Snapshots of Recent State Initiatives in Medicaid Prescription Drug Cost Control

Glossary of Drug Pricing Terms

Estimated Acquisition Cost (EAC) – Medicaid used to use EAC as the basis for state Medicaid ingredient cost reimbursement to pharmacies. States often used AWP minus a percent or WAC plus a percent to calculate an EAC. In an effort for ingredient cost reimbursements to more accurately reflect actual costs pharmacies pay, the Covered Outpatient Drugs Final Rule from CMS in January 2016 replaced the term EAC with AAC.

Actual Acquisition Cost (AAC) – The state Medicaid agency’s determination of the actual price pharmacies paid for an outpatient prescription drug. In January 2016, CMS replaced the term EAC with AAC. States may use NADACs to calculate an AAC.

National Average Drug Acquisition Cost (NADAC) – NADACs are created from a nationwide, but optional, statistical survey of the prices pharmacies pay, including some rebates, for prescription drugs. They come from invoice data. CMS has contracted with an outside organization to provide NADACs on a weekly basis. CMS intends for them to be used to calculate AACs.

Average Wholesale Price (AWP) – Manufacturer created list price with misleading name, as it is neither the price to the wholesalers, nor the average. Was the basis for pricing negotiations, and until somewhat recently, the widely used price for the EAC. After a series of litigations about inflated AWPs, many payers have moved away from it. It does not have a definition in statute.

Wholesale Acquisition Cost (WAC) – Medicare statute defines WAC as the “manufacturer’s list price […] to wholesalers or direct purchasers in the United States, not including prompt pay or other discounts, rebates or reductions in price […]” 42 U.S.C. 1395w–3a (c)(6)(B).

Average Manufacturer Price (AMP) – Medicaid statute defines AMP as the price either “wholesalers for drugs distributed to retail community pharmacies” or “retail community pharmacies that purchase drugs directly from the manufacturer” pay manufacturers. AMP includes “discounts, rebates, payments, or other financial transactions” but not including customary prompt pay, and certain other exclusions. 42 U.S.C. 1396r-8 (k)(1).

Best Price – Medicaid statute defines Best Price as “the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or government entity within the United States.” There are many important exclusions, including the Department of Veterans Affairs, the 340B program, the Department of Defense, the Public Health Service, the Indian Health Service. The Best Price includes rebates in general, but not Medicaid supplemental rebates or rebates provided through the Medicaid Drug Rebate Program. 42 U.S.C. 1396r-8 (c)(1)(C).

Issue Brief

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