– The amount of money a doctor or supplier charges for a certain medical
service or supply. This amount may
be more than the allowable charge by a health plan.
ADR – Adverse Drug
Reaction – The reaction to an
administered drug that results in a health or life threatening condition.
ADS – Alternate
Delivery System - All forms of
healthcare delivery other than traditional fee-for-service.
This would include just about all managed care organizations (MCOs).
– The maximum amount that a third party will reimburse a provider for a given
service. An allowable charge may not be the same as a usual, customary
or reasonable charge.
– Charges for services rendered or supplies furnished by a health provider
that qualify for a health plan reimbursement.
– All types of healthcare services rendered on an outpatient basis or that do
not require overnight hospitalization.
– Auxiliary or supplemental professional services provided by a hospital or
other healthcare facility, such as radiology, pharmacy, and laboratory services.
Any willing provider
– often the result of legislation requiring a managed care organization to
accept as part of their network any provider who wishes to participate and is
willing to meet provisions outlined
in the plan.
– The payment of medical benefits directly to the provider rather than to the
member or individual, usually at some pre-designated fee.
AWP – Average Wholesale Price – The published suggested wholesale price of a drug. It is often used by pharmacies as a cost basis for pricing prescriptions. While a reliable pricing reference for brand-name drugs, it can be misleading in the case of generic drugs, since each manufacturer establishes its own AWP for the same generic drug. This can result in a broad range of prices for the identical product. Few, if any, wholesalers consider AWP, today, when pricing for their pharmaceutical products; however, it is commonly used by retailers and others who dispense medications as the basis for many pricing decisions. Published prices are based primarily upon information provided by manufacturers and supplemented by other data sources, such as Drug Topics’ Red Book. Because of its availability from many sources, AWP is used as a surrogate for actual prices when studying prescription-pricing trends.
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– The process of comparing a health plan’s own data with industry averages
or top performers for the purpose of improving
plan economics or quality of
– An individual who is designated as eligible for healthcare benefits under
some type of insurance or health plan contract.
– the process of determining what types and what level of coverage should be
included in a specific health plan product.
price – In the context of
OBRA ’90, the most favorable price offered by a pharmaceutical company to
customers in the United States.
interchange – The substituting
of one brand-name prescription drug for another based on them being chemically
– The trademarked name of a drug identifying it as a product of a specific
Buying group – An organization of multiple independent buying sources which uses the leverage of its members’ collective buying power to gain preferred pricing and terms from manufacturers and wholesalers.
– A reimbursement system covering a specified time period, usually monthly, in
which healthcare providers receive a fixed fee for every patient served
regardless of how many or how few services the patient uses.
– The primary person in whose name a health plan identification card is
– The number assigned to the cardholder for identification purposes.
Most often health plans use the cardholder’s Social Security number.
– The organization or entity which is the insurer or administrator responsible
for paying for or reimbursing claims for allowed healthcare services under a group insurance policy or some other health plan structure.
– The separate purchase of a service that is normally a part of an indemnity
or managed care health plan. This
could include areas like behavioral programs, radiological services, or
prescription drug programs, etc.
– A process used by a doctor, nurse, or other health professional to manage a
patient’s healthcare requirements so that needed healthcare resources are
utilized appropriately, efficiently and economically.
– A request for payment by a healthcare provider for services rendered to a
patient. The claim can be
directed to an insurance company, a health plan, or an individual depending on
whom is the responsible payor.
– A company whose primary business is the processing of third-party claims for
health plans, most commonly associated with on-line prescription claims.
– generally refers to a restricted or exclusive group of providers of services
to a managed care organization who usually are required to meet narrow criteria
or grant concessions in order to participate as a member of the closed panel.
COB – Coordination
of Benefits – A provision in a
contract that applies when a person is covered under more than one group medical
program, for example under both a husband’s and a wife’s programs.
It requires that payment of benefits will be coordinated by the programs
involved in such a way as to avoid over insurance or double payment of benefits.
Consolidated Omnibus Budget Reconciliation Act of 1985
– Requires employers to permit employees or family members to continue their
group health insurance coverage for a period of time at their own expense, but
at group rates, if they lose coverage because of job loss, reduced hours,
divorce, death of supporting spouse, or other designated events.
– The amount the insured member must pay when he or she receives a covered
service, usually calculated as a percentage of the cost of the service.
Unless a plan is first dollar coverage, usually applies after a
predetermined out-of-pocket deductible has been met by the member.
– A method of determining a premium structure based on the community as a
whole…often the entire population of a metropolitan statistical area (MSA)…rather
than a specific group or groups.
– How well a patient adheres to following a specific drug regimen or to
Copay or Copayment – The amount that the insured member must pay for a covered service, usually expressed as a fixed-dollar amount and payable at the time of the service. (See coinsurance.)
Cost sharing – The part of the cost for medical care that an insured member must pay for himself or herself. (See coinsurance; copayment; and deductible.)
DAW – Dispense as
Written – Directions from the
physician to the dispensing pharmacist that the prescription, especially the
drug indicated, should not be altered in any way. For health plans that have mandatory generic and/or
therapeutic substitution programs, DAW, either at the request of the physician
or the patient, may result in the patient having to pay the usual retail
price for the prescription.
– The amount of eligible expenses a health plan member must pay each year from
his/her own pocket before the plan will begin to make payments for its share of
a covered expense.
– Coverage for health care services allowed by a health plan for the spouse,
children, or other specified dependents of a plan member.
– An arrangement where a health plan takes on the responsibility for managing
or coordinating all the functions associated with the treatment of a particular
disease state…may include diagnosis, preventive measures, therapeutic
guidance, and patient compliance.
DRG – Diagnosis
Related Group – A system of
classification of hospital inpatient services corresponding to a particular
patient condition rated in terms of diagnosis, age, sex, and complicating
factors. This system is used as the
basis for reimbursement to hospitals and selected other providers for services
– A listing of prescription medications that is preferred for use by a health
plan and which will be dispensed through participating pharmacies to plan
members. Usually only those drugs
listed in a formulary will be reimbursed by a health plan.
A patient may still obtain a non-formulary drug by seeking an exception
from the health plan or paying for the drug out-of-pocket.
DUR – Drug
Utilization Review – A mechanism
that uses peers to evaluate prescription drug use, physician prescribing
patterns or patient utilization to determine the appropriateness of drug
equipment – Reusable medical
equipment intended for use in the home or on an outpatient basis such as
crutches, walkers, wheelchairs, and hospital beds.
EDI – Electronic
Data Interchange – The
electronic transfer of claims data or other information between providers,
claims processors, health plans, and/or payors.
employee/person – An employee or
person who meets the eligibility requirements specified in a particular health
plan contract. In the case of
employees, may be affected by whether they are employed on a full-time,
part-time, or seasonal basis.
EOB – Explanation
of Benefits – A description of
provided services sent to a covered person including the amount billed and
ESRD – End-Stage
Renal Disease – Permanent kidney
failure with dialysis or a transplant.
EPO – Exclusive
Provider Organization – An
organization made up of only those providers who have been contracted by a
health plan for services…similar to a PPO but without the option of plan
reimbursement for some services outside the exclusive provider group.
Usually involves concessionary pricing for the opportunity to be an
exclusive service provider.
ERISA – Employee Retirement Income Security Act of 1974 – This law mandates reporting and disclosure requirements for group life and health plans. It removes self-insured health plans from certain state regulations regarding health insurance.
Fee-For-Service – The
traditional non-contracted, non-discounted method of billing for professional
services. This is the system used
for billing to and reimbursement by conventional indemnity health plans.
See Drug Formulary.
Freedom of Choice – Legislation passed by some states that permits a health plan enrollee to choose his/her source of care.
– A doctor who provides basic medical services and coordinates necessary
medical care and referrals for health plan members…another name for a primary
– A commonly used term for a chemically equivalent copy of a brand-name drug
for which the patent has expired. Equivalent
in strength, dosage form, and concentration, generic drugs are often sold at a
lower price than their brand-name counterparts.
– Dispensing a generic drug in place of a brand-name medication.
GPO – Group
Purchasing Organization – a
shared service by organizations, e.g. hospitals, that combines their purchasing
power to obtain lower prices for equipment, supplies, and services.
Group model HMO
– A health plan that contracts with one or more group practices of doctors at
negotiated rates for medical services.
HCFA – Health Care
Financing Administration – The
federal agency that administers Medicare and oversees states’ Medicaid, and
Children’s Health Insurance Program.
– a standardized claim form developed by HCFA for providers to bill fees for
professional services to health plans.
HCPCS – HCFA Common
Procedural Coding System – A
code listing of services, procedures, and supplies provided by physicians or
other health care providers. This
is a five-digit alpha-numeric code consisting of a single letter followed by
four numerals. Codes beginning with
A through V are national and those beginning with W through Z are local.
– Health Plan Employer Data and Information Set
– A group of performance measures developed to assist employers and other
purchasers of healthcare services in evaluating the quality of a health plan’s
is a registered trademark of
the National Committee for Quality Assurance [NCQA].)
HMO – Health Maintenance Organization – An organized healthcare system that provides, offers, or arranges for the coverage of designated healthcare services for plan members for a fixed, prepaid premium. Originally, four basic models of HMOs evolved…group model, individual practice association (IPA), network model, and staff model. IPAs are the most common, with many of today’s HMOs being some sort of blend. Under the federal HMO Act an entity must have three characteristics to be called an HMO:
(1) An organized system for providing healthcare or otherwise ensuring healthcare delivery within a geographic area.
(2) An agreed-upon set of basic and supplemental health maintenance and treatment services.
(3) A voluntarily enrolled group of people.
Hospice – A facility and/or program that provides palliative treatment and supportive care to the terminally ill.
International Classification of Diseases
– A listing of diagnoses and identifying codes used by physicians for
reporting the diagnosis of health plan members.
The coding and accompanying terminology provide a common language that
can accurately describe both primary and secondary diagnoses and provides a
method for consistent documentation on claim forms.
– The actual carrier liability for all claims with dates of service within a
– Traditional fee-for-service healthcare insurance.
This type of insurance usually contains deductibles and copayments to
help control unnecessary utilization.
system – An organizational
structure created to provide a continuum of care from the primary care physician
through appropriate levels of specialization and ancillary services to provide
desired outcomes, optimize efficiencies, and reduce plan costs.
IPA – Independent Practice Association – An HMO model that contracts directly with independent physicians and/or independent practitioner or specialist group associations at negotiated rates for their services.
JCAHO – Joint
Commission on Accreditation of Healthcare Organizations
(usually pronounced jay’
– A drug that bears the label, “Caution: federal law prohibits dispensing
without a prescription” and can only be legally obtained with a physician’s
Long-term care – Custodial care for persons with chronic disabilities and lengthy illnesses who require assistance with activities of daily living.
MAC – Maximum
Allowable Cost – The maximum
cost that will be reimbursed for a specific multi-source generic drug.
Originally MAC was instituted by the federal government in 1977 as a
means to control the cost of drug reimbursement under Medicaid and Medicare.
Today the practice of establishing MAC prices for multi-source drugs has
been adopted by most health plans as a means to control the costs of their
prescription drug programs.
– A pharmacy that dispenses medications directly to the patient by means of
the U.S. Postal Service or some other package delivery system.
Because of economies of scale, mail-order pharmacy operations are often
able to offer lower cost prescription services to health plans. Many health plans/employers offer financial incentives for
their members to use mail-order pharmacies where appropriate, especially for
– A system of healthcare delivery designed to control utilization of services
to minimize cost while maintaining quality care.
The objective of managed care is to provide both cost-effective and
costs – The limit on the total
amount of member copayments, deductibles, and coinsurance a health plan member
must pay under a benefit contract.
MCO – Managed Care
Organization – a generic term
applied to any managed healthcare plan whether it is an HMO, PPO, EPO, or some
hybrid of these.
– A federal program of healthcare for low-income individuals that is
administered by state and territorial governments under federal guidelines.
The state and federal governments share program costs.
– Created by Title XVIII of the Social Security Act of 1965, Medicare is a
federally administered health insurance program for those persons 65 years of
age or older and including younger people with disabilities and people with
End-Stage Renal Disease (ESRD). It
covers some of the costs of hospitalization, medical care, and certain related
services. Medicare is composed of
two parts. Part A covers inpatient
costs including pharmaceuticals used while hospitalized.
It is a mandatory program included as part of SS payroll deductions.
Part B is a voluntary program that covers certain outpatient services
including the costs of doctor visits. Its
cost is deducted from a person’s monthly SS income support payment.
Medicare + Choice
- A Medicare program that
gives an eligible recipient (must have both Medicare Parts
A and B and not have ESRD) more choices among health plans.
MSO – Management Service Organization – A legal entity that offers practice management and administrative support services to individual physicians or group practices. An MSO can be a direct subsidiary of a hospital or may be owned by investors including physicians or group practices.
NCQA – National
Committee for Quality Assurance
– A non-profit organization that accredits and measures the quality of care of
health plans. This is done through
using a standardized data reporting system, the Health Plan Employer Data and
Information Set (HEDIS), which reviews everything from credentialing and record
keeping to quality assurance practices.
NDC – National Drug
Code – A national classification
system for identification of drugs (identifies manufacturer/distributor, drug
name, strength and dosage form).
Network model HMO – An HMO type that contracts with multiple physician groups and hospitals to provide an adequate network for its health plan members.
Nurse practitioner (NP) – A nurse who has two or more years of advanced training and has passed a special exam. NPs may work as primary care providers, usually under the supervision of a physician.
OBRA ’90 –
Omnibus Budget Reconciliation Act of 1990
– A federal law that requires manufacturers to pay rebates to federal and
state governments for products used by Medicaid recipients.
OOP – Out-of-Pocket
– That portion of costs for healthcare services to be paid by the member
including: coinsurance, copayments, and deductibles.
– Virtually, the reasonable use of any drug is permitted by a health plan or
Over-the-counter – A drug
product that does not require a prescription under either federal or state law.
– A systematic assessment of the results of treatment for a particular disease
or condition. Used as a basis for
evaluating current treatment effectiveness and establishing future treatment
Outpatient care – Medical or surgical care that does not require an overnight hospital stay.
provider – Doctors or other
healthcare suppliers, e.g. pharmacies, hospitals, nurses, other healthcare
professionals, that have contracted with a health plan to deliver their services
to plan members.
P&T Committee –
Pharmacy and Therapeutics Committee
– A panel of physicians from varying practice specialties and pharmacists who
act as an advisory council to a hospital or health plan regarding the effective
use of medications. Usually charged
with the responsibility of developing and managing an institution’s or health
plan’s drug formulary.
PA – Physician
Assistant – A person who has two
or more years of advanced training and has passed a special exam.
Under a physician’s supervision a PA may perform many basic tasks
usually performed by a doctor including, in some states, limited prescribing
– A term usually used by pharmacists to refer to the record of patient
information maintained by a pharmacy to assist the pharmacist to correctly
dispense a prescription. These
profiles usually include such information as patient age, sex, family
relationship, allergies to drugs, special health conditions, and health plan
PBM – Pharmacy
Benefit Manager – An
organization that manages and administers the prescription benefit for health
PCP – Primary Care
Physician – A physician trained
in the basic care specialties…family practice, pediatrics, internal
medicine…and sometimes ob/gyn who is the first person a health plan member
would access. A PCP often serves as
the gatekeeper for coordinating any additional medical interventions needed by a
PharmD – Doctor of
Pharmacy – Recently established
as the entry-level degree for pharmacists by the American Council for
Pharmaceutical Education (ACPE) and now required by all U.S. colleges of
– The company or organization that assumes financial responsibility for an
PMPM – Per Member
Per Month – The cost of a
service, or services, for each member of a health plan for each month in which
the person was an active participant in the plan.
POS – Point of
Service – A health plan that
allows a member to choose to receive services from either participating or
non-participating providers, but at different benefit and/or cost levels.
PPO – Preferred Provider Organization – A managed care plan that provides an incentive differential to use contracted providers (preferred providers) rather than non-panel or non-participating providers.
QA – Quality Assurance – In healthcare, the process of looking at how well a medical service is provided measured against established standards to provide assurance that the service satisfies those standards.
RBRVS (or RVS) –
Resource-based Relative Value Scale
– A Medicare fee schedule for physician reimbursement based on the amount of
time and resources expended in providing a particular medical service, with
adjustments for overhead costs and regional differences.
RFP – Request for
Proposal – A formal solicitation
for bids from interested parties in providing specified services, functions, or
products. The request is usually
accompanied by a specific format for submission of the proposal.
– An agreement between parties to share, at some pre-determined percentage, in
the increased cost or savings resulting from either the over-utilization or
under-utilization of a specified service at an agreed-upon rate.
RPh – Registered Pharmacist – A person who has completed the necessary academic requirements and passed a national qualifying examination. In order to maintain his/her license to dispense, a RPh must be current with the continued education requirements of the state(s) in which he/she is registered.
– The opinion from a second healthcare professional prior to the performance
of some medical service or surgical procedure.
This is often a mandatory process utilized by managed healthcare plans to
confirm the necessity of a service or procedure and/or to educate the patient
regarding treatment alternatives.
(self-funding) – A risk strategy
adopted by some, usually larger, employers to fund employee healthcare benefits
from their own resources rather than purchasing some type of insurance or
healthcare plan. The employer
may choose to self-administer the plan or employ the services of a third-party
administrator (TPA). Employers
often will limit their liability through the purchase of stop-loss insurance.
– A term applied to the reimbursement method used in “major medical”
insurance programs where the insured pays the usual and customary price for
services and saves the receipts for later submission to the insurer for
reimbursement. Often these receipts
are stored in a shoebox and forgotten or the amount is not significant enough
for the insured to make the effort to submit the receipts resulting in savings
to the insurer…hence the term “shoebox effect.”
SNF – Skilled
Nursing Facility – A facility
that provides skilled nursing or rehabilitation services to help patients
recover after a hospital stay.
SPIN – Standard
Prescriber Identification Number
– A standard number for a prescriber, under development by the National
Council of Prescription Drug Programs (NCPDP), in conjunction with other
professional organizations, that could be used for prescriber identification
Staff model HMO
– A healthcare model that employs its own physicians and professional staff to
provide services to its members.
– A procedure involving the use of lower cost drug/treatment alternatives
before moving on to more expensive drug or treatment protocols.
– Insurance coverage available to health plans or self-funded employers to
provide protection against exceptional claims experience.
This type of insurance can be on a specific or individual basis in which
a claim would be paid after an individual and/or family exceeded a predetermined
deductible, such as $20,000 or $35,000; or in the aggregate where the
employer/health plan would be reimbursed when total claims for the company
exceeded some predetermined amount, such as 125% of anticipated costs.
Subrogation – A procedure whereby an insurance company can recover from third parties all or a proportionate part of claims amounts paid to an insured. This usually applies where more than one insurer is billed for the same service or procedure.
– Healthcare services that are rendered by highly specialized providers, such
as neurosurgeons, thoracic surgeons and intensive care units, often requiring
highly sophisticated technologies and facilities.
alternatives – Drug products,
with different chemical structures, that should produce comparable
pharmacological action when administered to patients in therapeutically
substitution - Dispensing one
therapeutic alternative for another. Substitution
– An entity or organization that underwrites or pays for healthcare expenses
on behalf of employer/group and/or individual health plans.
TPA – Third Party
Administrator – Any third-party
entity that administers the healthcare claims/payment process for third-party
payers…primarily employer group or self-insured health plans.
TPAs are not the risk underwriters.
TPN – Total
Parenteral Nutrition – Protein,
fat, glucose, and other nutrients are administered intravenously.
Triple option – An employer health plan that allows employees to choose from either an HMO, PPO, or indemnity plan depending on how much of his/her healthcare cost an employee is willing to assume.
U&C – Usual and
Customary – The usual
(non-contracted/private pay) fee for professional services or prescriptions
charged by a healthcare provider or pharmacy.
UR – Utilization Review – A formal assessment of the medical necessity, appropriateness, and/or cost effectiveness of healthcare services.
WAC – Wholesale
Acquisition Price – A term used within the medical/pharmaceutical
wholesaling industry to denote the price a wholesaler would pay for a product
before any special or term discounts.
WEDI – Workgroup for Electronic Data Interchange – a special task force established by the Secretary of Health and Human Services in 1991 to explore means and develop recommendations for advancing the transmission of electronic health data.