script (Prescription)

Total cost of a prescription = AWP − AWP Discount + Dispensing Fee.

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Guaranteed Rebate Per Mail Script

Flat-dollar amount of rebate guaranteed by pharmacy benefit manager for each mail order prescription.

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Guaranteed Rebate Per Retail Script

Flat-dollar amount of rebate guaranteed by pharmacy benefit manager for each retail (community pharmacy) prescription.

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Ingredient Cost

The component of a prescription drug claim cost that represents the cost of the medication; usually negotiated at a discount based on a pricing benchmark.

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Injectables

Prescription drugs that are injected by patient or provider.

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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.”

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Lifestyle Drugs

Drugs that are not medically necessary but used to improve the quality of life.

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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.

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MAB

See “Maximum Allowable Benefit”

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MAC

See “Maximum Allowable Cost”

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MAC List

Scope (i.e., number of drugs covered) of MAC lists may vary considerably by PBM and sometimes among customers of the same PBM.

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Mail Cost Share

Cost share amount for a defined days-supply of a prescription therapy typically dispensed at a mail-order pharmacy. The amount may be a flat-dollar amount or a percentage of the total cost of the prescription.

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Mail Service

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.

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Maintenance Medications

Drugs used to treat chronic diseases or conditions, such as diabetes, hypertension, and high cholesterol.

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Managed Care

An organized system of healthcare delivery and monitoring intended to increase the cost-effectiveness of care while maintaining or increasing the quality of care; usually includes provider network management, measurement of health outcomes, and targeting of healthcare services to patients likely to benefit from them. Managed care organizations aim to achieve these objectives.

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Maximum Annual Benefit (MAB)

Total amount of expenses a plan will pay in a 12-month period.

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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 difference 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.

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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.”

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Medi-Span

A commonly used database of pharmaceutical pricing information and clinical content used in the drug benefit industry. Medi-Span is published by Wolters Kluwer. Wolters Kluwer also publishes Facts & Comparisons, a frequently used clinical reference for pharmacists.

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Member

A person who is covered by a prescription drug plan; alternatively described as an “enrollee” or “beneficiary.”

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MTM

See “Medication Therapy Management”

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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.

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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, NonPreferred Brand
  • Generic, Preferred Brand, NonPreferred Brand, Lifestyle
  • Generic, Preferred Brand, NonPreferred Brand, Specialty

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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.

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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.

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Net Cost of Script

Gross cost minus the member cost-sharing amount. This is not necessarily the plan sponsors net cost as rebates are excluded from this calculation.

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Nonformulary Drugs

Drugs not included on plan’s drug list or formulary.

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Nonpreferred Brands

Brand-name drugs not included on plan’s preferred drug list.

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Nonsedating Antihistamines

Prescription drugs used to treat allergic rhinitis without causing drowsiness.

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Online Adjudication

Electronic process of prescription drug claims at the point of service to verify coverage and detect potential problems that should be addressed before drugs are dispensed to patients.

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Oral Contraceptives

Oral prescription drugs used to avoid pregnancy.

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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.

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Out-of-Pocket (OOP)

Patient paid portion of prescription costs, typically in the form of copays or coinsurance.

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Over-the-Counter (OTC) Drug

U.S. Food and Drug Administration (FDA)-approved drugs that do not require a prescription to be purchased.

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PA

See “Prior Authorization”

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Pass-thru Pricing

An arrangement in which a plan sponsor pays the exact amount paid to the pharmacy (i.e., no mark-up).

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Per Member Per Month (PMPM)

Measure used to assess population-based metrics such as cost or utilization, computed by dividing the total cost/utilization/other measure by the total number in the population.

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Persistency

Obtaining prescribed refills of medication at regular, appropriate intervals.

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Pharmacy and Therapeutics (P&T) Committee

Group of physicians, pharmacists, and other healthcare 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.

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Pharmacy Benefit Administrator (PBA)

Organization that supports the administrative and information system needs of prescription benefit programs. A PBA usually maintains eligibility, and processes and adjudicates prescription claims similar to what administrative services only (ASO) organizations do in the major medical arena.

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Pharmacy Benefit Manager (PBM)

Organization dedicated to administering prescription benefit management services to employers, health plans, third-party administrators, union groups, and other plan sponsors. A full-service PBM maintains eligibility, adjudicates prescription claims, provides clinical services and customer support, contracts and manages pharmacy networks, and provides management reports. PBMI provides a PBM Directory.

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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.

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PMPM

See “Per Member Per Month”

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Preferred Brands

Brand-name drugs included on plan’s preferred drug list.

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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.

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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.

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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 because prescribing is governed by state law.

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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.

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Prescription Drug Plan (PDP)

U.S. Centers for Medicare & Medicaid Services-certified drug benefit program for the Medicare-eligible population.

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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

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Prior Authorization (PA)

A process under which a prescription claim is initially denied so that the health plan can evaluate the therapy before treatment starts. This process typically requires action from the physician, pharmacist, or patient to obtain coverage.

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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).

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Rebate Amount Per Script

Dollar amount of rebate for each prescription adjudicated. The amount may vary for retail and mail scripts.

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Red Book

A commonly used database of pharmaceutical pricing information and clinical content used in the drug benefit industry. Red Book is published by Truven Health Analytics. This company also publishes Micromedex, a commonly used clinical reference database for pharmacists.

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Reference-Based Pricing

Setting of the reimbursement for a healthcare 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.

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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.

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Retail 90 Benefit

A benefit design feature that permits the filling of prescriptions for up to a 90-day supply in a retail pharmacy.

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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.

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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.

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Retrospective DUR

Drug utilization review conducted after a prescription is adjudicated.

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Self-insured Plan

Plan that assumes financial risk for benefit claims.

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Single-source Brand

A drug product manufactured by one company or source.

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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.

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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.

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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.

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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 only used when the patient fails to respond to the first-line drug or after a PA.

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Therapeutic Substitution

A pharmacist-initiated change in a dispensed drug when a medically equivalent drug is available for the prescription presented. State prescribing laws address the required physician permission for substitutions.

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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.

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Usual and Customary Price (U&C)

Price charged to a cash-paying customer for a prescription product. Pharmacy benefit managers and health plans typically mandate that pharmacies accept reimbursement at the negotiated discount or the U&C price, whichever is lower. Payers should require that this be included in their PBM contracts to help manage costs.

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Utilization Management (UM)

Utilization management is the process of evaluating the necessity, appropriateness, and efficiency of healthcare services against established guidelines and criteria. Common utilization management programs include prior authorization, step therapy, and quantity limits.

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Wholesale Acquisition Cost (WAC)

Defined by statute as the pharmaceutical manufacturer’s list price to wholesalers or direct purchasers in the United States.

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Wrap Around Coverage

Drug benefit coverage provided by employers to Medicare-eligible employees and retirees to supplement Medicare Part D coverage.

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