Question 1

What is the 340B Drug Pricing Program?

Accepted Answer

The 340B Drug Pricing Program is a federal program managed by HRSA (Health Resources and Services Administration) that requires drug manufacturers participating in Medicaid to provide outpatient drugs at significantly reduced prices to eligible safety-net providers. Eligible providers include disproportionate-share hospitals, federally qualified health centers, Ryan White HIV/AIDS Program grantees, and certain other safety-net entities.

340B-priced drugs are typically 25-50% below NADAC and can

Question 2

How does 340B affect my commercial plan spend?

Accepted Answer

Commercial plans can overpay when their members fill prescriptions at contract pharmacies that dispense 340B-priced product. The mechanism: a covered entity (typically a safety-net hospital) purchases the drug at the 340B price, dispenses it through a contract pharmacy, and bills the commercial plan at the standard PBM contract rate. The difference between the 340B acquisition cost and the commercial reimbursement is retained by the covered entity (and sometimes shared with the contract pharmacy

Question 3

What is a 340B contract pharmacy?

Accepted Answer

A 340B contract pharmacy is a retail pharmacy that fills prescriptions on behalf of a 340B-covered entity (safety-net hospital, FQHC, etc.) under a contractual arrangement. The contract pharmacy receives the drug at 340B prices and dispenses it to the covered entity's eligible patients.

The model was created by HRSA guidance in 1996 and dramatically expanded in 2010 when HRSA allowed covered entities to contract with an unlimited number of pharmacies. Today, large 340B hospitals may have hundre

Question 4

What did the FTC's 2024 PBM report say about plan sponsors?

Accepted Answer

The FTC released its 'Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies' interim staff report in July 2024. Key findings relevant to plan sponsors:

**1. Vertical integration concentrates power.** The three largest PBMs (CVS Caremark, Express Scripts, OptumRx) collectively process roughly 80% of US prescription claims and are each owned by or affiliated with major insurers and pharmacy chains. This concentration limits plan-side leverage

Question 5

What is a Part D formulary tier?

Accepted Answer

A Part D formulary tier is the cost level a Medicare Part D plan assigns to a drug, which determines the member's copay or coinsurance. Tier 1 is the lowest member cost (typically preferred generics) and Tier 5 is the highest (typically specialty drugs).

Standard tier structure:
- Tier 1: Preferred generics — lowest copay
- Tier 2: Generics
- Tier 3: Preferred brand drugs
- Tier 4: Non-preferred drugs (brand or generic)
- Tier 5: Specialty drugs — coinsurance only, often 25-33%

Plans choose wh

Question 6

What is prior authorization (PA)?

Accepted Answer

Prior authorization (PA) is a plan requirement that a prescriber justify the medical necessity of a drug before the plan will cover it. The prescriber typically submits a clinical rationale, supporting documentation, and sometimes a step-therapy history.

PA adds friction to prescribing and is one of the strongest signals of formulary placement intent: a drug with high PA counts across plans is one the plan is actively discouraging. A drug with zero or near-zero PA counts is freely available.

F

Question 7

What is step therapy?

Accepted Answer

Step therapy is a plan utilization-management rule that requires patients to try one or more lower-cost drugs before the plan covers a higher-cost alternative. The patient must 'step up' through the formulary in sequence.

A typical step protocol: Tier 1 (generic) → Tier 2 (preferred brand) → Tier 3 (non-preferred brand) → Tier 4 (specialty). If a Tier 1 drug doesn't work or causes side effects, the prescriber documents this and the plan moves the patient to Tier 2, and so on.

For plan sponsors

Question 8

Can my plan move a drug to a different tier mid-year?

Accepted Answer

Usually no. Most Part D plans are contractually restricted to tier moves only at plan-year resets (typically January 1). Mid-year tier changes require either contract amendment or specific carve-out language in the plan-PBM agreement.

There are limited exceptions: (1) a drug's generic becomes available mid-year and the plan can move from brand tier to generic tier; (2) FDA safety issues require restricting coverage; (3) the contract explicitly grants the plan tier-move authority mid-year.

This

Question 9

What does plan-NDC pair mean?

Accepted Answer

A plan-NDC pair is one drug-strength-package code (NDC) listed on one Medicare Part D plan's formulary. The CMS Part D Formulary file is organized this way — each row represents one combination.

This is why counts in our data sometimes exceed the total plan count of 329. A single drug like rivaroxaban appears on many NDCs (different strengths, different package sizes), and each plan covers many of those NDCs. So the count 'Tier 3: 1,701 placements' for rivaroxaban means there are 1,701 plan-NDC

Question 10

What is an ANDA?

Accepted Answer

An ANDA (Abbreviated New Drug Application) is the FDA application a generic drug manufacturer files to bring a generic version of an approved brand drug to market. ANDAs are "abbreviated" because they rely on the safety and efficacy data from the brand drug's original approval — the generic manufacturer only needs to demonstrate bioequivalence, manufacturing quality, and labeling consistency.

ANDA count is the single best predictor of generic market depth:
- 1-3 ANDAs: limited competition, pric

Question 11

What is the FDA Orange Book?

Accepted Answer

The FDA Orange Book — formally the Approved Drug Products with Therapeutic Equivalence Evaluations — is the FDA's official reference for approved drug products, listing every NDA (brand) and ANDA (generic) approval along with therapeutic equivalence ratings, patent information, and exclusivity expirations.

For plan sponsors, the Orange Book is the source of truth for:
- Generic manufacturer count per molecule (predicting pricing power)
- ANDA filing dates and approval velocity (predicting when

Question 12

What does it mean if a drug has 17 generic manufacturers?

Accepted Answer

Generic manufacturer count is the single best leading indicator of plan-side pricing leverage on a molecule. The more manufacturers shipping, the deeper the competition for wholesale orders, and the lower the NADAC acquisition cost floor.

Empirical pattern observed in CMS NADAC data:
- 1-3 manufacturers: limited price competition, NADAC remains near brand
- 5-10 manufacturers: competitive pricing emerges, NADAC drops 60-80% from brand
- 15+ manufacturers: deep competition, NADAC stabilizes at 5

Question 13

What is loss of exclusivity (LoE)?

Accepted Answer

Loss of exclusivity (LoE) is when a brand drug's patents and FDA exclusivity periods expire, opening the market to generic manufacturers via ANDA approvals. LoE is the single most important event in a drug's commercial lifecycle from a plan-sponsor cost perspective.

A drug has two main exclusivity protections: patents (typically 20 years from filing, but extended by various term-extension mechanisms) and FDA exclusivity (typically 5 years for new chemical entities, 7 for orphan drugs, 12 for bi

Question 14

Why does NADAC fall after generic entry?

Accepted Answer

NADAC falls after generic entry because retail pharmacies can purchase from multiple competing manufacturers and bid the wholesale price down. CMS NADAC reflects the weighted-average invoice cost surveyed across participating reporting pharmacies — so as competitive pricing emerges in the wholesale market, the published NADAC declines.

The FDA's published analysis of generic competition documents that average drug prices fall as additional manufacturers enter. According to FDA data on generic d

Question 15

What is a biosimilar and how is it different from a generic?

Accepted Answer

A biosimilar is a biologic drug that is highly similar to an already-approved biologic (the reference product), with no clinically meaningful differences in safety, purity, or potency. Biosimilars are approved through a separate FDA pathway (351(k) of the Public Health Service Act) rather than the ANDA pathway used for small-molecule generics.

The key difference: small-molecule generics are chemically identical to the brand and substitutable at the pharmacy. Biosimilars are structurally similar

Question 16

What rebate guarantees do PBMs typically offer?

Accepted Answer

PBM rebate guarantees are commitments that the plan will receive a minimum dollar amount of manufacturer rebates per script, per member, or as a percentage of brand spend. The structure varies but the math always favors brand utilization.

Common formats:

**Per-script guarantee.** PBM commits to passing through a fixed dollar amount of rebates per brand prescription filled. Example: $200/script on Tier 3 brands. The PBM keeps any rebate above the guarantee (or pays the difference if below).

**

Question 17

What should a PBM RFP ask for to capture leak opportunities?

Accepted Answer

A PBM RFP designed to capture the leak opportunities the federal data exposes should include several specific contract provisions that legacy contracts typically lack:

**1. NADAC pass-through pricing on the top 10-25 leak molecules.** Bring the molecule list from your leak report to the RFP. Ask every PBM to commit to NADAC + dispensing fee on these specific NDCs. Refusal or hedge is itself a signal.

**2. Right to mid-year tier moves on generic-rich molecules.** For any drug with 10+ FDA-appro

Question 18

What is PBM vertical integration and why does it matter?

Accepted Answer

PBM vertical integration is the structural arrangement where the three largest US PBMs are each owned by or commonly owned with major health insurers and pharmacy chains. The arrangement gives the integrated entity simultaneous control over claim adjudication, formulary design, retail dispensing, specialty pharmacy, and (in some cases) plan administration and provider networks.

The three dominant integrations:

**CVS Health.** Owns CVS Caremark (PBM), CVS Pharmacy (retail), CVS Specialty (speci

Question 19

What is NADAC?

Accepted Answer

NADAC (National Average Drug Acquisition Cost) is a federal pricing benchmark published weekly by the Centers for Medicare and Medicaid Services (CMS), reflecting the average price retail pharmacies pay wholesalers to acquire prescription drugs. NADAC is collected through a voluntary monthly survey of retail community pharmacies conducted by Myers and Stauffer LC, a CMS contractor. Participating pharmacies submit invoice data showing actual prices paid to wholesalers for each NDC (National Drug

Question 20

Is NADAC the same as my PBM cost?

Accepted Answer

No. NADAC is the average price retail pharmacies pay wholesalers — published weekly by CMS. It is not what your PBM bills your plan.

Your PBM cost is set by your contract, typically AWP-X% (Average Wholesale Price minus a percentage discount) with a MAC (Maximum Allowable Cost) list overlay on generics, plus dispensing fees. The gap between NADAC and what your PBM bills you is called spread. On legacy contracts with MAC pricing on generics, that spread commonly runs 100 to 400 percent on high-v

Question 21

What is spread pricing?

Accepted Answer

Spread pricing is a PBM contracting model in which the PBM bills the plan more for a drug than it pays the pharmacy, retaining the difference (the "spread") as revenue. On generic drugs in particular, the spread commonly runs 100 to 400 percent above NADAC on legacy contracts.

Spread is not a bug in PBM pricing — it is a feature of the dominant contracting model. Plans that want NADAC-based pricing have to specifically negotiate it. The alternative model is pass-through pricing, in which the pl

Question 22

What is a NADAC pass-through PBM contract?

Accepted Answer

A NADAC pass-through contract is a PBM pricing structure in which the plan pays NADAC (the federal acquisition cost benchmark) plus a flat dispensing fee per claim, with the PBM compensation explicitly disclosed as a separate administrative fee. There is no spread, no MAC list discretion, and no hidden margin on generic drugs.

Pass-through contracts are increasingly demanded by large self-funded employers, state Medicaid programs, and union health-and-welfare funds. They eliminate the largest s

Question 23

What's the difference between AWP, MAC, and NADAC?

Accepted Answer

AWP, MAC, and NADAC are three different reference prices used in PBM contracts, each computed differently.

**AWP (Average Wholesale Price)** is a list price published by First Databank or other third-party drug-pricing compendia. It is NOT the actual price anyone pays. AWP is typically 20-25% above the manufacturer's wholesale acquisition cost. Most legacy PBM contracts price as AWP minus a percentage discount (e.g. AWP - 18% for brand, AWP - 84% for generic).

**MAC (Maximum Allowable Cost)**

Question 24

What is a dispensing fee in a PBM contract?

Accepted Answer

A dispensing fee is a fixed per-claim payment to the pharmacy on top of the drug's acquisition cost. It compensates the pharmacy for the labor of dispensing the prescription — verification, counseling, packaging, recordkeeping.

In a NADAC pass-through contract, the plan pays NADAC plus the dispensing fee per claim. Dispensing fees typically range from $1 to $11 depending on the contract, with $3-$5 being common for retail and $1-$2 for mail-order.

In spread-pricing contracts, the dispensing fe

Question 25

What is a 340B ceiling price?

Accepted Answer

The 340B ceiling price is the maximum price a manufacturer is allowed to charge a 340B-covered entity (safety-net hospital, FQHC, Ryan White grantee, etc.) for a covered outpatient drug. It is calculated as Average Manufacturer Price (AMP) minus a unit rebate amount based on Medicaid Drug Rebate Program data.

For brand drugs, the ceiling price is typically 25-30% below AMP. For generic drugs, the ceiling is usually 13% below AMP. For drugs that have experienced price hikes greater than the rate

Question 26

What is the FDA Drug Shortage Database?

Accepted Answer

The FDA Drug Shortage Database is the official federal list of drugs currently in shortage, maintained by the FDA Drug Shortage Staff under the authority of 21 USC 356c. Manufacturers are legally required to report supply disruptions; the FDA publishes the consolidated list with reason codes, expected recovery dates, and per-manufacturer status.

The database is updated daily. RxFinder pulls the FDA shortage feed at 06:00 UTC each day and joins it to the 3,186-drug Part D-relevant universe, filt

Question 27

What is the difference between active and discontinued?

Accepted Answer

Active shortage means the drug is currently in supply constraint but the manufacturer expects to resume production. The shortage database publishes an estimated recovery date for active shortages, and plans typically maintain coverage with alternative-product carveouts during the active window.

Discontinued means the manufacturer has permanently stopped producing the drug. There is no recovery date — production will not resume. For plans, discontinued status is functionally a permanent member-d

Question 28

Why is a drug with 25 generic manufacturers in shortage?

Accepted Answer

Manufacturer count is a necessary but not sufficient condition for stable supply. A drug can have many registered manufacturers but still go on shortage when upstream supply chain or regulatory factors constrain the actual product flow.

Common mechanisms:

**1. API (active pharmaceutical ingredient) sourcing is concentrated.** Many generic manufacturers may source their API from the same 2-3 chemical plants, often in India or China. If those upstream suppliers have a quality issue or shutdown,

Question 29

How should plans respond to a drug going on shortage?

Accepted Answer

Plan response depends on the drug's volume, indication, and substitute availability. Three common response patterns:

**1. High-priority (multi-million-claim drugs).** Immediate action: tier alternative-product NDCs, suspend quantity limits on the affected molecule, monitor fill data weekly, communicate with prescribers about supply availability. Albuterol is the current canonical example — affecting 32M Part D claims annually.

**2. PA carveout (therapeutic alternatives exist).** Authorize cove

Find the money your pharmacy plan is leaking.

This week's biggest spend leaks.

Rivaroxaban (XARELTO)Factor Xa Inhibitor · 17 generic manufacturers · 58 ANDAs filed

How a leak report actually works.

Eight federal sources. Every number cited.