Why does NADAC fall after generic entry?

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 drug entry, prices generally decline more steeply once multiple generics are competing; the magnitude varies by molecule, dosage form, and demand. There is no single fixed percentage — but the directional pattern is consistent across decades of NADAC-equivalent pricing data.

For plan sponsors, the practical implication is straightforward: the gap between NADAC (pharmacy acquisition cost) and what the PBM bills the plan typically widens after generic entry. This gap is commonly called spread. Plans on legacy spread-pricing contracts often continue paying brand-era unit costs for periods after generics enter the market, because formulary tier changes are usually restricted to annual plan-year resets and certain PBM contract structures may reduce the PBM's incentive to steer utilization toward lower-cost generic NDCs. The leak report on this site quantifies the exposure for any drug list.