Cash prices, PBM contracts and usual and customary pricing

The short answer

You can quote cash prices to most patients, and two federal laws signed in October 2018 stop most plans from penalizing you for telling an insured patient that paying cash would cost less; for Medicaid patients, check your state’s rules first. What a cash price can change is your reimbursement on insured claims, through the usual and customary (U&C) price your network contracts ask you to submit on every claim. That is a contract question, and the answer depends on how each contract defines U&C.

This guide sets out what the federal rules say, how the definitions differ, what the main enforcement cases were about, and a checklist to run before you quote cash prices, whether at your counter or on a marketplace such as Script Unlock. It is general information, not legal advice. Your pharmacy services administrative organization (PSAO), if you use one, or a pharmacy attorney can read the contracts you have actually signed.

Telling patients cash is cheaper: the 2018 gag clause laws

Before 2018, some PBM contracts included gag clauses that stopped pharmacists from telling insured customers when the cash price was lower than their copay. Two laws signed on October 10, 2018 ended that for most coverage.

The Patient Right to Know Drug Prices Act (Public Law 115-263) covers group health plans and health insurance issuers, including the PBMs that run their pharmacy benefits. They may not restrict, directly or indirectly, a pharmacy from telling an enrollee about any difference between the enrollee’s out-of-pocket cost under the plan and what they would pay without using insurance, and they may not penalize a pharmacy for doing so.

Its Medicare companion (Public Law 115-262) puts the same rule on Medicare Part D plans and Medicare Advantage plans with drug coverage, for plan years beginning on or after January 1, 2020. The plan may not restrict or penalize a pharmacy for telling an enrollee that the price they would pay without insurance is lower than their negotiated price, copayment or coinsurance.

These laws protect the conversation. They do not settle what a cash sale does to the U&C price you report, which is where the real questions are.

What usual and customary means, and why it differs

Every claim you submit carries a usual and customary price, and payers use it when they work out what to pay. There is no single definition. Each payer writes its own, and the wording decides which of your cash sales count. Four examples show the range.

• Prime Therapeutics’ network terms define U&C by reference to a particular cash customer: the least the pharmacy “would charge to a particular customer if such customer were paying cash for the identical Prescription Drug Services on the date dispensed,” including senior discounts, frequent shopper discounts and other special discounts offered to attract customers. The same terms require an accurate U&C on every claim.
• Texas Medicaid uses the price the provider most frequently charges the general public for the same drug, or the median if no most frequent price can be found. Discounts offered to any segment of the general public count when a Medicaid client would have qualified for them, and where a pharmacy uses one pricing policy for cash customers and another for charge customers, the lower of the two is its U&C.
• Medicare Part D regulations define U&C as the price an out-of-network pharmacy or a physician’s office charges a customer with no drug coverage for a covered Part D drug. For claims inside a network, your contract with the plan or its PBM sets the terms.
• Federal Medicaid rules set an upper limit, in the aggregate, on what a state pays for brand-name drugs and other drugs without a federal upper limit: the lower of actual acquisition cost plus a professional dispensing fee, or providers’ usual and customary charges to the general public. Multiple-source drugs that have a federal upper limit are held to that limit instead.

How a cash price can become a ceiling on what plans pay

U&C matters because many payment formulas pay the lowest of several prices, and your U&C is one of them. State Medicaid programs commonly pay claims that way, within the federal limit. CMS’s Part D manual gives the example of a pharmacy that sells a generic for four dollars all year when the plan’s negotiated price is ten dollars: the plan treats the four dollars as replacing its negotiated price and adjudicates the claim at four dollars, so the enrollee’s 25 percent copay falls from 2.50 dollars to 1 dollar. PBM contracts can work the same way; the payment formula is in each network’s rate exhibit or provider manual, which may be separate from the general terms, so check yours.

So a cash price only changes your insured income where it is lower than what a plan would otherwise pay you for the same drug and quantity. If a plan already pays less than your cash price, it pays the same as before. If it pays more, a cash price that counts as your U&C brings that plan’s payment down to it.

Before you set cash prices for the drugs you expect to quote often, compare them with what each plan has recently paid you for those drugs, using your remittances. For some drugs nothing changes. For others you face a choice: quote at a level that keeps the ceiling above what your plans pay, or accept a lower ceiling on that drug because winning the cash patient is worth more to you.

What the enforcement cases were about

The cases that made U&C famous were not about pharmacies charging cash patients too little. They were about reporting a higher U&C to government programs than the price cash customers actually paid.

• Garbe v. Kmart (Seventh Circuit, May 27, 2016). Kmart sold generics through discount programs with minimal barriers to joining, while reporting its higher non-program prices as U&C on Medicare Part D claims. The court held that members of a program offered to the general public are the general public, so the discounted prices were the U&C, and said that letting a pharmacy “insulate high ‘usual and customary’ prices by artificially dividing its customer base would undermine a central purpose” of the rules. In December 2017 Kmart paid 32.3 million dollars to settle allegations covering Medicare Part D, Medicaid and TRICARE.
• Walgreens (January 22, 2019). Walgreens agreed to pay the states and the federal government 60 million dollars to resolve allegations that it reported U&C prices to state Medicaid programs that were higher than the prices it charged members of its Prescription Savings Club.
• Schutte v. SuperValu (U.S. Supreme Court, June 1, 2023). In a case alleging that a grocery chain’s pharmacies reported their regular prices as U&C while price-matching cash customers down to lower prices, a unanimous Court held that the False Claims Act’s knowledge requirement turns on what the defendant actually knew and believed, not on what an objectively reasonable person might have known or believed.

Individual quotes versus a published price list

A question that comes up with marketplaces is whether a price quoted for one request counts the same way as a published cash price list. It depends on the definition. A particular-customer definition describes exactly that situation: the price you would charge that customer, paying cash, on that day. A most-frequent-price definition may not move for an occasional quote, but a price you quote on every request for a drug soon becomes the price you charge most often.

CMS drew a related line in its Part D manual. A low price that a pharmacy offers its customers throughout the year, like the four dollar generics in its example, is the pharmacy’s U&C price, and the claim goes through the plan at that price. A one-time special price or other discount is a lower cash price, and an enrollee who pays it in a phase where they pay the full cost, such as the deductible, can send the documentation to their plan. Where your quotes fall depends on how consistently you quote them. Do not assume a quote sits outside U&C because it went to one person.

Medicare and Medicaid patients who want to pay cash

A Medicare Part D enrollee may buy a covered drug at a lower cash price instead of using the benefit, and their plan cannot stop you from telling them the cash price is lower. CMS’s manual says that when an enrollee makes such a purchase in a phase where they pay the full cost, such as the deductible, it can count toward their drug spending and out-of-pocket total once the plan has the documentation, which the enrollee is responsible for sending. A clear receipt showing the drug, quantity, date and price makes that easy.

Medicaid is stricter. Federal rules require each state to limit participation to providers who accept the Medicaid payment, plus any required cost sharing, as payment in full, and your state’s Medicaid rules and provider manual govern when, if ever, a provider may charge a member for a covered drug. If a patient tells you they have Medicaid, check your state’s rules before quoting a cash price.

A checklist before you quote cash prices

Run through this once, then again whenever a contract renews.

• Pull the U&C definition from each network agreement and provider manual you are bound by, including the ones your PSAO signed on your behalf.
• Note whether each uses particular-customer, most-frequent-price or general-public wording, and whether it names discounts, savings clubs or price matching.
• Pick one cash price per drug, strength and quantity, and use it for walk-ins and marketplace quotes alike.
• Make sure the U&C your pharmacy management system submits matches that price under each definition.
• For the drugs you expect to quote often, compare your cash price with what each plan has recently paid you.
• If you are a Medicaid provider, read your state’s provider manual on charging members cash.
• Keep a dated record of the cash prices you charge, in case of an audit.
• Ask your PSAO or a pharmacy attorney about anything your contracts leave unclear.

Where a marketplace quote fits

On Script Unlock, a patient uploads a prescription they intend to pay cash for, verified pharmacies that serve them can quote their own price, and the patient pays the pharmacy they choose when they collect. Script Unlock submits nothing to any plan and never handles the patient’s money, so the sale is a cash sale in your own system.

That also means nothing about the platform changes how your contracts define U&C. Treat a quote like any other cash price: set it from your costs, keep it consistent with what you charge at the counter, and make sure the U&C you submit to plans reflects it wherever your contracts say it must.