actual acquisition cost (AAC)—The net cost of a drug paid by a pharmacy. A drug’s actual acquisition cost includes discounts, rebates, chargebacks, and other adjustments to the price of the drug, but excludes the pharmacy’s dispensing fees.
average manufacture price (AMP)—The average price paid to a manufacturer by wholesalers for drugs distributed to retail pharmacies.
average sales price (ASP)—The average sales price is derived from the sales from manufacturers to all purchasers and includes practically all discounts, but is limited in that it is only available for Medicare Part B–covered drugs.
average wholesale price (AWP)—A national average of price paid by pharmacies to purchase drug products from wholesalers in the supply chain.
beta blocker—A drug used to treat high blood pressure, irregular heartbeats, shaking (tremors), and other conditions.
biological products (biologics)*—A category of products regulated by the U.S. Food and Drug Administration, including vaccines, blood and blood components, allergenic compounds, somatic cells, gene therapy, tissues, and recombinant therapeutic proteins.
* This definition is from the Glossary included in the 2016 National Academies of Sciences, Engineering, and Medicine report Biomarker Tests for Molecularly Targeted Therapies: Key to Unlocking Precision Medicine. Washington, DC: The National Academies Press.
biomarker*—A characteristic that is objectively measured and evaluated as an indicator of normal biological processes, pathogenic sequences, or pharmacologic responses to an intervention.
catastrophic coverage phase—For example, in 2017 this phase begins when Medicare prescription drug plans and Medicare Advantage prescription drug plans beneficiaries’ out-of-pocket costs reach $4,950. During this phase, beneficiaries pay a small coinsurance or copayment for covered prescription drugs for the remainder of the year.
chemotherapy*—Treatment with drugs that kill cancer cells.
clinical endpoint*—A characteristic or variable that reflects how a patient feels, functions, or survives in response to an intervention.
clinical trial*—A formal study carried out according to a prospectively defined protocol that is intended to discover or verify the safety and the effectiveness of procedures or interventions in humans.
coinsurance—The percentage of costs of a covered health care service beneficiary will pay after a deductible has been met.
companion diagnostic*—The U.S. Food and Drug Administration designation for a medical device, often an in vitro device, which provides information that is essential for the safe and effective use of a corresponding drug or biological product. Co-development of a drug and companion diagnostic ensures faster access to promising new treatments for patients.
conflict of interest*—A set of circumstances that creates a risk that professional judgment or actions regarding a primary interest will be unduly influenced by a secondary interest.
copays—A fixed amount that a beneficiary will pay for a covered health care service after the deductible has been met.
cost sharing—The share of costs covered by a beneficiary’s insurance that he or she will pay out of pocket. This term generally includes deductibles, coinsurance, and copayments, or similar charges, but it does not include premiums, balance billing amounts for non-network providers, or the cost of non-covered services.
deductible—The amount a beneficiary will pay for covered health care services before the insurance plan starts to pay.
discount—A reduction of price granted to specified purchasers under specific conditions prior to purchase.
dispense as written—Written on a prescription by a clinician, indicates that the clinician wants the pharmacy to dispense the brand medication that is written on the prescription pad.
drug take-up—The acceptance of a drug therapy.
FDA approval*—The U.S. Food and Drug Administration (FDA) can approve a device after reviewing a sponsor’s premarket approval (PMA) application that has been submitted to the FDA. To acquire approval of a device through a PMA application, the applicant must provide reasonable assurance of the device’s safety and effectiveness.
FDA clearance*—The U.S. Food and Drug Administration (FDA) can clear a device after reviewing a sponsor’s premarket notification, also known as a 510(k) submission (named for a section in the Food, Drug, and Cosmetic Act), that has been filed with the FDA. To acquire clearance to market a device using the 510(k) pathway, the 510(k) applicant must show that the medical device is “substantially equivalent” to a device that is already legally marketed for the same use.
formulary—An approved list of medications that may be prescribed for a particular hospital, health system, health insurance policy, or pharmacy benefit.
generic substitution—A practice of substituting higher-cost brand drugs with lower-cost generics containing the same active ingredient(s).
health insurance risk pool—Special health insurance coverage programs for individuals whose health status limits their access to coverage in the private individual health insurance market often due to a pre-existing condition.
launch price—The price set by the manufacturer for a new drug when it is first available on the market.
list price—The prices that purchasers display as those at which they are prepared to sell their products and/or the prices regulated by legislation.
march-in rights—Allow the government, in specified circumstances, to require the contractor or successors in title to the patent to grant a
“nonexclusive, partially exclusive, or exclusive license” to a “responsible applicant or applicants.”
Medicaid—Medicaid provides health coverage to millions of Americans, including eligible low-income adults, children, pregnant women, elderly adults, and people with disabilities. Medicaid is administered by states, according to federal requirements.
Medicare—Medicare is the federal health insurance program for people who are 65 years or older, certain younger people with disabilities, and people with end-stage renal disease (permanent kidney failure requiring dialysis or a transplant, sometimes called ESRD).
new brands—Products on the market fewer than 24 months during the year reported.
out-of-pocket spending—The expenses for medical care that are not reimbursed by insurance and are the responsibility of the beneficiary to pay. Out-of-pocket costs include deductibles, coinsurance, and copayments for covered services plus all costs for services that are not covered.
patient management*—Decisions about the care and treatment of individual patients, based on information about their disease status and history.
pharmacy benefit managers (PBMs)—Develop and administer drug-benefit plans for employers and health insurers.
phase I clinical trial*—Clinical trial in a small number of patients in which the toxicity and the dosing of an intervention are assessed.
phase II clinical trial*—Clinical trial in which the safety and the preliminary efficacy of an intervention are assessed in patients.
phase III clinical trial*—Large-scale clinical trial in which the safety and the efficacy of an intervention are assessed in a large number of patients. The U.S. Food and Drug Administration generally requires new drugs to be tested in phase III trials before they can be put on the market.
premarket approval (PMA)*—U.S. Food and Drug Administration approval for a new test or device that enables it to be marketed for clinical use. To receive this approval, the manufacturer of the product must submit the clinical data showing the product is safe and effective for its intended use.
premarket notification or 510(k)*—A U.S. Food and Drug Administration review process that enables a new test or device to be marketed for clinical use. This review process requires a manufacturer to submit data showing the accuracy and precision of its product and, in some cases, its analytical sensitivity and specificity. The manufacturer also has to provide documentation supporting the claim that its product is substantially equivalent to one already on the market. This review does not typically consider the clinical safety and effectiveness of the product. (See also FDA clearance.)
protected brands—Products that are no longer “new” and have yet to reach patent expiry.
quality-adjusted life-year (QALY) index*—An index that combines measures of quality of life with length of life.
rebate—A payment made to the purchaser after the transaction has occurred.
safety net—Provision of health care services regardless of the means to pay by the patient. The patient population served includes a large proportion of uninsured, Medicaid, and other vulnerable patients with limited or no access to care.
section 340B—Section 340B of the 1990 U.S. Public Health Service Act provides discounts to qualifying hospital systems for the purpose of subsidizing accessible and affordable medical care among low-income and vulnerable patients.
specialty drugs—General term for medications that feature one or more of the following characteristics: highly expensive, complex molecularly (often derived from living cells), non-standard administration process such as via injection or infusion, limited availability or having a specialized distribution network, or indicated for a rare or complex syndrome.
tier—Prescription drug plans are often organized into different drug tiers. The tier in which a medication is placed determines a patient’s proportion of the drug cost.
wholesalers—Drug distribution companies that purchase drugs from the manufacturers and then sell them to pharmacies at negotiated prices.