serious Illness medication ServiceS
Understanding Medication Pricing in Hospice: A Must-Read Guide
Navigating the world of medication procurement can be challenging for hospice providers. With various pricing benchmarks, hidden practices, and complex contracts involving Pharmacy Benefit Managers (PBMs), understanding how drug prices are set—and ensuring you're paying fair and transparent rates—is crucial. In this comprehensive guide, we explore key medication pricing benchmarks, uncover the hidden dynamics at play, and provide actionable questions for hospice leaders to better manage their medication costs. Empower yourself with the knowledge needed to advocate for transparency, control expenses, and improve patient care in an increasingly complex landscape.
11/16/20253 min read
In the complex world of medication procurement, especially within the hospice industry, understanding how drug prices are set and benchmarked is essential for controlling costs and ensuring transparency. Various pricing benchmarks and hidden practices can significantly impact the quality and efficiency of drug spending. Here’s a guide to help hospice providers navigate this landscape effectively.
Key Medication Pricing Benchmarks
NADAC (National Average Drug Acquisition Cost):
Represents the average drug acquisition cost reported by pharmacies. It provides a close approximation to what pharmacies pay for medications, making it one of the most relevant benchmarks for obtaining medications near their actual acquisition cost.MAC (Maximum Allowable Cost):
Used mainly for generic drugs, MAC is the maximum price a payer (or PBM) will reimburse for a drug. It’s often used in managed care and formulary management but may not reflect the true market cost.WAC (Wholesale Acquisition Cost):
The list price set by manufacturers for wholesalers. WAC is often used as a starting point but does not include discounts, rebates, or other adjustments.AWP (Average Wholesale Price):
Traditionally used as a benchmark but is increasingly viewed as outdated and inflated. AWP often does not reflect actual transaction prices but remains common in some contracts.U&C (Usual & Customary):
The price a community pharmacy charges for a medication. While useful locally, it’s variable and may not always represent the best benchmark for procurement.PAC (Predictive Analytical Cost):
An emerging concept that uses predictive analytics to estimate drug costs based on market trends, historical data, and other variables. This can help forecast and manage medication expenses proactively.
The Challenge of Hidden Pricing and PBMs
Many hospice agencies are unknowingly caught in the web of hidden pricing practices orchestrated by Pharmacy Benefit Managers (PBMs). PBMs often negotiate contracts at a certain benchmark rate—frequently AWP or MAC—but the actual reimbursement to pharmacies, and what the hospice pays, can vary significantly.
Key issues include:
Spread Pricing: PBMs may charge the insurer (or hospice) one rate while reimbursing pharmacies a lower rate, profiting from the difference without disclosure.
Two-tiered Pricing: Some PBMs pay pharmacies at one rate and bill hospice providers at a higher rate, creating a lack of transparency.
What Questions Should Hospice Leaders Ask Their PBMs?
To ensure transparency and control over medication costs, hospice executives should be proactive. Key questions include:
What benchmarks are used in your network contracts?
Can you provide claims data showing what is paid to community pharmacies versus what is charged to us?
How do you determine reimbursement rates for medications, and do these align with NADAC or other benchmarks?
Are spread pricing, rebates, or other financial incentives involved?
Can we have insight into the transparency of your pricing models?
Enhancing Cost Control Through Data Sharing and Negotiation
Claims data sharing is critical. Hospice providers should regularly review their medication spend and compare it to benchmark rates like NADAC. This transparency enables organizations to negotiate more favorable terms and select pharmacies and suppliers that align with their cost-control objectives.
Hospice executives must understand medication pricing benchmarks and advocate for transparency in network contracts. Engage with PBMs during negotiations and request detailed reporting on drug pricing, rebates, and spread margins.
Final Thoughts
The hospice industry must take an active role in understanding and scrutinizing medication pricing benchmarks. Transparency from PBMs, coupled with data analysis and strategic negotiation, is essential to control costs, improve patient care, and maintain financial sustainability.
Empowering hospice leadership with knowledge and asking the right questions will help shift the conversation from opaque pricing to clear, fair, and predictable drug costs.
References
Centers for Medicare & Medicaid Services (CMS) – NADAC (National Average Drug Acquisition Cost) Data:
Medicare Payment Advisory Commission (MedPAC) – Report on Prescription Drug Pricing and PBM Practices:
Kaiser Family Foundation (KFF) – Overview of PBMs and Drug Pricing:
American Pharmacists Association (APhA) – Understanding Drug Pricing and PBM Practices:
