Managed Care Glossary

À la Carte Pharmacy Benefit 

A pharmacy benefit structure in which a health plan contracts with a pharmacy benefit manager (PBM) to administer selected services—such as claims processing, formulary management, or network contracting—while maintaining oversight and ultimate accountability for the overall pharmacy benefit. 

Access 

A patient’s ability to obtain and utilize healthcare services and products is determined by their availability and acceptability to the patient, geographic location of healthcare facilities, transportation options, hours of operation, patient preferences, and cost of care. 

Accountable Care Organizations (ACOs)  

Groups of doctors, hospitals, and other healthcare providers that voluntarily collaborate to deliver coordinated, high-quality care to health plan beneficiaries. ACOs are designed to improve health outcomes and reduce costs by emphasizing accountability and shared financial risk/reward. 

Adherence 

The extent to which a patient takes medications or follows a treatment regimen as prescribed, including correct dose, route, timing, and duration. Optimal adherence rates may vary by disease state and desired clinical outcome. Common methods for measuring adherence include Medication Possession Ratio (MPR) and Proportion of Days Covered (PDC). 

Adjudication 

The process—often automated—by which a payer or delegated entity (such as a pharmacy benefit manager) validates a healthcare claim, applies coverage rules and system edits, and determines whether to approve or deny payment. In pharmacy benefits, PBMs commonly perform real-time adjudication for prescription claims as part of their core services. 

Agency for Healthcare Research and Quality (AHRQ) 

A federal agency within the U.S. Department of Health and Human Services (HHS) dedicated to improving the safety, quality, effectiveness, and efficiency of healthcare for all Americans. AHRQ develops evidence-based tools, data, and research to support clinical practice, healthcare delivery, and policy decision-making. 

Alternative Payment Models (APM) 

A payment approach that moves away from traditional fee-for-service models by linking reimbursement to the quality, outcomes, and cost-efficiency of care over a defined period. APMs are designed to promote value-based care by encouraging provider accountability, care coordination, and improved patient outcomes. They may involve bundled payments, shared savings, capitation, or performance-based incentives. 

AMCP Research Institute (ARI) 

The AMCP Research Institute is a research-based resource that conducts and facilitates projects aligned with the mission of managed care pharmacy, contributing to the broader goal of improving public health in the United States. 

Annual Notice of Change (ANOC) 

A required annual document sent to Medicare Advantage and Part D plan members that outlines changes to plan benefits, costs, and coverage for the upcoming year. The ANOC helps beneficiaries compare plans and make informed enrollment decisions during open enrollment. 

Annuity-Based Contracts 

A multi-year agreement reimbursement model for a medical intervention, therapy, or device made in scheduled installments over time. These payments are often contingent on the product achieving pre-defined clinical outcomes, utilization benchmarks, or cost-effectiveness measures during the contract period. 

Antimicrobial Stewardship 

A coordinated program that promotes the appropriate use of antimicrobials to improve patient outcomes, reduce microbial resistance, and decrease the spread of infections caused by multidrug-resistant organisms. Antimicrobial stewardship aims to ensure the right drug, dose, and duration are used for each patient. 

Appeal (also known as Redetermination) 

A formal process by which a member, provider, or representative requests a review of an adverse coverage or payment decision made by a health plan or pharmacy benefit manager. In Medicare Part D, this is called a redetermination. Appeals ensure members have access to due process for denied claims or coverage determinations. 

Attribution 

In quality measurement, attribution is the process of assigning a patient’s care or outcome to a specific entity - such as a pharmacy benefit manager, health plan, hospital system, or provider group based on predefined rules or criteria. This enables accurate performance measurement and accountability. 

Authorized Generic 

A drug that is chemically identical to its brand-name counterpart but marketed without the brand name, typically at a lower cost. Authorized generics are produced under the brand manufacturer’s original New Drug Application (NDA), ensuring therapeutic equivalence to the brand product. 

Average Acquisition Cost (AAC) 

The average price that pharmacies pay to acquire a prescription drug. AAC may vary depending on factors such as pharmacy type, purchase volume, contracts with wholesalers, special pricing agreements, or prompt-pay (“cash”) discounts. 

Average Manufacturer Price (AMP) 

The average price that wholesalers pay to a pharmaceutical manufacturer for drugs to be distributed to retail pharmacies, calculated net of prompt-pay (“cash”) discounts and other price concessions. 

Average Sales Price (ASP) 

The average price a manufacturer receives for a drug or biologic from all purchasers, calculated net of discounts, rebates, chargebacks, and credits. For Medicare Part B drugs and biologics, ASP is determined by dividing the manufacturer’s total net sales revenue by the total units sold during a specific period. 

Average Wholesale Price (AWP) 

The average price that wholesalers sell a drug to their customers. It is not regulated by the government, and it serves as a commonly used pricing benchmark for many payers. AWP is thought of as a “sticker price” that rarely reflects the actual price after discounts and rebates are applied. 

Benchmark 

The external standard or predetermined performance threshold used to evaluate and compare the quality, efficiency, or effectiveness of healthcare services, providers, or organizations. 

Beneficiary (also called Eligible, Enrollee, Insured, or Member) 

An individual who is covered under a health care entity, including commercial insurance, Medicare, Medicaid, or other public or private program. 

Benefit Design 

The process of defining the scope, level, and structure of coverage for medical and pharmacy benefits, including which services are covered, cost-sharing requirements, and any limitations or exclusions. 

Biologics and Biosimilars Collective Intelligence Consortium (BBCIC) 

A non-profit research consortium that collects and analyzes real-world data to monitor the safety, effectiveness, and utilization of biosimilars and novel biologic therapies. BBCIC provides evidence to support informed decision-making about which medications deliver optimal health outcomes. 

A medication marketed under a proprietary trade name that is protected by a patent, granting exclusive rights to the manufacturer to produce and sell the drug for a specified period. 

Gatekeeper 

A healthcare provider, typically a primary care physician, who serves as the main point of contact for a patient’s medical care within certain health insurance plans, especially Health Maintenance Organizations (HMOs). The gatekeeper coordinates care, manages referrals to specialists, and helps control costs by ensuring appropriate use of healthcare services. 

Gene Therapy 

A medical intervention that treats or prevents disease by modifying a patient’s genetic material. Gene therapies are often high-cost, one-time treatments and may be subject to innovative payment models, such as annuity-based contracts or warranty models, in managed care pharmacy settings. 

Generic Drug 

A medication that contains the same active ingredient, strength, dosage form, and route of administration as a brand-name drug. Generic drugs are approved by regulatory authorities (such as the FDA) as therapeutically equivalent to the brand-name version, meaning they have the same efficacy, safety, side effects, and intended use. They are typically marketed after the brand-name drug’s patent expires and are usually sold at a lower cost. 

Generic Product Identifier (GPI) 

A hierarchical coding system developed by Medi-Span that classifies drugs based on their therapeutic use and chemical characteristics. The GPI code is typically up to 14 characters long, divided into segments that represent drug group class, subclass, base name, name, dosage form, and strength. Shorter versions of the GPI (e.g., 8, 10, or 12 characters) may be used to represent higher-level groupings, such as drug class or name, without specifying the dosage form or strength. The GPI system is widely used for drug utilization review, formulary management, clinical decision support, and claims processing. The GPI is a proprietary system developed and maintained by Medi-Span, which is now part of Wolters Kluwer Health. 

First Databank (FDB), on the other hand, does not use GPI codes. Instead, FDB uses proprietary identifiers such as GCN (Generic Code Number) for grouping drug products and HICL (Hierarchical Ingredient Code List) for ingredient-level classification. These codes serve similar purposes to GPI in supporting formulary management, drug utilization review, and claims processing. FDB also offers classification systems like the Enhanced Therapeutic Classification (ETC) and Generic Sequence Number (GSN) for broader grouping and therapeutic categorization. 

Generic Substitution 

The practice of dispensing a therapeutically equivalent generic drug in place of a prescribed brand-name drug, typically without requiring prior approval from the prescriber. Generic substitution is permitted when the generic has been approved by the FDA as bioequivalent to the brand-name drug. The process is governed by federal and state laws, which may vary in terms of whether substitution is mandatory or optional, and whether patient or prescriber consent is required. 

Gold/Clear Bagging 

A distribution model in which a health system-owned specialty pharmacy procures, prepares, and delivers physician-administered drugs directly to the site of care (e.g., hospital outpatient clinic or 

infusion center) for administration. This model helps maintain control within the health system, supports integrated care, and may streamline patient support and reimbursement processes. Unlike white bagging (from external specialty pharmacies), gold/clear bagging allows the health system to retain control over storage, handling, and clinical oversight of the therapy. 

Grievance 

A formal complaint submitted by a member regarding dissatisfaction with a health plan’s services, processes, or personnel, not related to coverage or payment decisions. Grievances are tracked and resolved according to regulatory requirements to ensure member rights and plan accountability. 

In-House Pharmacy 

An on-site pharmacy at the employer’s facility, which is usually the preferred pharmacy of the staff model/ group model/mixed model health maintenance organization (HMO). 

Indemnity Insurance (also called Fee-For-Service Plans) 

A traditional health insurance model in which healthcare providers are paid according to the service performed, and beneficiaries typically pay upfront for care and are later reimbursed by the insurer for healthcare expenses incurred. 

Independent Review Organizations (IROs) 

A third-party medical review entity that conducts impartial medical determinations to resolve coverage disputes or appeals, such as prior authorization denials. These determinations are based solely on clinical evidence, ensuring objective, unbiased decisions. 

Indication-specific Pricing (ISP) 

A pricing strategy used by payers that establishes different prices for drugs based on the clinical benefit provided for each FDA-labeled indication or for each distinct patient subpopulation treated by the drug. 

Institute for Clinical and Economic Review (ICER)  

An independent nonprofit organization that provides an independent source of evidence review through comprehensive clinical and cost-effectiveness analyses of treatments, tests, and procedures. 

Insurance Department (also called Insurance Commission) 

The acting government agency that holds the primary regulatory authority over insurance companies in each state. 

Integrated Delivery System/Network (IDS/IDN) A network of healthcare organizations and providers all under the same parent company that may include primary care providers, physicians, hospitals, pharmacies, and insurers to provide a coordinated continuum of services to a defined population. 

Integrated Pharmacy Benefit 

A pharmacy benefit that is developed and managed by the internal pharmacy department of the health plan, rather than by an external pharmacy benefit manager (PBM). 

Interchangeable Biosimilar 

May be substituted at the pharmacy for the reference product without the intervention of the prescribing healthcare provider – much like how generic drugs are routinely substituted for brand-name drugs. However, not all biosimilars are interchangeable. The manufacturer must seek specific approval from the FDA for their product to be considered interchangeable. Refer to the Purple Book for an FDA-approved list of licensed interchangeable biologics. 

Managed Care Organization (MCO) 

The general term for a health care company or health plan that manages a population to ensure cost-effective and quality care to the population; also, it may be called Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), or Point-of-Service Plan (POS), although the MCO may not conform exactly to any of these formats. 

Managed Care Pharmacy 

Managed care pharmacy is the application of clinical and scientific evidence to support the appropriate use of medications to enhance patient and population health outcomes while optimizing the use of limited health care resources. 

Managed Medicare (also called Medicare Part C or Medicare Advantage) 

An alternative to Medicare Fee-for-Service that provides Medicare Part A and B coverage and may come with Part D. Beneficiaries join a private Managed Medicare plan and see network providers only. 

Maximum Allowable Cost (MAC) 

The maximum amount that a state Medicaid agency or commercial plan will pay for generic drugs and brand-name drugs that have generic equivalents. A reimbursement limit per individual multiple-source pharmaceutical entity, strength, and dosage form (e.g., $0.50 per fluoxetine 20 mg capsule). 

Maximum Out-of-Pocket Costs 

The limit on total member copayments, deductibles, and co-insurance under a healthcare benefit contract. 

Medicaid 

A joint federal and state program that provides public assistance to eligible persons, regardless of age, whose income resources are insufficient to pay for healthcare. Most recipients are low-income women and children, as well as nursing homes and other long-term care services for the elderly and disabled. The federal government has general rules that all state Medicaid programs must follow, but each state runs its own program. 

Medicaid Drug Rebate Program (MDRP) 

A federal program requiring drug manufacturers to pay rebates to state Medicaid agencies for covered outpatient drugs dispensed to Medicaid beneficiaries. The MDRP ensures Medicaid pays competitive prices and supports program sustainability. 

Modular Pharmacy Benefit Administration (PBA)  

A flexible approach to pharmacy benefit management in which a plan sponsor contracts for selected administrative services, such as claims processing, formulary management, or network contracting, rather than a full-service PBM arrangement. Modular PBA allows customization and control over pharmacy benefit operations. 

Moral Hazard 

A risk that an individual’s behavior may change depending on whether or not they are insured. 

Multi-Ingredient Compound 

A prescription medication prepared by a pharmacist that combines two or more active ingredients, typically tailored to meet individual patient needs. Multi-ingredient compounds are subject to specific billing, reimbursement, and clinical review policies in managed care pharmacy. 

Patient Center Medical Health/Homes (PCMH)  

A model of the organization of primary care that delivers the core functions of primary healthcare to improve health and economic outcomes. The model encompasses five functions and attributes: comprehensive care, patient-centered care, coordinated care, accessible services, and quality and safety. 

Per Member Per Month (PMPM) 

A standard financial metric representing the average cost or utilization of healthcare services per enrolled member per month. PMPM is used for budgeting, actuarial analysis, and performance benchmarking in managed care. 

Per Member Per Year (PMPY) 

A financial or utilization metric representing the average cost or use of healthcare services per enrolled member per year. PMPY is used for annual budgeting, reporting, and trend analysis in managed care. 

Performance Guarantee 

A contractual commitment by a pharmacy benefit manager, health plan, or vendor to meet specified performance metrics—such as claims processing accuracy, turnaround time, or clinical outcomes—with financial penalties or incentives for non-compliance or achievement. 

Personal medication record (PMR) 

A comprehensive record of the patient’s medications (prescription and nonprescription medications, herbal products, and other dietary supplements). The PMR includes details such as medication names, dosages, and instructions, and is typically provided as part of Medication Therapy Management (MTM) to improve safety, adherence, and care coordination. 

Pharmacy and Therapeutics (P&T) Committee 

A multidisciplinary advisory body within a health plan or PBM that oversees formulary management and related clinical policies. The committee evaluates clinical evidence, safety, and cost-effectiveness to guide medication coverage and utilization decisions. Members typically include physicians, pharmacists, and nurses, and may also include legal experts, plan administrators, and patient representatives. 

Pharmacy Benefit Design 

Contractually specifies the level of coverage and types of pharmacy services available to health plan members. A sound pharmacy benefit design balances patient care outcomes, costs, quality, risk management, and provision of services expected by beneficiaries. The pharmacy benefit options can be integrated, carved out, or a la carte. 

Pharmacy Benefit Managers (PBMs) 

An organization that administers prescription drug benefits on behalf of health plans, employers, and other payers. PBM activities can encompass various services, including benefit plan design, establishing and managing retail and mail service networks, claims processing, and managed prescription drug services like drug utilization review, formulary management, generic dispensing, prior authorization, and disease management. 

Quality Adjusted Life Year (QALY) 

A measure of the state of health of a person or group in which the benefits, in terms of length of life, are adjusted to reflect the quality of life. One quality-adjusted life year (QALY) is equal to 1 year of life in perfect health. 

QALYs are calculated by estimating the years of life remaining for a patient following a particular treatment or intervention and weighing each year with a quality-of-life score (on a 0 to 1 scale). It is often measured in terms of the person’s ability to carry out the activities of daily life, and freedom from pain and mental disturbance. 

Quality Assurance (QA) 

A systematic effort or process to ensure requirements and quality standards are met. 

Quality Improvement (QI) 

A continuous, systematic process to enhance patient safety, care effectiveness, and overall experience by using an understanding of our complex healthcare environment, applying a systematic approach, and designing, testing, and implementing changes using real-time measurement for improvement. 

Quality Rating System 

CMS developed the quality rating system to compare the performance of each carrier based on a 5-star scale (5 is the highest) for the Health Insurance Exchanges. Ratings are based on measures of clinical quality, member experience, and plan efficiency. 

Rebate 

A discount that occurs after drugs are purchased from a pharmaceutical manufacturer and involves the manufacturer returning some of the purchase price to the purchaser. When drugs are purchased by a managed care organization, a rebate is based on volume, market share, and other factors. 

Reliability 

As a property of quality measures, reliability refers to a measure’s consistency in deriving results. A poorly reliable measure will yield different results when the actual level of quality has not changed. 

Risk Adjustment 

Quality measure results can be influenced by population characteristics, such as differences in age, comorbidity burden, or social factors. Risk adjustment provides a methodology to adjust for these differences to better measure the quality of care. 

Risk-Based Contract 

A contract that links reimbursement to the distribution of risk of a medical intervention or a manufactured product by measuring performance over a defined period of time. 

Self-Insured/Self-Funded 

Health coverage in which the employer (rather than an insurance company) bears the financial risk for any expenses incurred. Self-insured plans usually contract with a third-party administrator or insurance company to pay claims, determine eligibility, etc.