GLOSSARY OF TERMS

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

ADDITIONAL COPAY.An additional copay is charged once a member uses his/her maximum allowable benefit. The member is responsible for any fees that exceed the amount allowed by his/her health plan. Additional copay is referred to as "out-of-pocket" expenses.

ADJUDICATION OF A DRUG TRANSACTION/CLAIM. While the term "Adjudicate" is derived from a common legal meaning, it has been adopted in the drug industry vernacular to symbolize the role of the sponsor's authority in determining the suitability (acceptance or rejection) of the claim tendered by the pharmacist. The plan sponsor or insurer has contracted with the pharmacist and defined the basis or the terms and conditions of reimbursement for dispensing a drug. Prior to adjudication, each claim is edited by the central computer for compliance to NCPDP standards for data form and completeness. This is followed by a confirmation of member eligibility using the computers membership files. The adjudication process is then invoked and is driven by the member's benefit plan parameters. These parameters are also found in the plan file residing in computer memory. The plan parameters define:

• What drugs or supplies are allowable
• The quantity and dosage allowed
• The member's co-insurance or "co-pay"
• The member's contribution due to deductible or capitation considerations, if any
• The member's allowance for refills
• The dispensing or filling fee for the pharmacy
• Calculation and accounting for an administrative fee, if any
• Determination of the drug or supply price allowed as the reimbursement of ingredient cost
• Determine other constraints such as mail order dispensing only
• Determine constraints placed upon the prescriber by limiting the drugs allowed within the physician's specialty.

These are the major issues of adjudication. When adjudication is completed an ON-LINE, REAL-TIME system response to the pharmacy computer enables the pharmacist to agree to the terms of adjudication or to erase the claim by a reversal transaction transmitted back to the central computer.

Another potential response of the adjudication process is to indicate to the pharmacist that the Rx submitted requires Prior Authorization before dispensing. In these cases, contact with the sponsor is required to "over-ride" the conditional approval of dispensing and reimbursement. There is one other situation which is called a claim reject. This occurs when the claim is incomplete, contains erroneous data fields, ineligibility detected, violates plan rules or has been previously processed. Codes are forwarded to explain the reason(s) for rejection.

ANALOG VERSUS DIGITAL TRANSMISSION. Older technology used telephone audio signals to transmit data, these are called analogue signals. New technology uses digital data which eliminates the need for Modems which convert analogue to digital for processing data by computers.

AVERAGE WHOLSALE PRICE (AWP). The published average cost of a drug product paid by the pharmacist to the wholesaler. This price is specific to drug strength or concentration, dosage form, package, size, and manufacturer or labeler.

AWP - AVERAGE WHOLESALE PRICE. This is a term used for drug prices published weekly and monthly by two or three polling companies (Medispan, First Data Bank). The polling is described as being conducted with strict statistical integrity. Average prices change for about 3% of the 120,000 products each month. The purpose is to establish a common and accepted basis for fluctuating drug prices between sponsors and providers. There is volatility in prices due to wide variations in the manufacturers pricing for large bulk purchases and small volume purchases in addition to promotional incentives. Almost all manufacturers use distribution firms as their primary delivery method for their products to the average independent pharmacy providers. They also provide discounts based on volume purchases and other incentives. The polling is primarily taken at the dispensing provider level and thus is described as a wholesale price, although there could be discounting well below the published AWP. It is not unusual for sponsor contracts to discount the AWP price (5%, 10% and 15%) with both parties understanding that provider purchasing must be occur at lower prices in order to make a profit.

BENEFIT SPONSOR. The final payer for a drug benefit program. Usually an Insurance company, HMO, PPO, etc.

BRAND NAME. The trademark name of the drug that appears on the package label.

CLAIM REVERSAL. The contract between the pharmacist and the benefit sponsor or insurer guarantees to reimburse the pharmacist if the claim specifications comply with the rules of the adjudication in advance of dispensing the drug. If the pharmacist finds that the reimbursement indicated is unacceptable, he may reverse the claim on the central computer by re-transmitting to the central computer a transaction that triggers a credit or erasure of the transaction.

COPAY. A technique used by medical and pharmacy providers that helps defer the cost of prescription drugs. If a copayment applies to a member, he/she will pay a percentage of the drug cost to the pharmacist. The copay amount is determined by the member’s health plan and is administered at the benefit level.

DATA COMMUNICATIONS. Real-time, online claims processing computer system communicate directly with Pharmacies by telephone carrier lines. Their speed of operation may be less than 10 seconds to send a prescription description and receive and confirmation of approval. Ordinarily the pharmacist pays for the dial-up service that is transmitted anywhere in the country by the third party carrier. NDC, Envoy and MedAmerica are currently the carriers providing most of this service.

DAW - DISPENSE AS WRITTEN. The prescriber is accorded veto rights to drug control and managed care limitations by the plan sponsor in most instances. Physician discretion and responsibility is the primary justification to allow such veto power. This manifests itself by the prescriber writing "DAW" on the prescription. This is notice to the provider that the drug prescribed is to be dispensed without substitution.

DAW codes are:

DEA NUMBER. A number issued by the Federal Drug Enforcement Agency to each licensed, eligible prescriber who applies for the right to prescribe controlled substances (e.g. narcotics). The number is unique to each prescriber. Prescribers who do not have a DEA number may not lawfully write prescriptions for controlled substances.

DEDUCTIBLE. A clause in a prescription benefit for which a member is responsible. This means that the member must pay the deductible amount set up by the health plan prior to when his/her true copay benefit starts.

DIRECT MEMBER REIMBURSEMENT (DMR). This is a process when a member pays "out-of-pocket" for a prescription and submits the receipt and claims for the reimbursement. Upon adjudication, a paid claim will generate a check for the Member

DIRECT PRICE. The cost of a drug product paid by the pharmacist to the manufacturer when the product is purchased directly from the manufacturer.

DISEASE STATE MANAGEMENT. A recently emerging discipline that concentrates on evaluating therapies globally for each patient. It may substitute new drugs and reduce the number of drugs prescribed with more effective combination therapies. DSM also focuses on improved and monitored patient compliance with prescribed therapy.

DISPENSING FEE. This is a flat amount or a percentage of the drug cost that is paid to the pharmacist by the PBM for the labor and administrative effort provided.

DP/Rx's PLANGEN. PlanGen is a software package that is independent of the TeleClaim system. This package, however, is an integral part of creating or generating benefit plan profiles that are transferred to the Adjudication component of the on-line, real-time TeleClaim system.

The PlanGen file contains the parameters for each custom benefit plan and is made a "driver" for the adjudication process. The package is designed to be extremely user-friendly to the extent that most pharmacists are trained in its use in two or three hours. Over one dozen pages of "fill-the blanks" type screens are scrolled through by the user to completely define a benefit plan. Most users have stated that the PlanGen flexibility provides a broader scope of control than they ever intended to use prior to their orientation to its capabilities.

Small variations in plans are easily and quickly implemented by a cloning technique of existing plans. No other competitive systems have such a capability and this is what distinguishes the TeleClaim system as a Pharmacist's system rather than a computer technician's system.

DP/Rx's SIMPLAN. DP/Rx supplied user software that enables simulation of claims' data. Actual user data files are used to verify benefit plan execution in accordance with the intended user design. This package is used in concert with PlanGen. This unique function, available only with the TeleClaim system helps to prevent global mistakes in the implementation of new or modified plan design.

While most planners are certain their untested plan design is complete and comprehensive, they prefer to test before operational commencement to avoid the possibility of errors. Mistakes require considerable work and time to repair over or under payments, eligibility errors and public relations problems created by improper rejection of bonifide claims.

DP/Rx also provides SimPlan+ which enables simulation of new or modified plans to determine the financial and service results by using previous actual claims and the operative plan applied.

DPRx's TELECLAIM System. This is a custom computer system whose architecture is styled after massed parallel processors (at variance with the single processor design of older "mainframe" technology). The benefit is vastly lower hardware costs and the availability of user friendly development software.

The major components of TeleClaim are:

• Front End Processor
• The Adjudicator
• The Report and Maintenance On-line Processor
• File Server
• PBM Terminals

The second and third components are programmed in Microfocus COBOL enabling portability to most computer platforms. The Front End Processor (FEP) is the component that receives and sends tendered claims from and to Provider In-store Management systems.

Data Communications are in NCPDP standards and utilize two carrier types (X.25 packet transmission and TCP/IP Network Protocol). FEP is capable of managing 128 serial data ports which enables 128 concurrent claims. A new FEP based on TCP/IP can be run via NDC or though the Internet.

Current TeleClaim design is capable of efficiently handling over 1 million claims per month and over 10 million resident benefit members.

DRUG FORMULARY (NEGATIVE). A list of drugs that are not included in the benefit of coverage. This term has also been used to refer to a list of drugs that are not substitutable by the pharmacist.

DRUG FORMULARY (POSITIVE). A list of drugs that are included in the benefit or coverage.

DRUG FORMULARY COMMITTEE or PHARMACY and THERAPEUTIC COMMITTEE. A group of practitioners, usually physicians and pharmacists, who review and recommend drug product for Drug Formulary inclusion or exclusion.

DRUG FORMULARY, OPEN. A positive or negative drug formulary that allows changes in the formulary to occur without a formal, objective review and approval, process.

DRUG FORMULARY, CLOSED (RESTRICTIVE). A positive or negative drug formulary with a formal, objective review and approval, process that is required before changes in the formulary can occur.

DUR 0R DUE - DRUG UTILIZATION REVIEW/EVALUATION. Drug Utilization Review or Evaluation is a function that has emerged in the last few years to have the computer intervene with oversight to several issues that are not totally assumable by prescriber and provider.

Some of the major issues are:

• Refill Too Soon or Over-utilization
• Therapeutic Duplication to complement Refill Too Soon
• Maximum and minimum Dosages
• Drug Interactions.

Each of these brings information to bear that is not ordinarily available to the prescriber nor the physician. These optional functions usually follow adjudication while processing the tendered claim at the central computer. When any aspect of DUR indicates a potential problem or marginal deviation of the prescription, a message accompanies the response to the provider transmitted by the central computer. DUR problem/marginal signals ordinarily do not reject a claim, although it may be programmed to do so if required by the administrator.

ELIGIBILITY. Relates to the specific requirements which members of a health plan must satisfy in order to be insured. The system keeps track of start and ending eligibility dates for each member.

FILL FEE.

FOOD and DRUG ADMINISTRATION (FDA). The U.S Food and Drug Administration is the public health agency responsible for protecting American consumers by enforcing federal food, drug and cosmetic act as well as several other health laws.

FORMULARIES. In a managed care program, benefit administrators may wish to limit or influence usage of the type of drugs in their benefit plan as a cost containment measure. The goal, of course, is to reduce cost by using lower cost drugs or ones that generate rebates directly from the manufacturers of the drugs selected. They usually construct a list of drugs or groups of drugs designated by therapeutic class. This list is called a "formulary" and it is distributed to prescribers and members.

This formulary may take on different meanings and uses. A "positive" formulary is one that represents the drugs that are preferred or required to be included and available for prescribing/dispensing; whereas, the "negative" formulary is a list of drugs that are excluded from drugs available for dispensing. "Hard" formularies are ones that are absolute and mandatory that exclude or include the designated drugs. "Soft" formularies are ones that designate the inclusion or exclusion of the formulary items as preferred but non-mandatory. In the former case, of a Hard Formulary, there is an exception that contradicts the absoluteness. Prior Authorization ("PAR") that over-rides the absolute prohibition and allows the drug use because of official sponsor intervention.

GENERIC EQUIVALENTS. Another name for PHARMACEUTICAL EQUIVALENTS.

GENERIC DRUG. A drug which is manufactured by a company that is not the innovator. Generic drugs are chemically equivalent, and have been approved by the FDA. Most generic drug names reflect the chemical name of the drug. These drugs are less expensive, yet have the same therapeutic value. So their use is widespread. 

GENERIC NAME. The drug ingredient(s) name(s) recognized by the United States Pharmacopoeia (USP), the National Formulary (NF), or adopted by United States Adopted Names (USAN).

GENERIC SUBSTITUTION. The lawful act of a pharmacist, when exercised, of substituting one pharmaceutical equivalent for another in order to decrease the drug product cost. Also called DRUG PRODUCT SELECTION.

HEALTH MAINTENANCE ORGANIZATION (HMO). Is a corporation that provide comprehensive maintenance and acute medical care to patients. HMO’s usually prescribe their own eligibility limits to their members which coincide with the level of insurance held by the patient. HMO’s provide preventive medicine, while employing primary care physicians as referrals for more substantial treatments.

INGREDIENT COST. The cost of the drug product as stated on the drug claim or as calculated by multiplying the quantity of drug dispensed times its unit cost.

INNOVATOR. The manufacturer whose name is listed on the application to FDA for approval of a new drug. In the case where the original manufacturer does not market the new drug, but licenses another company to exclusively market the product, the marketer is known as the innovator.

IN STORE PHARMACY MANAGEMENT SYSTEMS. The primary function is to process a prescription. After entering and editing the prescription data, the system determines the price from a stored price table. At this point, the system invokes a data transmission protocol and transmits the Rx specifications in NCPDP format to the designated insurer or plan sponsor. After adjudicating the prescription of the tendered claim, the central computer transmits its findings and price approved back to the sending pharmacy. If the claim is approved, the pharmacy system prints the labels for the prescription and adds the SIG for patient counseling. The prescription is stored in the pharmacy computer for summary reporting and for patient history. Most in-store systems will perform drug interaction analysis if requested. Systems that do not transmit to a central computer (not real-time and on-line), perform what is described as retrospective adjudication. While they determine a common base line price, this price is subject to change when submitted for retrospective batch adjudication processing by the insurer or a TPA.

MAC PRICES - MAXIMUM ALLOWABLE COST. A number of benefit sponsors, like government institutions, negotiate provider contracts with over-riding fixed prices in lieu of the AWP basis. These MAC prices are, of course, invariably fixed lower than the AWP price for the specific drug. Ordinarily, benefit administrators review the drugs of highest utilization and set MAC prices for these to further lower their costs. Except for a few programs, the MAC pricing is limited to a manageable number of drugs. The top 100 drugs utilized would enable a measurable group of drugs that may represent over 60% of all dollar cost utilization. The Medicaid program is an example of a large "MACed" drug database.

MAIL ORDER PHARMACY. Mail order pharmacies are used by many plans as a cost saving and convenient alternative to retail pharmacies. Members typically order their drugs via fax, email or the internet. Prescriptions can be paid with a personal check or credit card. Once a prescription order is transmitted to the mail order pharmacy, members usually receive their prescription within 2-4 days.

MANUFACTURER REBATES. Virtually all pharmaceutical manufacturers provide discounts to distributors based on the volume of sales for each product. The distributors, in turn, provide discounts to their provider customers based on volume. Another channel of product promotion is the rebate program. End user prescribers are directly offered such rebates based on their utilization. The rebate recipient merely provides reports or tapes of utilization on a quarterly basis. Rebates are paid directly to those submitting this data. Rebates normally provide at least 5% of aggregate ingredient cost by manufacturer. This percentage may be elevated to levels above 10% in so-called "preferred" programs. In these cases certain drugs are given increasing quotas of utilization and the rebate is increased commensurate with increased utilization.

Managed care organizations negotiate these programs with manufacturers which results in more restrictive formularies for their members.

MASTER DRUG PRICE DATABASES. Companies like Medispan and First Data Bank produce the survey data of prices for over 150,000 drugs as mentioned earlier. A monthly update program has a subscription price of over $10,000 per year. The database is distributed on CD-ROM on a monthly basis. Users update their drug files as a routine function. These drug files, used in the adjudication process, contain the NDC number, drug name, AWP price, MAC prices by state, size, packing units, therapeutic class, etc.

Another important data record provided with each drug in this file is a coded number (i.e. - GPI, GCN, etc ). This number provides a method of linking to generic equivalents and substitutes. This enables the adjudication process to price at the generic price or to require the utilization of the lower priced generics, if any.

Many higher priced brand name drugs may not have such generic equivalents or substitutes.

MAXIMUM ALLOWABLE BENEFIT (MAB). The maximum allowable (dollar) benefit is an amount set by the health plan limiting the prescription benefits available to a member or family. Once the maximum is met, members are usually required to pay cash for future prescriptions.

MAXIMUM ALLOWABLE COST (MAC). The highest unit price at which a drug will be paid. It is specific, to a group of pharmaceutical equivalents.

For example:

Various Methodologists exist for the determination of the MAC, but when set, all pharmaceuticals equivalents have the same price. If the submitted price is higher then the MAC, payment will be reduced to the MAC. If, however, the submitted price is lower than the MAC, payment will be at the submitted price. MAC prices may be revised as market prices change.

MCO. Manage Care Organization

MSO. Management Services Organization

MULTI-SOURCE DRUGS. A drug marketed or sold by two or more manufacturers or labelers.

NABP NUMBER. This refers to the National Association of Board of Pharmacies (NABP). The NABP is an independent governing body that oversees those individuals or entities that are licensed to dispense prescription drugs. A pharmacy will be assigned its NABP Number by the National Council for Prescription Drug Program (NCPDP). This number is a seven digit number, with the first two numbers, identifying that state and the last five designating the pharmacy.

NATIONAL DRUG CODE. The unique numerical code for a drug assigned by the pharmaceutical manufacturer within guidelines set by the Federal Government. The code is used on the pharmacy claim to identify the specific drug, strength, dosage form, manufacturer, and package size.

Four formats are accepted for the NDC:

5-4-2, 4-4-2, 5-4-1, or 5-3-2. In each case, the first group of digits identifies the drug manufacturer, the middle group identifies the specific drug, drug strength and dosage form and the last group identifies the package size.

NCPDP. National Council for Prescription Drug Programs, Inc. (NCPDP) is an organization that promotes data interchange and processing standards to the pharmacy service sector of the healthcare industry.

NDC. National Data Corporation. A Telecommunication switch that routes the Pharmacy Claim from the initiating Pharmacy to Claims Processor (such as DP/Rx Corporation).

NON-PREFERRED. A non-preferred drug is an alternative that may be prescribed instead of a rebate-producing drug. Usually, non-preferred drugs are associated with higher copay amounts. These drugs are often restricted, requiring a prior authorization (PA), or excluded from the formulary completely.

ON-LINE, REAL-TIME DRUG PROCESSING. Pharmacies electronically interact with a central computer acting on behalf of and for a drug benefit sponsor. The pharmacist transmits the Rx data including the recipient's identification. The central computer first determines if the recipient is eligible to receive the benefit: what "plan" constraints must be complied with in regard to the drug ordered; and if compliance with the plan is confirmed, transmits a data record back to the pharmacist indicating acceptance. The sponsor's price is also included and thereby is confirmed for payment to the pharmacist (Other collateral functions are performed that are not mentioned here). The pharmacist now has the opportunity to accept the sponsor's price and dispense the drug to the member recipient. If the price is unacceptable to the pharmacist, it may be reversed by re-sending the recorded transaction by a reversal command function. If the pharmacist does not reverse, the business transaction is completed. The sponsor is now obligated to pay and the pharmacist is obliged to dispense the drug. It should be noted that the so-called central processor performing adjudication is most often operated by the insuring plan sponsor or a Third Party Administrator (TPA). However, this is not universal in the industry. Many plan sponsors or TPA opt to contract with a Third Party Processor or service bureau who operate and maintain the central processor as a professional service to many such users.

PAID PRICE. The dollar amount that is reimbursed to the pharmacist for the prescription claim. It is the lower of the submitted amount or the maximum amount allowed by the benefit plan.

PAR - PRIOR AUTHORIZATION. Prior Authorization or "PAR" is essentially a device for by-passing a rejection or prohibition of a specific drug from being dispensed to a plan member. The PAR function becomes more in demand and necessary as formularies and benefit design become more restrictive. The prohibition could have been caused by the benefit plan coverage or by a requested drug outside the formulary. Other types of prohibition could emanate from Drug Utilization Review (DUR) interception for a variety of reasons (i.e. - refill too soon, therapeutic duplication, etc.). In the DP/Rx system, PARs may be incorporated automatically or may be inserted or invoked by request of the pharmacist. In any case, the PAR is provided by the sponsor's staff of administrators or pharmacists.

For instance, the pharmacist calls the help desk and gives the reasoning that justifies the override of the rejection that the central computer has signaled after entry of the Rx. The sponsor's official generates a PAR and informs the pharmacist to re-submit the claim to the central computer. The coded number (PAR number) includes the date issued, type of over-ride for 10 situations, PAR identification number and an issuer identification. This PAR code number is retained in the central computer and may be used or referred to by subsequent operations and inquiries.

Special reports are available to the administrators that provide a log of PAR activity as an oversight to this discretionary intervention by officials.

PBM. Acronym for Pharmacy Benefit Management. Organization that provides a turnkey drug benefit program. Payor supplies and updates the eligible members and participates in the goals set for various plans offered. PBM charges payor for entire program: reimbursement of pharmacies; conduct of Help Desk for members, pharmacies and physicians; Staff Pharmacists; Computer administration and all collateral support functions. Rebates are negotiated between PBM and payer/sponsor company.

PERCENT OF WHOLESALE (POW). The relationship, expressed as a percentage, between ingredient cost paid and the FILE PRICE for any drug. For example, a POW of .92 means that the ingredient cost paid for the drug averages 92% of the amount that would have been paid if the claims were paid at the FILE PRICE.

WHOLESALE ACQUISITION COST (WAC) or NET WHOLESALE COST. The net cost of a drug product, not including special deals to the wholesaler.