Published October 9, 2026
No. Medicare does not use NADAC pricing, and the split is one of the strangest facts in American drug policy: the Centers for Medicare and Medicaid Services calculates and publishes the National Average Drug Acquisition Cost from a weekly survey of retail pharmacies, and then the Medicaid half of the agency uses it to pay pharmacies while the Medicare half does not touch it.
Understanding the split means understanding what each program actually pays for.
What Medicare Part D pays for instead
Medicare Part D does not pay pharmacies directly at all. Private Part D plans and their pharmacy benefit managers negotiate reimbursement rates with pharmacy networks, and separately, the PBMs collect manufacturer rebates after the sale. Those rebates are called direct and indirect remuneration, DIR.
Here is the part that affects your wallet: the enrollee's cost share is usually calculated on the gross price at the counter, not the net price after the rebates flow back to the plan. CMS itself reports a growing gap between gross Part D drug spending (what the counter shows) and net spending (what the system really paid after DIR). You pay your deductible and coinsurance on the inflated number. The rebate goes to the plan.
NADAC would short-circuit this. It is the average invoice price pharmacies paid, published weekly, free to look up. There is no gross price and net price. There is just the price.
What Medicaid pays for
Medicaid took the other path. By 2017, 45 state Medicaid programs were using NADAC as their primary pharmacy payment benchmark. The formula is simple: NADAC plus a professional dispensing fee, a fixed payment for the pharmacist's work, counseling, and overhead. The ingredient cost comes from a real survey. The service gets a real fee. Both numbers are public.
That structure is now spreading beyond Medicaid. Several states have passed laws requiring PBMs to reimburse pharmacies at NADAC plus a dispensing fee: Arkansas, Georgia, Kentucky, Tennessee, and West Virginia among them. Iowa joined in 2025, with the rule applying to contracts starting July 1, 2025 and to prescription benefits from January 1, 2026. These are state governments telling PBMs to use the transparent benchmark instead of their own negotiated spreads.
Why Medicare has not followed
It is not a technical problem. NADAC is calculated, published, and maintained by the same agency that runs Medicare. The obstacle is structural: Medicare Part D was built in 2003 on a private-market design where plans compete on premiums, and the rebates that make premiums look low live in the gross-to-net gap. Switching to NADAC-based reimbursement would make the real prices visible, which would help patients at the counter and hurt everyone whose business model depends on the spread between the two numbers.
The research firm 3 Axis Advisors ran the thought experiment formally in a report on Medicare Part D, asking what importing Medicaid's surveyed-cost model would do to seniors' drug spending. Their finding was blunt: seniors are paying for misaligned incentives, because the majority of a Medicare enrollee's cost share is calculated from gross, not net, drug spending. The people who designed the alternative already work at CMS.
The question nobody in Washington will answer on the record
If NADAC is good enough to set what Medicaid pays pharmacies in 45 states, and good enough that five states are forcing it on PBMs, what is the argument for keeping it out of the federal government's largest drug program? The honest answer is that there is no pricing argument. There is a revenue argument, made by the companies that keep the rebates. I will leave it there, because the numbers speak for themselves and the politics are someone else's article.
Frequently asked questions
Does Medicare use NADAC pricing?
No. NADAC is a Medicaid benchmark. Medicare Part D pays pharmacies based on prices negotiated between private Part D plans, their PBMs, and pharmacies, not on the CMS-published NADAC survey. Researchers have proposed importing NADAC into Medicare, but it has not happened.
What does Medicare Part D pay pharmacies based on?
Part D plans and their pharmacy benefit managers negotiate reimbursement rates with pharmacy networks, then take manufacturer rebates after the sale as direct and indirect remuneration (DIR). The enrollee's cost share is usually calculated on the higher gross price, not the net price after rebates.
How does Medicaid drug pricing differ from Medicare?
Most state Medicaid programs reimburse pharmacies on NADAC plus a professional dispensing fee: an actual acquisition cost benchmark from a CMS pharmacy survey, plus a fixed fee for the pharmacist's service. Medicare Part D uses negotiated prices plus post-sale rebates instead.
Who calculates NADAC?
The Centers for Medicare and Medicaid Services. CMS runs a voluntary weekly survey of retail community pharmacies, collecting the invoice prices they paid wholesalers, and publishes the national averages. Rebates and off-invoice discounts are excluded.
Are states forcing PBMs to use NADAC?
Several are. Arkansas, Georgia, Kentucky, Tennessee, and West Virginia have enacted laws requiring PBMs to reimburse pharmacies at NADAC plus a professional dispensing fee. Iowa passed a 2025 law doing the same for contracts starting July 1, 2025, applying to drug benefits from January 1, 2026.
See the real numbers: look up what pharmacies actually paid for your prescriptions in the NADAC Drug Price Lookup.
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