NADAC stands for National Average Drug Acquisition Cost, and it represents what pharmacies actually pay to buy prescription drugs from wholesalers and manufacturers. Published by the Centers for Medicare & Medicaid Services (CMS), NADAC is the primary benchmark many state Medicaid programs use to reimburse pharmacies for outpatient prescriptions. Unlike older drug pricing benchmarks that were based on manufacturer list prices, NADAC is calculated from real invoice data collected directly from retail pharmacies across the country.
How NADAC Is Calculated
Every month, a contractor called Myers and Stauffer sends survey letters to a random sample of independent and chain retail pharmacies in all 50 states. The pharmacies are asked to voluntarily submit their purchase invoices from the previous month, covering all outpatient drugs bought from any wholesaler or manufacturer. The key data points collected are the drug’s national drug code (NDC), the unit price paid, the invoice date, and the quantity purchased.
Once the invoices come in, the data gets grouped by active ingredient, strength, dosage form, and route of administration. Each drug is also classified as brand or generic. To avoid skewing the average, only one price observation per pharmacy per drug is included. If a pharmacy submitted multiple invoices for the same drug, the most recent purchase date is used. If two invoices share the same date, the lowest cost wins.
There’s no fixed minimum number of invoices required to produce a NADAC rate, but at least five cost observations are used when prices are closely aligned. Discounts or rebates that don’t appear directly on the invoice line item are excluded from the calculation, as are purchases made through the 340B drug discount program, which offers steep discounts to certain safety-net providers and would pull the average artificially low.
Participation is voluntary, and pharmacies that complete a survey are held out of future surveys for three months. Mail-order and specialty pharmacies that operate as closed-door facilities are currently excluded, though specialty drugs available at retail pharmacies can have a NADAC rate if enough invoice data exists.
How Often Prices Are Updated
CMS updates the NADAC file weekly, with a full monthly release on the first Monday on or after the 15th of each month. That monthly file incorporates findings from the previous month’s survey along with any weekly price changes that occurred in the interim. This relatively frequent refresh helps NADAC track real market shifts more closely than benchmarks that update on longer cycles.
Starting in December 2024, CMS introduced a temporary change for generic drugs: monthly NADAC updates for generics now use a three-month moving average instead of a single month’s data. This was designed to smooth out rate volatility caused by fluctuations in survey participation. Brand drug rates are not affected by this change and continue to be calculated from each month’s survey data alone.
What Drugs NADAC Covers
The NADAC file includes both prescription and non-prescription (over-the-counter) drug products that qualify as Medicaid-covered outpatient drugs. Each product is labeled with one of four designations: “B” for brand, “G” for generic, “B-BIO” for biosimilars, or “B-ANDA” for brand drugs approved under an abbreviated new drug application. When a brand drug and its generic equivalent both exist, the file lists both rates so states can compare.
How NADAC Differs From AWP and WAC
Before NADAC, most state Medicaid programs reimbursed pharmacies based on Average Wholesale Price (AWP) or Wholesale Acquisition Cost (WAC). Both of those benchmarks have a fundamental problem: they don’t reflect what pharmacies actually pay.
WAC is the manufacturer’s list price to wholesalers. It’s set by the manufacturer and doesn’t include any discounts or rebates. AWP is even further from reality. Following litigation settled in 2009 over reports of inflated pricing, publishers now calculate AWP for brand drugs as 120% of WAC. For generic drugs, AWP isn’t even consistently tied to WAC and often fails to reflect price drops as more generic competitors enter the market.
The gap between these benchmarks is substantial. For brand-name drugs, NADAC typically runs about 5% below WAC and 20% below AWP. For generics, the difference is dramatic: NADAC falls 45% to 50% below WAC and 80% to 90% below AWP. That spread illustrates how far the older benchmarks had drifted from the prices pharmacies were actually paying at the invoice level.
How States Use NADAC for Reimbursement
State Medicaid programs have significant flexibility in how they set pharmacy reimbursement rates, but NADAC has become a central ingredient. Some states, like Alaska, use NADAC directly as their ingredient cost for reimbursement. Others use a “lower of” formula that compares NADAC against several other benchmarks. Maine, for example, reimburses generic drugs at the lowest of NADAC, the federal upper limit, WAC, the state’s own maximum allowable cost, the pharmacy’s submitted cost, the usual and customary price, or AWP minus 16.67%.
In practice, NADAC serves as the ingredient cost component of a pharmacy’s reimbursement. States then add a dispensing fee on top to cover the pharmacy’s operational costs of filling prescriptions. The combination of NADAC plus a dispensing fee is meant to ensure pharmacies are reimbursed fairly based on what they actually spend to stock their shelves, rather than on inflated list prices that bear little resemblance to real-world transactions.
Why NADAC Matters Beyond Medicaid
Although NADAC was designed specifically for Medicaid reimbursement, it has become a widely referenced transparency tool. Because it reflects actual acquisition costs collected through invoices, it offers a more honest picture of drug pricing than commercially published benchmarks. Employers, insurers, pharmacy benefit managers, and policymakers all reference NADAC when evaluating whether the prices they’re paying or charging are reasonable. The full NADAC data file is publicly available on Medicaid.gov and downloadable by anyone, making it one of the most accessible drug pricing datasets in the U.S. health system.