This is a living document. If there is a term you wish was in here, let me know on the Hotline and I will add it.
The acronyms that determine how much you get paid and how much you paid for the drug in the first place. If you do not know these cold, you cannot read a PBM contract.
What you actually paid your wholesaler for the drug. This is the number you subtract from reimbursement to calculate real margin on a fill. Sometimes called "actual acquisition cost" or "invoice cost."
The real-time process of submitting a prescription claim to a PBM and getting back a response that tells you whether it is covered, what the patient owes, and what the PBM will pay you. Every prescription you fill goes through adjudication.
The average price wholesalers pay manufacturers for a drug, reported quarterly by manufacturers to CMS. Used primarily in Medicaid rebate calculations and FUL (Federal Upper Limit) pricing. Not the same as AWP.
The published benchmark list price for a drug. Reimbursement contracts are typically written as AWP minus some percentage. AWP is not what you actually pay and it is not what PBMs actually reimburse. It is a reference number that both sides anchor their math to.
When a PBM takes money back from you after a claim was already paid, usually through DIR fees or audit recoupment. The amount is almost always larger than you expected and arrives at the worst possible time.
The portion of a prescription cost the patient pays out of pocket. Varies by plan, drug tier, and deductible status. Copays are set by the PBM, not the pharmacy.
Retroactive fees PBMs take back from Medicare Part D pharmacies months after the claim was originally paid. Tied loosely to performance metrics nobody fully understands. The subject of ongoing reform battles and the reason a pharmacy can look profitable on paper and still be losing money.
The actual reimbursement you end up getting after all clawbacks, DIR fees, and adjustments are applied. Usually dramatically lower than the original adjudicated amount. This is the number that actually matters for your P&L.
A performance target PBMs set for the average reimbursement they will pay across all your generic fills over a period of time. If your mix performs better than the target, they claw back the difference. Functionally a backdoor way to reduce generic reimbursements without renegotiating contracts.
The ceiling a PBM will pay for a given generic drug, regardless of what you actually paid for it. MAC lists change weekly. A single drug can have completely different MACs across different PBMs on the same day. The single biggest source of unexpected losses for independent pharmacies.
A survey-based average of what retail pharmacies actually pay for drugs, published weekly by CMS. Used as a reference point in Medicaid reimbursement and sometimes referenced in state PBM reform legislation.
What the PBM pays you for a prescription. Not the same as what the patient pays. Not the same as what you made in profit. The starting number you subtract acquisition cost from to get gross profit per fill.
When a PBM charges the health plan one amount for a drug and pays the pharmacy a lower amount, pocketing the difference. A major source of PBM profit and the subject of reform efforts in multiple states.
The price you would charge a cash-paying customer for a drug. PBMs require you to submit this with every claim and will only reimburse you up to your U&C price. Setting U&C too low gives away margin. Setting it too high can trigger audit flags.
The manufacturer's published price to wholesalers, before discounts or rebates. Another benchmark pricing reference. Usually lower than AWP and higher than what most pharmacies actually pay.
How prescriptions get routed, approved, denied, and fought over.
A six-digit number that identifies which PBM processes the claim. Every insurance card has one. Combined with PCN and Group, it tells your pharmacy software where to send the prescription claim.
The list of drugs a plan covers, usually organized into tiers with different copays. Preferred drugs are on lower tiers. Non-preferred drugs are on higher tiers or not covered at all.
A number on the insurance card that identifies the specific employer or plan group within a PBM. Combined with BIN and PCN to route claims correctly.
The specific list of MAC prices a PBM uses for generic reimbursement. Different from the list another PBM uses. Updates weekly and is rarely transparent to pharmacies.
A process where the prescriber has to get approval from the PBM before the drug will be covered. Administratively painful. Often delegable to a pharmacist through a Collaborative Practice Agreement, which is a real revenue opportunity for independents.
The breakdown of your prescriptions by plan type (commercial, Medicare Part D, Medicaid, cash). Different payers reimburse at dramatically different rates, which is why payer mix matters more than total volume for profitability.
The middleman company that manages prescription drug benefits for health plans. The big three are Caremark (CVS), Express Scripts (Cigna), and OptumRx (UnitedHealth). They process claims, set reimbursements, manage formularies, and extract fees from pharmacies. The biggest problem in independent pharmacy economics.
A secondary routing code used alongside the BIN to route prescription claims to the correct PBM processor. Every PBM uses its own PCN system.
A subset of pharmacies a plan designates as "preferred" so patients using them get lower copays. Plans use preferred networks to push volume to specific pharmacies. Being excluded from a preferred network can be catastrophic for an independent.
A policy where the plan requires the patient to try a cheaper drug first before it will cover a more expensive one. Slows down treatment and creates extra administrative work for the prescriber and the pharmacy.
Formulary categories that determine what the patient pays. Tier 1 is usually preferred generics with the lowest copay. Tier 4 or 5 is usually specialty drugs with the highest copay. The tier is set by the plan, not the pharmacy.
Day-to-day pharmacy operations vocabulary. Most of these come up in inventory, workflow, and staffing discussions.
In a medication synchronization program, the one medication you build the sync date around. Usually the most expensive drug or one that cannot be short filled. Everything else gets synced to its refill cycle.
A monthly or quarterly figure multiplied out to represent a full year. Monthly sales x 12. Used for comparing to yearly benchmarks when you only have partial-year data.
What it cost you to acquire the drugs you actually dispensed in a period. Different from what you ordered. This is the real expense number for your P&L, not your wholesaler invoice total.
Filling a specific cycle of medications for an LTC patient (usually one week or two weeks worth) on a scheduled rhythm. The core workflow for long-term care dispensing.
The percentage of prescriptions you successfully fill on the first try without having to short fill or substitute. Below 95 percent is a problem and your patients will notice.
The weekly or monthly review of upcoming sync patients to flag missing refills, expired prescriptions, or anything else that needs attention before the sync day. Old school name, modern practice.
What you paid your wholesaler for drugs over a period. Not the same as COGS. Confusing these two is a classic rookie accounting mistake that distorts both margin and turns calculations.
How many times the average bottle on your shelf gets replaced in a year. Higher is better. Healthy independent pharmacies target 16 to 18 turns using COGS-based calculation or 20 to 22 using sales-based.
Turns = Annualized COGS ÷ Current Inventory ValueOrdering a drug only when you actually need it for a specific prescription, instead of holding stock. Usually reserved for high cost specialty items where the carrying cost is too high to justify sitting inventory.
Reorder points in your pharmacy management system or wholesaler portal that trigger automatic reordering when inventory drops below a threshold. Your min/max settings are where most inventory problems hide.
When a patient needs a drug and you cannot fill it because you do not have enough on hand. Every OOS event is a potential lost patient. Fill rate is the inverse of OOS rate.
The software that runs your pharmacy. PioneerRx, Rx30, PrimeRx, QS1, and Liberty are the main ones for independents. Your PMS is where all your data lives, which makes it the most important piece of technology in your business.
Dispensing a partial supply of a medication instead of the full quantity. Used to bridge patients onto a sync program or when inventory is insufficient. Most plans have override codes to prorate copays on short fills.
Inventory loss due to damage, expiration, or theft. Every pharmacy has some. Well-run pharmacies have very little. Tracking shrinkage is a discipline that most independents skip.
The specific day of the month a medication synchronization patient picks up all of their medications. You build the whole program around this date and defend it against drift.
The monthly document in a med sync program that confirms what the patient is currently taking, catches dose changes, and triggers the fill cycle for the next month. Skip the verification form and the sync program falls apart.
The metrics and programs that measure how well patients are actually taking their medications, and how that shows up in your business.
A full review of a patient's entire medication regimen, conducted by a pharmacist as part of MTM. Medicare Part D plans are required to offer CMRs to eligible patients. The pharmacy gets paid for completing them.
A platform that publishes pharmacy quality scores based on adherence metrics like PDC. PBMs use EQUIPP scores to decide network status, preferred pharmacy placement, and DIR fee calculations. Your scores matter.
The percentage of eligible prescriptions in a patient population that are filled with generic drugs instead of brands. Used by plans to measure formulary compliance. Higher GCR is generally rewarded.
The percentage of total prescriptions dispensed that are generic. A measure of both formulary management and pharmacy efficiency. Higher GDR generally means lower patient costs and better plan economics.
A measure of how many days of medication a patient has based on their refill history divided by the number of days in the period. An older adherence metric, largely replaced by PDC in newer plan scoring.
MPR = (Sum of Days Supply in Period ÷ Days in Period) × 100A formal clinical service where a pharmacist reviews a patient's medications, identifies problems, recommends changes, and documents the intervention. Medicare Part D plans pay pharmacies to provide MTM. Rates vary from $10 to $75 per encounter.
The modern adherence metric used in EQUIPP and STAR ratings. Calculates what percentage of days in a period the patient had their medication available. More accurate than MPR because it caps patients at 100 percent and accounts for overlapping fills.
PDC = (Days Covered in Period ÷ Days in Period) × 100Medicare's 5-star quality rating system for Part D plans. Adherence metrics based on PDC are a major component. Plans with higher star ratings get bonus payments from CMS. Plans push pharmacies hard on adherence because the plans' own revenue depends on it.
Switching from one drug to a clinically equivalent drug in the same class, with prescriber approval. Different from generic substitution. Requires communication with the prescribing office. A core NDC optimization play.
The numbers you need to track if you want to run your pharmacy as a business instead of a hobby.
The gross profit you keep on each additional sale after variable costs. For a pharmacy, this is usually close to gross profit per script because most variable costs scale with the drug itself. Important because every incremental script adds contribution margin directly to operating income.
The average number of days it takes to collect payment after a claim is submitted. For most pharmacies this should be 14 to 21 days. A DSO that is trending up means cash flow is getting worse even if profit looks stable.
The most important profitability metric in independent pharmacy. Total gross profit divided by total script count for a period. Normalizes across volume and tells you whether each fill is actually making money.
Gross profit expressed as a percentage of revenue. For most independent pharmacies this should be 20 to 25 percent. Below 18 percent is trouble. A core metric on your monthly P&L review.
Revenue minus cost of goods sold. What you have left after paying for the drugs themselves but before paying for anything else. The second most important line on your P&L after revenue.
Operating income as a percentage of revenue. For a healthy independent pharmacy this should be 3 to 6 percent. Below 2 percent and you are one bad month away from the cliff. The number that matters most when measuring business health.
A financial statement showing revenue, expenses, and profit over a specific period. Also called an income statement. Your P&L is the single most important document for running your pharmacy as a business.
The total gross profit generated by a single patient over a period of time. Some patients are profitable and some are not. Knowing the difference is how you decide which transfers to accept and which to politely decline.
Long-term care and specialty pharmacy vocabulary. Relevant if you are credentialed for LTC or thinking about adding it.
A federal program that allows certain covered entities (usually qualifying health centers and hospitals) to purchase drugs at reduced prices. Pharmacies contracted with 340B entities can participate through specific arrangements. Complex compliance rules apply.
A compliance packaging format where individual doses are sealed in clear plastic compartments organized by time of day. The standard format for most assisted living and group home dispensing.
A pharmacy that serves only specific populations (typically LTC facilities) and does not have walk-in customers. Most traditional LTC pharmacies are closed door. Different operational model from retail or combo shop.
An independent pharmacy that operates both retail and LTC business lines under one roof. Shares building and staff but keeps workflows separate. A high-leverage growth opportunity for retail pharmacies with spare capacity.
A locked, sealed supply of commonly needed medications stored at an LTC facility for after-hours use. Contents defined by the serving pharmacy. Required for most LTC facility contracts.
Pharmacy services delivered to residential facilities like assisted living, memory care, skilled nursing, and group homes. Distinct operational and billing model from retail. A major growth opportunity for independents willing to go through the credentialing process.
The documentation record used by LTC facility staff to track every medication administered to every patient. Pharmacies serving LTC facilities often generate and deliver MARs as part of the service.
A packaging format where each individual dose is separately sealed and labeled. Common in hospital and some LTC settings. Different workflow from vial dispensing.
The numbers, codes, and systems that identify pharmacies, prescribers, and drugs across the healthcare system.
A national network of community pharmacies committed to providing enhanced clinical services and documenting them through eCare Plans. Being part of CPESN can open doors to value-based contracts and quality programs.
The unique identifier assigned by the Drug Enforcement Administration to a prescriber who is authorized to prescribe controlled substances. Required on all controlled substance prescriptions.
A standardized digital format for documenting clinical pharmacy services, developed through CPESN. eCare Plans can be submitted to payers and integrated with EHR systems to document and bill for clinical interventions.
The standards body that sets the technical formats for electronic prescription claims and transactions. Every pharmacy has an NCPDP number that identifies it for claim submission purposes.
A 10 or 11 digit identifier that uniquely tags a specific manufacturer, drug, strength, form, and package size. Every dispensing decision is tied to an NDC. Different NDCs for the same drug can have different reimbursement profiles.
A 10 digit number assigned by CMS that uniquely identifies a healthcare provider including pharmacies and individual pharmacists. Required for claim submission and most regulatory filings.
The electronic prescribing network that routes e-prescriptions between prescribers and pharmacies. Also provides the Provider Portal used for prior authorization delegation through Collaborative Practice Agreements.
A classification code associated with an NPI that identifies the provider type and specialty. For LTC pharmacy, the taxonomy code is 3336L0003X. Adding the correct taxonomy code is part of LTC credentialing.
Spotted a missing term?
This glossary is a living document. If you are looking up a term that is not here, send me a message on the Hotline and I will add it. The goal is to make this the single best reference for independent pharmacy terminology on the internet. I need your help to get it there.