ModifiedColorado Department of Health Care Policy & FinancingPolicy N/A
Methodology for Calculating the National Average Drug Acquisition Cost (NADAC) for Medicaid Covered Outpatient Drugs
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Describes the methodology used to calculate the National Average Drug Acquisition Cost (NADAC) benchmark for Medicaid covered outpatient drugs, including data collection, processing, calculation, reporting level, and quality assurance; applies to the national NADAC program and stakeholders (CMS, vendor, state Medicaid agencies, and retail community pharmacies).
Policy Summary
PayerColorado Department of Health Care Policy & Financing
PolicyMethodology for Calculating the National Average Drug Acquisition Cost (NADAC) for Medicaid Covered Outpatient Drugs
Policy CodePolicy N/A
Change TypeTemporary measure added for generic NADAC volatilityexample rate adjustments noted
Effective DateApr 1, 2016
Next Review Date
Key ActionRetail community pharmacies selected for the NADAC survey must submit wholesaler/distributor/manufacturer invoices or authorize suppliers to forward purchasing history within 10 calendar days.
SourceLink
POLICY UPDATE CHANGES
A temporary, short-term measure will be implemented for generic drugs beginning with the December 2024 monthly rate updates to mitigate generic NADAC volatility due to survey participation fluctuations.
The NADAC rate for Drug A decreased by 17.10% from the previous NADAC rate due to results of the monthly pharmacy acquisition cost survey.
The NADAC rate for Drug B increased by 3.76% from the previous NADAC rate based upon changes to the Wholesale Acquisition Cost (WAC).
weeklypublication frequency (since Nov 2013)
11-digit NDCreporting level for NADAC
monthly surveysdata collection cadence
5+minimum observations guideline
2 SDoutlier cutoff
17.10%example NADAC decrease
NADAC Inclusion & Calculation Criteria
NADAC inclusion and calculation criteria
Inclusion criteria for data and products used in NADAC calculations
Data must be from pharmacies surveyed in the most recent 12 months under review
Invoice dates must be from the most recent 12 months under review
Acquisition cost data must be for valid, active NDCs listed in published pricing compendia; NDCs with an obsolete date greater than three years prior are excluded
NDCs with a defined CMS Termination Date are excluded unless the NDC also has a defined CMS Reactivation Date that is prior to the NADAC calculation date
Products must appear on the latest CMS covered outpatient drug product file or be newly added and determined by CMS to be covered outpatient drugs; COD Status codes 05 or 06 are excluded
Only one cost observation per pharmacy per NDC is used: the observation with the latest invoice date; if multiple observations have the same date, use the lowest cost
Minimum observations guidance
- No fixed minimum number of observations; guidance suggests using no less than five where costs are closely aligned
- Brand: use observations from the most recent 12 months or since a recent manufacturer list price change; Generic: use observations from the most recent 6 months (guidance to achieve ~5+ aligned observations)
Outliers: remove cost observations greater than +/- 2 standard deviations from the mean by default; manual review may include or exclude observations during QA
NADAC is calculated as the mean (average) of per-unit acquisition costs after outlier removal, grouped by active ingredient(s), strength, dosage form, route, Classification for Rate Setting (B/G), and pharmacy type, and reported at the 11-digit NDC level
340B-priced purchases should be excluded from survey submissions and, if identified, removed from NADAC calculations
Specialty/closed-door pharmacies are generally excluded from the monthly retail community pharmacy survey; specialty drugs may have NADAC if sufficient retail acquisition cost data are available
NADAC is a national benchmark published weekly; states wishing to use NADAC for payment must submit a State Plan Amendment (SPA)
Drug category and Classification for Rate Setting (e.g., CMS S/I/N and B/G or specific override indicators) inform grouping and whether an NDC is treated as brand or generic for rate calculation; states may apply different reimbursement designations
When multiple-source brand NDCs have a corresponding generic, the corresponding generic NADAC Per Unit and effective date are included when applicable (see corresponding generic assignment rules)
Publication and QA: NADAC reference file is posted weekly as a full replacement file; vendor conducts monthly survey processes, data processing, and quality assurance including automated statistical checks and manual drug-by-drug review
NDC Classification, Rate-Setting Codes, and Related Rules
NDC classification and rate-setting groupsmixed
| S/I/N | Drug category designations from CMS covered outpatient drug product file: Single source (S), Innovator multiple source (I), Non-innovator multiple source (N). |
| B/G | Classification for Rate Setting: Brand (B) or Generic (G) used for NADAC calculation and rate application. |
NDCNDC
| NDC (11-digit) | National Drug Code including labeler, product, and package codes |
Classification for rate settingmixed
| B | Considered brand for NADAC rate calculation |
| G | Considered generic for NADAC rate calculation |
| B-ANDA | Brand indicator for NDCs approved under an ANDA |
| B-BIO | Brand indicator for biosimilar products |
Explanation codesmixed
| 1 | Calculated using most recent monthly rate calculation process |
| 3 | Survey-based NADAC adjusted due to published pricing change or help desk inquiry |
| 4 | NADAC carried forward from previous file |
| 5 | NADAC calculated based on package size |
| 6 | CMS S/I/N designation not applied; grouping adjusted based on state reimbursement practices |
NDCNDC
| NDC | National Drug Code identifying drug name, strength, dosage form, and packaging; an 11-digit FDA-maintained numeric code |
inv-07: recency and observation windows — Brand vs Generic observation windows guidance
Brand observation windowCost observations for brand drugs must come from the most recent 12 months or since the most recent change in manufacturer list price, whichever is more recent
Generic observation windowCost observations for generic drugs should come from the most recent 6 months (minimum guidance of five observations from that period when costs are closely aligned)
Invoice date requirementInvoice dates used in NADAC calculations must be within the most recent 12 months under review
One observation per pharmacy ruleOnly one cost observation per pharmacy per NDC is used (latest purchase date; if same date use lowest cost)
inv-08: outlier_removal_threshold — 2 standard deviations from mean
Outlier removal ruleCost observations greater than +/- two (2) standard deviations from the mean are removed by default
Statistical measure usedDispersion measured by standard deviation; the two-standard-deviation cutoff eliminates values substantially inconsistent with the majority
Manual overrideOutliers removed by the statistical rule can be manually included if deemed appropriate after review
inv-09: Corresponding generic NADAC assignment rule — rule for effective date assignment of corresponding generic NADAC
Assignment rule (general)The Corresponding Generic Drug NADAC Effective Date is assigned using a later-of rule to avoid applying generic NADACs retroactively to past claims
Later-of rule detail ADate of the NADAC reference file on which the corresponding generic drug NADAC first appears
Later-of rule detail BThe NADAC Effective Date for the generic drug group — the corresponding generic effective date is the later of A or B
inv-10: NADAC per unit values — Old NADAC Per Unit and New NADAC Per Unit comparison
Old NADAC Per UnitThe National Average Drug Acquisition Cost per pricing unit from the previous NADAC Reference File
New NADAC Per UnitThe National Average Drug Acquisition Cost per pricing unit from the current NADAC Reference File
Comparison displayOld NADAC Per Unit and New NADAC Per Unit are shown side-by-side in the NADAC reference files to calculate percent change
Survey Participation, Submissions, Publication & Support
Documentation Required
Participate in monthly NADAC surveys and submit requested invoice data
Myers and Stauffer conducts monthly surveys of a random sample of independent and chain retail community pharmacies and requests voluntary submission of invoice-level acquisition cost data (NDC, unit price paid, invoice date, quantity purchased). Specialty/closed-door pharmacies are generally excluded.
- Survey letters mailed prior to the first of each month requesting previous month purchases; pharmacies asked to respond within two weeks with reminders sent 10–14 days after initial letter.
- Pharmacies may authorize wholesalers to forward purchase history on their behalf; submitted data should exclude 340B-priced purchases.
Note
Check weekly NADAC reference file (full replacement) and inspect header metadata
The NADAC Reference File is published weekly on Medicaid.gov as a full reference file replacement; each weekly file header indicates whether the updates reflect the monthly acquisition cost survey or weekly NADAC update processes.
- The file contains all NDCs with an assigned NADAC rate and replaces the prior week’s full reference file.
- Header metadata explicitly states whether data reflect monthly survey results or weekly update processes.
Note
Review the weekly Week‑to‑Week Comparison File for NDCs with changed NADAC rates
A NADAC Week-to-Week Comparison File is published weekly and includes only NDCs with changed NADAC rates; the file lists Old NADAC Per Unit, New NADAC Per Unit, Percent Change, Classification for Rate Setting, and Primary Reason for change.
- Newly added or terminated NDCs are not included; only NDCs with a changed NADAC rate appear.
- Use the comparison file to identify old vs new per-unit rates and the documented primary reason for each change.
Documentation Required
Contact the NADAC Help Desk for survey or rate inquiries and submit supporting invoices
Myers and Stauffer’s NADAC Help Desk supports survey questions and rate inquiries; pharmacies may submit inquiries with supporting invoices and will receive notification of outcomes. Contact options include toll-free phone, email, and fax.
- Toll-free phone: (855) 457-5264
- Email: info@mslcrps.com
- Fax: (844) 860-0236
- Help Desk will request invoices or screenshots as needed and cannot address state-specific claim reimbursement questions.
Documentation Required
Provide requested wholesaler/distributor/manufacturer invoices within 10 calendar days
Selected pharmacies must provide copies of wholesaler, distributor, or manufacturer invoices for purchases during the specified period (or authorize suppliers to forward purchasing history); submitted invoices should exclude 340B purchases and are requested within 10 calendar days.
- Required invoice elements: NDC, label/product name, purchase price (ingredient cost only), quantity purchased, purchase date, and wholesaler/supplier.
- If invoices list only item numbers, provide an item number-to‑NDC crosswalk or authorize suppliers to forward records directly.
- Submit via email (survey@mslcrps.com), mail, or fax to the addresses provided; submit copies because originals are not returned.
Documentation Required
Refer to the Primary Reason field explaining NADAC Per Unit changes
The Week‑to‑Week Comparison File includes a Primary Reason field that explains why the NADAC Per Unit changed; possible values are Survey Rate, WAC Adjustment, Help Desk Adjustment, Brand Generic Change, or Rate Group Change.
- Survey Rate — updated from most recently completed pharmacy survey.
- WAC Adjustment — reflects changes in published pricing.
- Help Desk Adjustment — updated after a help desk inquiry.
- Brand Generic Change — due to a change in Classification for Rate Setting.
- Rate Group Change — due to placement into a new NADAC drug grouping.
Terms and Field Definitions
inv-17: National Average Drug Acquisition Cost (NADAC) definition
DefinitionNADAC is the National Average Drug Acquisition Cost — a national pricing benchmark reflective of actual invoice costs pharmacies pay to acquire prescription and over-the-counter drugs
Source dataCalculated from invoice acquisition cost data collected from retail community pharmacies via monthly surveys
Reporting levelNADAC rates are calculated and reported at the 11-digit NDC level and at drug grouping, classification for rate setting, and pharmacy type levels
inv-18: Classification used in NADAC calculations (Brand/Generic designation)
Classification labelsClassification for Rate Setting indicates Brand ('B') or Generic ('G') used for NADAC calculation
Derived from CMS dataDrug category (S/I/N) and any category overrides from the CMS covered outpatient drug product file inform the B/G designation
Special labelsAdditional labels such as 'B-ANDA' (brand approved under ANDA) and 'B-BIO' (biosimilar) are used when applicable
inv-19: Retail community pharmacy definition — who is surveyed and exclusions
Who is surveyedIndependent and chain retail community pharmacies are surveyed monthly for NADAC data
ExclusionsClosed-door specialty pharmacies (specialty/closed-door) are generally excluded from the surveys
Survey scope noteSome drugs dispensed by specialty pharmacies may still have NADAC rates if acquisition costs are available from retail community pharmacies included in the survey
inv-20: NADAC Per Unit definition
DefinitionNADAC Per Unit is the National Average Drug Acquisition Cost per unit for the associated NDC
Calculation basisCalculated as the mean of per-unit cost observations after outlier removal, at drug grouping, classification for rate setting, and pharmacy type levels
ReportingPresented in the NADAC reference file alongside Effective Date and Pricing Unit
inv-21: Pricing Unit definition (ML/GM/EA)
DefinitionPricing Unit indicates the pricing unit for the associated NDC (ML = Milliliter, GM = Gram, EA = Each)
PurposeUsed to express the NADAC Per Unit consistently across different package and dosage formats
Shown in reference filePricing Unit is a field in the NADAC reference file used with NADAC Per Unit and Effective Date
inv-22: NDC — 11-digit National Drug Code definition
DefinitionNDC is the National Drug Code — an 11-digit numerical code maintained by the FDA that includes the labeler code, product code, and package code
StructureThe NADAC reference file reports NADAC at the 11-digit NDC level; the NDC identifies drug name, strength, dosage form, and packaging
Use in NADACNDC is the reporting unit for NADAC rates and must be valid and active to be included in calculations
inv-23: Corresponding Generic Drug NADAC Per Unit definition
DefinitionCorresponding Generic Drug NADAC Per Unit is the NADAC rate for the corresponding generic drug assigned to a multiple-source brand NDC
DisplayWhen applicable, corresponding generic NADAC Per Unit and its Effective Date are included on the same record line in the NADAC reference file
ApplicabilityCorresponding generic columns are blank if no corresponding generic NADAC is applicable
inv-24: Outlier definition and removal method
Outlier definitionOutliers are drug cost observations that deviate substantially from similar drug costs
Removal method (statistical)Default removal: observations > +/-2 standard deviations from the mean are removed
Removal method (manual)A subsequent manual drug-by-drug review by pharmacists and analysts can identify and address obvious outliers, data entry errors, or package size discrepancies
inv-25: NDC Description — identifies drug name, strength, dosage form
DefinitionNDC Description identifies the drug name, strength, and dosage form of the drug product
File usageUsed to sort and present records in the NADAC reference file (file is sorted by NDC Description alphabetically)
Associated fieldsDisplayed with NDC, NADAC Per Unit, Effective Date, Pricing Unit, and other fields in the NADAC reference file
inv-26: NDC — FDA-maintained 11-digit code (alternate reference)
FDA-maintained codeThe NDC is a numerical code maintained by the FDA that includes the labeler code, product code, and package size code
LengthThe NDC is an 11-digit numeric code used as the reporting unit for NADAC
Purpose in NADACIdentifies the specific product and packaging for which NADAC Per Unit is reported
inv-27: NADAC Per Unit (alternate reference)
DefinitionNADAC Per Unit is the National Average Drug Acquisition Cost per unit published in the NADAC reference file
Calculated asThe mean of per-unit acquisition cost observations after outlier removal, by drug grouping and classification for rate setting
Shown withDisplayed in the reference file along with Effective Date, Pricing Unit, and Explanation Code
inv-28: Pricing Unit (alternate reference)
DefinitionPricing Unit indicates the pricing unit for the associated NDC (examples: ML, GM, EA)
RoleEnsures NADAC Per Unit is interpretable across forms and package sizes
Reference filePricing Unit is included as a field in the NADAC reference file
inv-29: Pharmacy Type Indicator — 'C/I' meaning Chain/Independent
Indicator valuesPharmacy Type Indicator 'C/I' indicates data collected from Chain/Independent pharmacy surveys
Current useOther pharmacy type indicators are not used at this time
Role in calculationPharmacy Type Indicator denotes the source of survey data used to calculate the NADAC for each NDC
inv-30: OTC indicator definition ('Y'/'N')
DefinitionOTC indicates whether the NDC is for an over-the-counter product ('Y' or 'N')
Reference file fieldOTC is a field in the NADAC reference file associated with each NDC record
UseHelps identify whether the NADAC Per Unit pertains to prescription versus OTC products
inv-31: NDC Description (duplicate entry)
DefinitionNDC Description identifies the drug name, strength, and dosage form of the drug product
File orderingThe NADAC reference file is sorted by NDC Description in alphabetical order
Displayed fieldsPresented alongside NDC, NADAC Per Unit, Effective Date, and other metadata in the reference file
inv-32: NDC numeric code length — 11-digit
Numeric lengthThe National Drug Code (NDC) used for NADAC reporting is an 11-digit numeric code
FDA maintenanceThe NDC is maintained by the FDA and includes labeler, product, and package size codes
Reporting roleNADAC rates are reported at the 11-digit NDC level
inv-33: Old NADAC Per Unit — definition referencing previous file
Old NADAC Per UnitThe NADAC Per Unit value from the previous NADAC Reference File (prior period)
New NADAC Per UnitThe NADAC Per Unit value from the current NADAC Reference File (current period)
Purpose of distinctionOld and New NADAC Per Unit values are provided to compute percent change between files
inv-34: New NADAC Per Unit — definition referencing current file
New NADAC Per UnitThe National Average Drug Acquisition Cost per pricing unit from the current NADAC Reference File
Displayed withShown alongside Old NADAC Per Unit and Effective Date in the NADAC Week-to-Week Comparison File when rates change
UseUsed to determine percent change and primary reason for rate changes
inv-35: Classification for Rate Setting — brand/generic/B-ANDA labels explanation
Classification labelsIndicates whether the NDC was considered brand ('B') or generic ('G') for NADAC rate calculation
B-ANDA and B-BIONDCs approved under an ANDA may be labeled 'B-ANDA'; biosimilars are designated 'B-BIO' when considered brand
Derived inputsClassification uses CMS drug category (S/I/N) and category override status to determine final designation
inv-36: Percent Change — calculation definition
Percent Change calculationPercent Change = (New NADAC Per Unit - Old NADAC Per Unit) / Old NADAC Per Unit
Displayed usePercent Change is included in the Week-to-Week Comparison File to show magnitude of rate changes
Context for reviewLarge percent changes prompt further QA investigation to confirm price changes or data issues
inv-37: Start Date — initial NADAC file used in comparison
Start Date definitionStart Date indicates the initial NADAC file utilized in the comparison
Role in comparisonUsed with End Date to define the file range when calculating Old vs New NADAC values
Example usageIncluded as fields in the NADAC comparison datasets to document the time window of comparison
inv-38: End Date — latest NADAC file used in comparison
End Date definitionEnd Date indicates the latest NADAC file utilized in the comparison
Role in comparisonPaired with Start Date to establish the period over which Old and New NADAC Per Unit values are compared
File contextIncluded in the Week-to-Week Comparison File to show the most recent file date
inv-39: Effective Date — new effective date for the new NADAC rate
Effective Date definitionThe Effective Date indicates the new effective date for the New NADAC Per Unit cost
Assignment rulesChanged or added NADAC rates receive a new Effective Date; unchanged rates carry forward their prior Effective Date
Corresponding generic noteCorresponding Generic Drug NADAC Effective Date may differ based on the later-of assignment rule
Policy Summary
PayerColorado Department of Health Care Policy & Financing
PolicyMethodology for Calculating the National Average Drug Acquisition Cost (NADAC) for Medicaid Covered Outpatient Drugs
Policy CodePolicy N/A
Change TypeTemporary measure added for generic NADAC volatilityexample rate adjustments noted
Effective DateApr 1, 2016
Next Review Date
Key ActionRetail community pharmacies selected for the NADAC survey must submit wholesaler/distributor/manufacturer invoices or authorize suppliers to forward purchasing history within 10 calendar days.
SourceLink
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