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NADAC as a cost-plus pricing option

With the increase in consumer and regulatory scrutiny on drug prices, stakeholders in the pharmacy supply chain are exploring drug pricing alternatives. The cost-plus pricing method establishes drug prices based on acquisition costs plus an explicit spread or fee. National average drug acquisition costs (NADAC)-plus pricing is a form of cost-plus pricing that relies on NADAC as a reference.

NADAC estimates the national average drug invoice price paid by independent and retail chain pharmacies. It excludes specialty and mail order pharmacies and does not reflect rebates, price concessions, or off-invoice discounts.

In traditional pharmacy contracting, drug manufacturers set list prices, which affect benchmarks like Average Wholesale Price (AWP) or Wholesale Acquisition Cost. Pharmacies purchase drugs from manufacturers and wholesalers at or below the list price and are typically reimbursed at a negotiated discount off AWP. Pharmacies and pharmacy benefit managers retain the difference between their acquisition cost and reimbursement amount as “spread income.”

Alternatively, pharmacy contracting can rely on NADAC-plus pricing. NADAC-plus pricing establishes drug prices based on the drug-specific NADAC unit cost plus some fixed dollar spread or dispensing fee. This pricing approach aligns drug prices with average pharmacy drug costs rather than manufacturer list prices. Manufacturers may not have the same degree of drug pricing control with the NADAC-plus approach compared to discount off AWP pricing.

To learn more about NADAC-plus, how it could affect pharmacy pricing, and what limitations and opportunities it presents, read this article by Kevin Pierce and Andrea Sheldon.