The Issues
The questions behind the law, answered plainly.
Plain-language, sourced explanations of the key terms and rules in
pharmacy reimbursement and PBM law — each one attributed to its
primary source.
Explainer Updated June 15, 2026
A pharmacy benefit manager (PBM) is a company that administers prescription-drug benefits for health plans, employers, unions, and government programs such as Medicare Part D and Medicaid. PBMs decide which drugs a plan covers (the formulary), build the pharmacy networks patients can use, negotiate rebates with drug manufacturers, process pharmacy claims, and set how much pharmacies are paid. The market is highly concentrated and vertically integrated: the three largest PBMs — CVS Caremark, Express Scripts, and OptumRx — manage roughly 80% of US prescription claims, and each is owned by a major insurer and also owns its own pharmacies.
Explainer Updated June 15, 2026
A pharmacy reimbursement floor is a legal minimum a pharmacy benefit manager (PBM) or health plan must pay a pharmacy for a covered drug, set so the pharmacy is not paid below what the medicine cost to buy and dispense. In practice a floor has two parts: a drug-cost benchmark — most often NADAC, the national average drug acquisition cost, or the pharmacy's own acquisition cost — plus a professional dispensing fee for the pharmacist's time and overhead. Floors are enacted state by state and vary in scope: some reach only Medicaid managed care, others commercial or state-employee plans, and some only independent or rural pharmacies. This minimum is the central figure the per-state tracker records.
Explainer Updated June 15, 2026
NADAC — the National Average Drug Acquisition Cost — is a benchmark, published by the Centers for Medicare & Medicaid Services (CMS), of what retail community pharmacies actually pay to buy a drug, based on a voluntary monthly survey of pharmacies. A growing number of states use NADAC plus a professional dispensing fee as the reimbursement floor a PBM must meet, because it is tied to real acquisition cost rather than to a price the PBM itself sets.
Explainer Updated June 15, 2026
These three benchmarks measure different things. NADAC (National Average Drug Acquisition Cost) is CMS's estimate of what retail pharmacies actually pay for a drug, built from a voluntary monthly survey of pharmacy invoices. WAC (Wholesale Acquisition Cost) is the manufacturer's published list price to wholesalers — a statutory term, and explicitly not net of rebates or discounts. AWP (Average Wholesale Price) is a published 'sticker' benchmark from commercial compendia that, by the government's own account, is neither an average nor a price wholesalers actually charge. Only NADAC is built to reflect real acquisition cost, which is why state reimbursement floors increasingly anchor on it.
Explainer Updated June 15, 2026
Spread pricing is a pharmacy-benefit-manager (PBM) pricing model in which the PBM bills a health plan more for a drug than it reimburses the dispensing pharmacy, and keeps the difference — the 'spread' — as revenue, rather than charging a separate, disclosed fee. Pass-through (or 'transparent') pricing is the alternative: the plan is charged exactly what the pharmacy is paid, and the PBM is paid through a disclosed administrative fee instead. Spread pricing is controversial because the PBM's margin is embedded in the drug price rather than itemised, and a growing number of states now restrict or ban it, especially in Medicaid managed care.
Explainer Updated June 15, 2026
A pharmacy clawback — known in Medicare Part D as a pharmacy 'direct and indirect remuneration' (DIR) fee or price concession — is money a PBM or plan recovers from a pharmacy after a claim has already been paid, sometimes weeks or months later. Because the recoupment is retroactive, the pharmacy's final net reimbursement is unpredictable and can fall below what the pharmacy paid for the drug. Effective January 1, 2024, a CMS rule requires Part D plans to reflect all pharmacy price concessions in the price at the point of sale, which curtails retroactive Part D pharmacy DIR; commercial clawbacks remain governed by PBM contracts.
Explainer Updated June 15, 2026
A MAC appeal is the formal process by which a pharmacy challenges a pharmacy benefit manager's reimbursement for a generic drug priced below what the pharmacy paid to acquire it. Most states with PBM laws now require PBMs to offer an appeals procedure with a defined filing window, but the deadline, the evidence required, and what the PBM must do if the appeal succeeds vary by state and by PBM.
Explainer Updated June 15, 2026
Not categorically. In Rutledge v. Pharmaceutical Care Management Association (December 10, 2020, 8–0), the U.S. Supreme Court unanimously held that the federal ERISA statute does not preempt Arkansas's Act 900, a law setting a floor on what PBMs pay pharmacies, reasoning that a state law which 'merely increases costs or alters incentives' is cost regulation that is not 'connected with' an ERISA plan. The boundary remains contested: in PCMA v. Mulready (2023) the Tenth Circuit struck down Oklahoma provisions dictating pharmacy networks as ERISA- and Medicare-preempted, and the Supreme Court declined to review that ruling in 2025.