Dispensing Fee

Key facts

Medicaid definition

Professional dispensing fee, 42 CFR 447.502

Medicaid policy basis

2016 Covered Outpatient Drugs final rule

Part D definition

42 CFR 423.100

Set by

State Medicaid plans, or negotiated in PBM and Part D pharmacy contracts

What is a dispensing fee?

Pharmacy reimbursement is usually built from two parts: an ingredient cost for the drug itself and a dispensing fee for the service of dispensing it. Patient cost sharing is then subtracted from the total the payer owes the pharmacy.

The ingredient cost may be based on NADAC, a Maximum Allowable Cost (MAC) list, a discount off Average Wholesale Price or another benchmark. The dispensing fee covers the rest of the work: checking coverage and drug utilization, measuring or mixing the drug, filling the container, counseling, delivery where applicable, and overhead such as the facility and equipment.

How dispensing fees are set

Fee setting differs by payer:

• Medicaid fee-for-service: under the 2016 Covered Outpatient Drugs final rule, states pay ingredient cost based on actual acquisition cost plus a professional dispensing fee reflecting the cost of dispensing, usually supported by a cost of dispensing survey and approved through a state plan amendment.
• Tiered Medicaid fees: some states pay different fees based on a pharmacy's annual prescription volume or for specialty and compounded drugs.
• Medicare Part D and commercial plans: fees are negotiated in pharmacy network contracts with pharmacy benefit managers and are often much lower than Medicaid fees.
• Medicare Part B: pays supplying fees for certain oral anticancer, oral antiemetic and immunosuppressive drugs, and a dispensing fee for inhalation drugs used with a nebulizer.
• Medicaid managed care: plans set their own pharmacy rates unless the state requires them to follow fee-for-service methods.

Why dispensing fees matter

As Medicaid ingredient cost payment moved toward acquisition cost benchmarks such as NADAC, pharmacies lost the markup that once covered operating costs, so the dispensing fee became the main source of margin on many Medicaid prescriptions. Low fees combined with tight generic MAC rates are a frequent concern of independent pharmacies.

Analysts modeling pharmacy economics, Medicaid spending or PBM contract terms need both components, because a lower ingredient cost paired with a higher dispensing fee can produce the same total payment. Comparing fees across state Medicaid programs can also help explain differences in pharmacy participation and access.