What Is Usual and Customary Price (U&C)?
Usual and Customary Price (U&C) is the cash price a retail pharmacy charges to a customer who is not using insurance or a third-party benefit plan. It is drug-, strength-, and quantity-specific — not a single blanket figure applied across a store's entire inventory.
U&C functions as a reimbursement ceiling under the "lesser of" rule: PBMs (pharmacy benefit managers), Medicaid, and Medicare Part D reimburse whichever is lowest among the U&C, the contracted rate, and a cost-based benchmark. If a pharmacy's U&C for a generic statin is $12 and the PBM contracted rate is $15, the payer reimburses $12 — not $15.
How Usual and Customary Price Works
The mechanics follow a defined sequence at each point of dispensing:
- The pharmacy establishes U&C. U&C is the price most frequently charged to cash-paying customers for a specific drug, strength, and quantity. It is not the lowest price ever charged, not an average, and not a list price. State Medicaid agencies codify this standard explicitly — the Texas Administrative Code, for example, defines U&C as the price most frequently charged to the general public.
- U&C is submitted at adjudication. When filling a prescription for an insured patient, the pharmacy transmits U&C as a required data field in the NCPDP (National Council for Prescription Drug Programs) claim transaction, alongside ingredient cost and dispensing fee. NCPDP is the industry-standard electronic format for pharmacy claims.
- The payer applies the "lesser of" rule. The payer compares U&C against the contracted rate and cost benchmarks such as MAC (Maximum Allowable Cost, a state or PBM drug-cost ceiling) or AWP-minus (Average Wholesale Price minus a contracted discount). The pharmacy is reimbursed the lowest of these values.
- For cash-paying patients, U&C is the final price. No adjudication occurs. The U&C figure on file becomes the out-of-pocket amount the patient pays at the counter.
One operationally significant distinction: some PBM contracts define U&C as the "lowest net price" a pharmacy charges any customer, which differs from the Medicaid "most frequently charged" standard. The two definitions can produce materially different submitted values for the same transaction.
Usual and Customary Price vs. Usual, Customary, and Reasonable (UCR)
These two abbreviations are frequently confused, but they govern entirely different billing contexts.
| Dimension | U&C (Pharmacy) | UCR (Medical/Dental) |
|---|---|---|
| Definition | Cash price charged to an uninsured retail pharmacy customer | Benchmark for reimbursing out-of-network providers |
| Primary purpose | PBM and government payer reimbursement ceiling | Determines insurer's out-of-network allowed amount |
| How it is determined | Price most frequently charged for a specific drug and quantity | Derived from geographic fee surveys or database benchmarks |
| Applies to | Prescription drug claims | Medical and dental service claims |
| Governing context | PBM contracts, Medicaid, Medicare Part D | Commercial health insurance, medical benefit plans |
Use U&C when billing a pharmacy claim to a PBM or Medicaid; use UCR when evaluating out-of-network medical or dental reimbursement.
How Discount Programs Affect U&C Reporting
The most consequential compliance nuance in U&C involves third-party discount programs — including pharmacy-run $4 generic clubs and third-party discount card programs.
The regulatory argument is straightforward: if a discounted price is what a pharmacy most frequently charges cash customers for a given drug, that discounted price is the U&C by definition. A pharmacy cannot offer a $4 generic to cash customers and simultaneously report a $25 U&C to Medicaid — doing so misrepresents the actual price charged and triggers False Claims Act exposure.
Enforcement actions have reinforced this standard. The Department of Justice pursued cases against major pharmacy chains where discount club prices were not reported as U&C to government payers, resulting in significant settlements. The 2023 Supreme Court decision in United States ex rel. Schutte v. SuperValu addressed the scienter standard in False Claims Act cases — clarifying that a defendant's subjective awareness of potential falsity is relevant — directly affecting how U&C-related fraud cases are prosecuted.
The practical rule: any price routinely made available to cash-paying customers must be evaluated as a candidate for the reportable U&C.
U&C in Medicaid, Medicare Part D, and Government Payer Contexts
Government payers apply the "lesser of" rule with multiple competing benchmarks:
- In Medicaid, U&C competes alongside FUL (Federal Upper Limit, a federally set ceiling for multiple-source drugs) and NADAC (National Average Drug Acquisition Cost, a survey-based ingredient cost benchmark). The reimbursed amount is the lowest of these applicable figures.
- In Medicare Part D, plan sponsors use U&C as a reimbursement ceiling in essentially the same way, protecting the program from paying above a pharmacy's own cash price.
- Certification and liability: pharmacies certify the accuracy of every U&C figure submitted. Inaccurate reporting — whether inflated to avoid triggering the "lesser of" rule or inconsistent with discount program prices — creates False Claims Act exposure and potential exclusion from federal programs.
Limitations and Strategic Risks
- Self-reporting lag. U&C is pharmacy-reported and audits are retrospective. Pricing changes at the point of sale may not be reflected in submitted U&C values for months, creating a gap between current practice and compliance posture.
- Discount program misalignment. Launching a loyalty or discount program without updating U&C submission logic is a common source of False Claims Act liability. Because the False Claims Act permits qui tam relators (private whistleblowers) to file years after the fact, exposure can accumulate silently.
- System-default errors. Pharmacy management systems may default to shelf list price in the U&C field rather than the most-frequently-charged transaction price, producing systematically inflated submissions without any deliberate intent.
- Drug-level granularity failures. Treating U&C as a single store-wide figure rather than a drug-, strength-, and quantity-specific value misrepresents the required submission and understates compliance complexity.
Related Terms: Wholesale Acquisition Cost (WAC) | Average Wholesale Price (AWP) | Usual Customary and Reasonable (UCR) | PBM Adjudication | Cash Price
