Drug pricing models: Why single-index pricing falls short.

Pricing benchmarks estimate a drug's cost and determine how much a pharmacy should be reimbursed. Over the years, several pricing models have emerged. There's an ongoing debate among pharmacy benefit managers (PBMs), payers, policymakers, and pharmacies over which benchmark is “best” and has the most accurate, transparent, and fair pricing. The most common drug pricing models include:

• AWP (Average Wholesale Price): A manufacturer-reported price that functions more like a suggested list price than a reflection of actual market costs. It is often inflated and doesn’t account for real-world discounts or negotiations.

• Acquisition pricing: Based on the actual price a pharmacy pays to purchase a drug from a wholesaler. This method reflects real-world costs more accurately than benchmarks like AWP or NADAC. However, prices can vary significantly depending on contract terms, purchase volume, and supply chain dynamics, and are often accompanied by high dispensing or administrative fees.

• NADAC (National Average Drug Acquisition Cost): Calculated based on self-reported data from pharmacies on what they paid to acquire a drug. It is updated weekly and is promoted as a more market-based benchmark, but is still limited in accuracy, completeness, and responsiveness.

Of the three main pricing benchmarks, NADAC is often viewed as a step forward. It’s based on pharmacy-reported acquisition costs, updated weekly, and publicly available, making it appear more transparent than AWP or acquisition pricing. However, despite its reputation, NADAC suffers from the same fundamental flaw: it relies on a single-index pricing model. That means it uses one benchmark to determine drug costs across a highly complex and fast-moving market which often fails to reflect the most competitive or accurate pricing.

Why NADAC falls short as a drug pricing benchmark.

1. It’s based on voluntary data that doesn’t tell the whole story.

NADAC drug pricing uses data from surveys that pharmacies can choose to participate in, but not all do. That means the numbers may not reflect what most pharmacies actually pay for drugs. If the data isn’t complete, the benchmark won’t be accurate.

2. It doesn't cover the full market.

Even for those who favor NADAC, there’s a major limitation: NADAC benchmarks simply don’t exist for a significant amount of drug spend. This gap leaves PBMs and plan sponsors without a pricing reference for a portion of medications, especially in specialty pharmacy categories.

3. It ignores discounts and rebates.

Even though NADAC drug pricing is based on what pharmacies report paying, it doesn’t include things like rebates or post-sale discounts. These pricing factors are a big part of the actual cost, especially for brand drugs, and leaving them out gives an incomplete picture.

4. It can’t keep up with rapid market changes.

NADAC pricing is only updated once a week, but drug prices can change overnight. In January 2025 alone, nearly 1,000 brand-name drugs changed price, with some going up or down more than 40%. 

The bottom line.

Even though NADAC pricing is marketed as more transparent and data-driven, it’s still a single-index pricing model. It applies one national average to a highly complex and constantly changing market.

The better path forward is to move beyond single-index drug pricing models entirely. A smarter model pulls from multiple sources, adapts in real-time, and reflects the true dynamics of the market, not just a snapshot of it. This kind of flexible pricing model allows plan sponsors to stay ahead of volatility, reduce wasteful spending, and ensure that members and pharmacies are supported.

Rightway’s pricing model delivers real savings.

Rightway’s PBM uses a combination of acquisition pricing, NADAC, AWP, and other benchmarks, allowing us to optimize pricing and capture the most advantageous cost-saving opportunities. Our approach eliminates reliance on a fixed model, giving us the flexibility to adjust to market dynamics, legal challenges, and the evolving needs of plan sponsors. By combining flexibility, transparency, and client- and member-centric solutions, Rightway ensures the best value for every drug. 

Learn more about Rightway's drug pricing model.