Pharmacy & Health Benefits Glossary

Average Wholesale Price (AWP) is a benchmark used in the pharmaceutical industry to estimate the cost of prescription drugs. Often referred to as the "sticker price," it serves as a reference point for pricing and reimbursement negotiations between pharmacies, insurers, and other stakeholders. AWP is published by drug pricing databases and can vary based on the drug type and manufacturer. It is not necessarily the actual price paid by pharmacies or consumers, but it is widely used across the industry as a starting point for drug cost calculations.

A benefit year is the 12-month period during which a health plan's coverage terms, deductibles, and out-of-pocket maximums apply before they reset. Many plans align the benefit year with the calendar year, running January 1 through December 31, though some sponsors choose a different start date. Deductibles and accumulators reset at the close of the benefit year, which affects what members pay for care in the period that follows.

Biosimilar biological products, or biosimilars, are medicines highly resemblant to an already-approved biologic, with noclinically meaningful differences in safety, purity, or effectiveness. The FDA approves biosimilars after rigorous testing, and they typically cost less than the reference biologic, lowering prescription spending for plans and members. Biosimilar adoption has become one of the most closely watched cost-containment strategies in specialty drug management, though uptake still depends heavily on formularyplacement and rebate incentives.

Brand name drugs are prescription medications sold under a manufacturer's proprietary trademark, typically while the drug remains under patent protection. Brand name drugs generally cost more than their generic equivalents, reflecting the manufacturer's investment in research, development, and marketing. Where a brand name drug sits on a formulary determines member copayments and shapes whether lower-cost generic or biosimilar alternatives are available.

Care coordination is the deliberate organization of a patient's care across providers, settings, and services to improve outcomes and avoid duplicated or conflicting treatment. Effective care coordination connects primary care physicians, specialists, pharmacists, and care managers so that everyone works from the same information. For members managing chronic or complex conditions, strong care coordination reduces gaps in treatment, eliminates unnecessary costs, and smooths the overall care experience.

The Centers for Medicare & Medicaid Services (CMS) is the operating division within the Department of Health and Human Services that runs Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and the federal health insurance marketplace. CMS establishes the clinical standards, quality metrics, pricing models, and compliance rules that govern federal healthcare programs like the Medicare Prescription Payment Plan (MPPP). Its policies and reimbursement frameworks frequently referenced across the broader healthcare and health insurance industries.

A claim is a request for payment that a healthcare provider or member submits to a health plan after a covered service, prescription, or supply is delivered. The plan reviews the claim, applies the member's benefits, and determines what it pays and what the member owes. Accurate, timely claims processing sits at the center of a well-run health plan, since it directly affects provider payments and member out-of-pocket costs.

Coinsurance is the percentage of a covered healthcare cost a member pays after meeting the plan deductible, with the health plan responsible for the remainder. With 20% coinsurance, a member owes $20 of a $100 covered service while the plan pays the other $80. Coinsurance is one of several cost-sharing mechanisms, alongside copayments and deductibles, that plans use to structure member liability across the benefit year.

A Concurrent Drug Utilization Review (CDUR) is a real-time clinical safety check that happens exactly when a pharmacist processes a prescription. The system automatically screens a patient's new prescription against their current medication history to identify potential issues such as harmful drug interactions, incorrect dosages, and duplicate therapies. CDUR is a standard component of pharmacy benefit management and is required under Medicaid programs.

COB (Coordination of Benefits) is the process health plans use to determine which plan pays first when a person is covered by more than one health plan. COB prevents duplicate payments and establishes clear rules for the primary and secondary payer, so total reimbursement does not exceed the actual cost of care. For members with overlapping coverage, this process clarifies payment responsibility and keeps claims moving without delay.

A copayment, or copay, is a fixed dollar amount a member pays for a covered healthcare service or prescription, such as $25 for a doctor visit or $15 for a generic drug. Unlike coinsurance, a copay stays the same regardless of the total cost of the service. Copayments are a predictable form of cost-sharing that plan sponsors often use to steer members toward lower-cost care settings and generic drugs.

CAPS (Core Administrative Processing System) is the central software platform that health plans, payers, and third party administrators (TPAs) use to manage core functions like enrollment, eligibility, benefit configuration, claims processing, and member billing. A modern CAPS connects these workflows in one place, reducing manual errors, speeding up claims adjudication, and giving plan sponsors clearer visibility into how plan dollars are spent. For self-funded employers, CAPS works alongside a TPA or Health Benefits Administrator to turn plan design into accurate, timely payments.

A Deductible (DED) is the amount a health plan member pays out-of-pocket for covered medical services before the plan begins paying its share. Deductibles reset annually and vary across plan designs, including high-deductible health plans, which pair lower monthly premiums with high upfront cost-sharing. A deductible differs from a copay, which is a fixed fee paid per transaction regardless of whether the deductible has been met, and from the out-of-pocket maximum, which caps a member's total annual cost-sharing liability.

Dental coverage is insurance that helps pay for the cost of dental care, including preventive services like cleanings and exams, as well as fillings, extractions, and other treatments. Dental coverage may be offered as a standalone plan or bundled with a medical plan, with benefits typically organized into tiers based on the type of service. Bundling dental with medical and pharmacy benefits under one administrator can simplify plan management and improve the member experience.

The Department of Health and Human Services (HHS) is the U.S. federal agency responsible for protecting public health and administering major healthcare programs, including Medicare, Medicaid, and theHealth Insurance Marketplace. HHS sets and enforces many of the rules that shape health insurance, privacy protections, and care standards nationwide. For plan sponsors and members, HHS guidance frequently defines what coverage must include and how plans are permitted to operate.

Dispense as Written (DAW) is an instruction on a prescription that directs pharmacists to dispense the exact brand-name drug specified by the prescribing physician rather than a therapeutically equivalent generic. When a DAW code is present, the pharmacy cannot substitute a cheaper generic version without explicit authorization. Pharmacy benefit managers and health plans use a standardized set of DAW codes to process claims accurately, distinguish between physician-directed and patient-requested brand dispensing, and apply the appropriate cost-sharing rules. DAW codes can also vary by state, as some jurisdictions have specific regulations governing generic substitution.

A Drug Management Program (DMP) is a structured, clinical approach that health plans and pharmacy benefit managers use to monitor and manage medication use among plan members. These programs typically target high-risk medications such as opioids, apply utilization management strategies, and support safe and appropriate prescribing patterns. DMPs may include step therapy protocols, prior authorization requirements, and pharmacist outreach to reduce misuse, prevent adverse events, and promote clinically appropriate medication pathways.

An Enterprise Health Platform (EHP) is a unified technology system that consolidates the administration of healthcare benefits, pharmacy programs, clinical data, and member management into a single integrated environment. EHPs are designed to replace fragmented, siloed systems by connecting employers, health plans, members, and clinical providers through a centralized platform. Judi, developed by Judi Health, is an AI-powered enterprise health platform built for pharmacy, medical, dental, & vision benefits administration.

Enterprise Health Tech (EHT) refers to the category of digital tools and platforms organizations use to manage complex medical benefits, clinical data, and pharmacy programs. These systems typically provide real-time visibility into claims data, utilization trends, and member outcomes, and are designed to integrate across benefit administration, pharmacy, and clinical functions.

EOB (Explanation of Benefits) is a statement a health plan sends after a claim is processed, showing what a provider billed, what the plan paid, and what the member may owe. An EOB is not a bill; it summarizes how coverage applied to a specific service, including any discounts, copayments, coinsurance, or deductible amounts. Reviewing an EOB against the original claim helps identify billing errors and clarifies true out-of-pocket costs.

The Family and Medical Leave Act (FMLA) is a federal law that allows eligible employees to take up to 12 weeks of unpaid, job-protected leave each year for specific family and medical reasons, such asa serious health condition or the birth of a child. Group health coverage typically continues during FMLA leave on the same terms as active employment.Employers rely on FMLA compliance to protect both their legal standing and their employees' continued access to benefits.

Fee for Service (FFS) is a payment model in which healthcare providers are paid separately for each individual service, test, or procedure delivered. FFS is straightforward to administer, but it can reward higher volumes of care over better outcomes, which is part of why many plans are exploring value-based alternatives. Understanding how FFS shapes provider incentives helps plan sponsors evaluate whether their spending is translating into better care.

A flexible benefits plan, often called a cafeteria plan, is an employer-sponsored arrangement that lets employees choose from a menu of pre-tax benefits to fit their individual needs. Options within a flexible benefits plan can include health coverage, flexible spending accounts, dependent care assistance, and more. Letting employees tailor their selections stretches benefit dollars further and tends to improve satisfaction across a diverse workforce.

A Flexible Spending Account (FSA) is an employer-sponsored account that lets an employee set aside pre-tax dollars for eligible healthcare expenses like copayments, prescriptions, and certain medical supplies. Because contributions are deducted before taxes, an FSA lowers taxable income as well as out-of-pocket costs. Most FSAs follow a"use it or lose it" rule within the benefit year, so accurate expense estimates matter at enrollment.

A formulary is the list of prescription drugs a health plan covers, typically organized into tiers that determine member cost sharing for each medication. Formularies generally place generics on lower-cost tiers and brand name or specialty drugs on higher ones, which shapes both prescribing patterns and out-of-pocket costs. Formulary design has become a central lever in managing pharmacy spend, particularly as plans weigh biosimilar-first strategies against rebate-driven brand placement.

Generic drugs are prescription medications that contain the same active ingredients, strength, dosage form, and intended use as their brand name counterparts, at significantly lower cost. The FDA requires generics to meet the same quality, safety, and effectiveness standards as brand name versions. Favoring generics, when clinically appropriate, remains one of the most direct ways plan sponsors reduce prescription drug spending without compromising care.

A group health plan is health coverage offered by an employer, union, or other organization to a defined group of members, such as employees and their dependents. Group health plans can be fully insured or self-funded, and self-funded structures face increasing fiduciary transparency requirements under ERISA and the Consolidated Appropriations Act. For employers, how a group health plan is funded and administered directly shapes both cost predictability and compliance exposure.

Health benefits are the coverage and services an employer or insurer provides to help members pay for medical, prescription, dental, vision, and related care. A well-designed health benefits package protects members from high costs, supports preventive care, and helps employers attract and retain talent. Balancing meaningful coverage with cost control is the central challenge plan sponsors face in structuring health benefits year over year.

A Health Benefits Administrator (HBA) is an entity that manages the day-to-day operations of an organization's employee benefit programs, including claims processing, open enrollment, regulatory compliance, and member communications. HBAs may be internal staff, third-party administrators, or technology-enabled platforms that centralize benefit administration functions.

A Health Benefits Manager (HBM) is a professional or organizational role responsible for designing, overseeing, and administering an employer's medical and benefits offerings. Responsibilities typically include evaluating plan designs, negotiating with vendors, analyzing claims data, and ensuring the benefit program meets both regulatory requirements and workforce needs.

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer-funded benefit that reimburses employees tax-free for individual health insurance premiums and qualified medical expenses. Rather than offering a traditional group health plan, an employer sets a fixed allowance and employees select coverage that fits their needs, often through the Health Insurance Marketplace. An ICHRA gives employers more predictable costs while giving employees greater choice and portability in their coverage.

An individual health insurance policy is coverage purchased directly by a person, rather than through an employer or group, either from an insurer or through the Health Insurance Marketplace. An individual policy covers the policyholder and any dependents enrolled on the plan, and enrollees may qualify for income-based premium subsidies. For people who are self-employed, between jobs, or without access to a group health plan or ICHRA, an individual policy remains a primary path to coverage.

In-patient care is medical treatment that requires formal admission to a hospital or facility for an overnight stay or longer.In-patient care typically involves more complex services, such as surgery, intensive monitoring, or extended treatment, and is billed differently from outpatient care. Whether a service is classified as inpatient directly affects how a member's benefits and cost sharing apply.

An insurance co-op is a member-owned, nonprofit health insurer created to offer competitive, consumer-focused coverage, with any surplus reinvested to lower costs or expand benefits. Insurance co-ops were established to increase choice and competition in the health insurance market, operating in members' interests rather than those of outside shareholders. For consumers, a co-op represents an alternative source of coverage built around value and accountability rather than profit.

The Maximum Allowable Cost (MAC) is the highest reimbursement amount a payer will pay a pharmacy for a specific generic or multi-source brand drug. Pharmacy benefit managers maintain MAC lists that set reimbursement ceilings across their pharmacy networks to control drug spending and reduce price variation. MAC pricing applies broadly across commercial health plans, and government programs including Medicaid and Medicare Part D use similar cost-containment mechanisms for generic drug reimbursement.

A Maximum Out-Of-Pocket (MOOP) is the highest amount a health plan member will pay for covered, in-network healthcare services within a single plan year. Once a member reaches the MOOP threshold, the health plan covers the full cost of covered services for the remainder of the year. The MOOP is distinct from the deductible, which is the amount a member pays before cost-sharing begins, though deductible spending typically counts toward the MOOP. Federal regulations establish annual MOOP limits for plans sold on the health insurance marketplace and for Medicare programs.

Medication Therapy Management (MTM) is a structured clinical service in which a pharmacist works directly with patients to review their current prescriptions, identify potential drug interactions, and optimize their overall medication regimen. MTM programs are designed to improve therapeutic outcomes, reduce unnecessary therapies, and support patients managing multiple chronic conditions. These programs are a required benefit under Medicare Part D and are commonly offered through pharmacy benefit managers.

The National Average Drug Acquisition Cost (NADAC) is a federal benchmark that reflects the average invoice costs retail pharmacies pay to acquire drugs from manufacturers and wholesalers. Published weekly by the Centers for Medicare and Medicaid Services (CMS), it is based on survey data collected directly from retail pharmacies across the country. State Medicaid programs and some commercial health plans use NADAC as a reference point for pharmacy reimbursement rates and drug pricing evaluation.

The National Provider Identifier (NPI) is a unique, ten-digit identification number issued to covered healthcare providers in the United States. Established under HIPAA, the NPI serves as a standard identifier for physicians, hospitals, pharmacies, and other healthcare entities across all administrative and financial transactions. Provider credentials can be verified through the publicly accessible NPI registry maintained by CMS.

Per Employee Member Per Month (PEMPM) is a billing and cost measurement metric that accounts for all individuals enrolled under an employee's benefit plan, including the primary subscriber, spouse, and dependents. Unlike PEPM, which counts only the primary employee, PEMPM provides a more complete view of total benefit costs across a covered population.

Per Employee Per Month (PEPM) is a billing metric used by vendors, insurers, and pharmacy benefit managers to charge organizations a flat rate per eligible employee each month for administrative or benefit services. PEPM is calculated by dividing the total monthly cost of a service by the number of eligible employees. It provides a predictable cost structure that simplifies budgeting for benefit programs.

Per Member Per Month (PMPM)  is a standard cost measurement and billing unit in healthcare that distributes total costs across all enrolled members, including dependents, within a given month. PMPM is calculated by dividing the total monthly cost of a health plan or service by the total number of enrolled members. It provides a consistent basis for comparing costs across plans, populations, and time periods.

Pharmacogenomics (PGX) is the study of how an individual's genetic makeup influences their response to medications. By analyzing genetic variations, pharmacogenomic testing helps identify which drugs are likely to be effective, ineffective, or potentially harmful for a specific patient. The field combines pharmacology and genomics to support more precise prescribing decisions and reduce adverse drug reactions. PGx testing is increasingly integrated into benefit plans as a tool for improving clinical outcomes and reducing spending on ineffective therapies.

Pharmacy Audit and Recovery Benefit Solutions (PARBS) is a structured approach to identifying and recovering funds lost to billing errors, duplicate claims, and contractual violations within pharmacy benefit programs. PARBS processes typically involve systematic review of claims data across retail and specialty pharmacy transactions, as well as cross-referencing pharmacy and medical benefits to identify improper billing.

A Pharmacy Benefit Administrator (PBA) processes pharmacy claims and manages benefit data on behalf of health plans without taking ownership of drug spreads or rebates. Unlike a traditional PBM, a PBA functions as a purely administrative intermediary, handling claims adjudication, formulary administration, and reporting without the financial arrangements that characterize full PBM models.

A Pharmacy Benefit Manager (PBM) is an intermediary organization that administers prescription drug benefits on behalf of health plans, employers, and other payers. PBMs negotiate drug pricing with manufacturers and wholesalers, develop and maintain pharmacy networks, manage formularies, process claims, and administer clinical programs. They play a central role in determining how prescription drugs are accessed and priced for plan members.

Proportion of days covered (PDC) is a medication adherence metric that measures the percentage of days during a given period that a patient has access to their prescribed medication. PDC is calculated by dividing the number of days a patient has medication on hand by the total number of days in the measurement period. A PDC of 80 percent or higher is generally considered indicative of adequate adherence. The metric is commonly used in chronic disease management to identify patients at risk of gaps in therapy.

RCM (Revenue Cycle Management) is the financial process healthcare providers use to track patient care from appointment scheduling through final payment This includes eligibility verification, coding, claims submission, and collections. Strong RCM reduces denied claims, shortens payment timelines, and keeps provider cash flow healthy. For payers and plan sponsors, clean RCM on the provider side translates into faster, more accurate claims and fewer disputes downstream.

‍

A TPA (third party administrator) is an organization that handles the day-to-day administration of a health plan on behalf of an employer or insurer, including claims processing, eligibility management, member services, and provider payments. Self-funded employers typically contract with a TPA to administer benefits without assuming insurance risk directly, and independent TPAs generally offer greater plan design flexibility than carrier-owned models. A transparent TPA gives plan sponsors visibility into where healthcare spend goes, supporting cost control and stronger fiduciary oversight.

Utilization Management (UM) is the process of evaluating the medical necessity, appropriateness, and efficiency of healthcare services. In pharmacy benefit administration, UM programs use clinical tools such as prior authorization, step therapy, and quantity limits to ensure that medications are prescribed and dispensed in accordance with evidence-based guidelines. UM is a standard function of pharmacy benefit management and is designed to support appropriate care while managing overall plan costs.