You are currently viewing Drug Pricing Expert and Classification Systems
Academy of Managed Care Pharmacy diagram showing flow of prescription drug supply chain and funds

Drug Pricing Expert and Classification Systems

Drug Pricing Expert Witness

Drug Pricing Expert
Michael F. Arrigo serves as an expert witness for plaintiffs and defendants. He recently completed work as an expert for the U.S. DOJ and has served as an expert in qui tam false claims act cases.  Affirmed as an expert in Medicare fraud damages, damages pertaining to cost of care, medical billing, medical coding, and electronic health records.  Medicare Part D expertise, Medicare Coverage Determinations pertaining to medical care, DME, and pharmaceuticals. Contact

A drug pricing expert witness understands pricing trends and drug classification systems and how these impact the overall cost of health care.   Our team has over 35 years of executive experience in drug pricing expertise pharmaceutical supply chain management and pharmaceutical pricing. To understand drug pricing in the product supply chain and bundling and purchasing conventions for pharmaceutical products and other medical supplies, it is important to understand drug and pharmaceutical classification systems.  Drug pricing experts should know that payor drug pricing models are often managed by pharmacy benefits management (PBM)s.  Most importantly, in drug pricing expert testimony in litigation where collateral source rules apply, our team specializes in proving the Usual Customary and Reasonable (UCR) rates for drug charges.   Note: Featured image credit: Academy of Managed Care Pharmacy

Standardized biomedical information provides benefits in conducting research. However, the practical use of this information often requires mapping across terminological systems—a complex and time-consuming process.  According to the National Library of Medicine papers, there are at least 12 standards nd drug databases of import.  Nonetheless, a practical approach must be taken when providing opinions regarding the Usual Customary and Reasonable Charge data for drug pricing.  Here is a very brief look at three major Classification  Systems a drug pricing expert should know: NDC, GPI, and RxNorm.  There are ancillary systems such as GDC and AHFS that an expert witness should be able to discuss.  For health care and drug claim reimbursement, HCPCS codes are also important.

drug pricing and data types
JOURNAL OF BIOMEDICAL INFORMATICS, doi:10.1016/j.jbi.2012.06.005

National Drug Code (NDC)

The Drug Listing Act of 1972 requires registered drug establishments to provide the Food and Drug Administration (FDA) with a current list of all drugs manufactured, prepared, propagated, compounded, or processed by it for commercial distribution. (See Section 510 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 360)).

To elaborate, drug products are identified and reported using a unique, three-segment number, called the National Drug Code (NDC), which serves as a universal product identifier.  According to the FDA, “Section 510(p) of the FD&C Act (21 USC 360(p)) now requires registration and listing information for human drugs to be submitted electronically.” NDC can be displayed in 10 digits but proper billing requires that 11 digits of the NDC be used.  Drug pricing expert analysis is better served with full 11 digit NDC information.

NDC includes package size and manufacturer in its taxonomy.

For example: 3 code segment (XXXXX – XXXX – XX)

• Labeler code (manufacturer)

• Product code (strength, dosage form, formulation)

• Package code (package size/type)

Generic Product Identifier (GPI) from Medispan

To better understand drug pricing, one should also understand GPI. The Medi-Span Wolters Kluwer GPI (Generic Product Identifier) denotes pharmaceutically equivalent drug products. Products having the same 14-character GPI are identical with respect to the active ingredient(s), dosage form, route, and strength or concentration. The GPI does not consider the presence of inactive ingredients. Importantly, health plans (payors) and pharmacy benefit management systems (PBMs) use GPI for formularies.  All of these factors should be comprehended in proper drug pricing expert analysis.  For example, category 57 of the GPI, Central Nervous System Agents has 98 entries from ALPRAZolam to Xanax XR.

GPI Classification System Strengths:
1. Each number has a defined meaning (not random) and is a
sequential flowing system. If you see 17 as the first couplet, for example, you know it is a vaccine and
every other number after it describes the vaccine even further
3. Simple, logical, and easy to use
4. Specific: detail taxonomy drug code system with many-tiered levels

GPI Classification System Weaknesses:
1. Does not subdivide into package size or manufacturer, such as NDC codes

Generic Code Number (GDC) from First Databank (FDB)

5-digit code to represent a clinical formulation

Specific to:

Ingredient, Strength, Form, and Route

Same across manufacturers and/or package size

Can be used to group pharmaceutically equivalent products together

One drug can have multiple GCNs depending on the product’s available strength, forms, and route of administration.

GDC Strengths

Same across all manufacturers, package size, and brand/generic products.

The specific set of numbers per product

Does not require consistent updating


Absence of logical flow in the code (no significance in each number)

Does not include indication/class of drug

Only identifies Ingredient, Strength, Form, and Route

Harder to identify an ingredient using just the code alone

American Hospital Formulary Service (AHFS)

From American Society of Health-System Pharmacists (ASHP)

From American Society of Health-System Pharmacists (ASHP)  and is a 4 tier hierarchy classification: Each tier describes a specific subset of drugs:

• 31 classifications in 1st tier

• 189 classifications in 2nd tier

• 269 classifications in 3rd tier

• 105 classifications in 4th tier


• Subdivides into multiple categories

• Simple to see the logic and flow


• Variety of combinations are possible for certain medications

• Non-specific code – Especially for medications with multiple indications

• Requires constant maintenance and updates regarding drug assignments and classification changes

• List of annual changes and updates can be found on the ASHP website

• Example: • Solvaldi Old AHFS Class: 8 : 18 : 32 (Nucleosides and Nucleotides) • Solvaldi New AHFS Class: 8 : 18 : 40.16 (HCV Polymerase Inhibitors)

RxNorm – the Electronic Health Record Drug Classification Standard

Drug pricing expert analysis may be strengthened by having a perspective of prescriber volume.  RxNorm is the data standard when prescribing via an electronic health record system.  According to the U.S. National Library of Medicine, “RxNorm is two things: a normalized naming system for generic and branded drugs; and a tool for supporting semantic interoperation between drug terminologies and pharmacy knowledge base systems. The National Library of Medicine (NLM) produces RxNorm. Hospitals, pharmacies, and other organizations use computer systems to record and process drug information. Because these systems use many different sets of drug names, it can be difficult for one system to communicate with another. To address this challenge, RxNorm provides normalized names and unique identifiers for medicines and drugs. The goal of RxNorm is to allow computer systems to communicate drug-related information efficiently and unambiguously. RxNorm contains the names of prescription and many over-the-counter drugs available in the United States. RxNorm includes generic and branded:

  • Clinical drugs – pharmaceutical products were given to (or taken by) a patient with therapeutic or diagnostic intent
  • Drug packs – packs that contain multiple drugs, or drugs designed to be administered in a specified sequence”

Adoption of RxNorm grows significantly with the advent of the ARRA HITECH Act which provided stimulus funds for Meaningful Use of Electronic Health Records (E.H.R.s).  EHRs use Computerized Provider Order Entry (CPOE) and electronic prescribing (ePrescribing) to electronically notify a pharmacy of a physician’s order to fulfill a prescription drug to a patient.

In addition to the standards noted, drug information for drug pricing expert analysis may include:

Trade Names
Associated Diagnosis and Procedure Codes (ICD-10-CM/PCS, HCPCS, CPT)
Package pricing, average wholesale pricing (AWP), etc.
GPI Lineage/Hierarchy
Active Ingredient
Common dosages
Dosage Form
Format (pill, liquid, gas, etc.)
Package types & descriptions
Route of Administration
Controlled Substance (DEA) Status
Maintenance drug status
Patient Information

Drug pricing terminology used by Pharmacy Benefit Management Systems or PBMs may include:

·   Weighted Average Cost (WAC), Average Wholesale Price (AWP), Average Sales Price (ASP)
·   NDC price reporting
·   Mark-Ups & Price Spreads
·   Rebates
·   “Brand” and “Generic”
·   Formularies
·   Pre-Authorization
·   Clinical Rules & Protocols
·   Mail-Order
·   Plan Design
·   Payor Account Crediting

Drugs Billed as Part of Inpatient vs. Outpatient Care

The cost of drugs may vary depending on whether the drug is prescribed and delivered in a hospital (or, a hospital or physician-owned ambulatory surgery center) or to an insured who received the medication at a pharmacy.


HCPCS codes are used for the claim processing.  Attributes such as time span are tracked and mapped by code.

CMS is now providing the HCPCS Level II code long descriptors in mixed case (instead of in ALL CAPS). Aside from the difference in case, there are no changes to the long descriptors. This change is being made under guidance from the CMS Office of Communications to comply with the Plain Writing Act of 2010, which requires that federal agencies use clear Government communication that the public can understand and use.

S codes – There are times a payer may deem the existing codes inadequate to describe an item or service and request an assignment for an S-Code. These are Non-Medicare codes created to identify an item or service when a code was not assigned and approved nationally like other codes sets such as HCPCS and CPT.

Coverage Determinations

Medicare Policies & Guidelines (NCDs, LCDs).  Drugs are reimbursed by Medicare for medically necessary care.  National Coverage Determinations (NCDs) and Local Coverage Determinations (LCDs) facilitated by Medicare Administrative Contractors may provide guidance on conditions and covered medications.

Private Payor Coverage Determinations

Diagnosis codes (conditions) and drugs by generic name or another type as well as HCPCs codes may be listed in private payor policies.  These policies may detail several factors used in determining coverage. For example,

  1. members who are enrolled in a  group Product with a specific tier Prescription Drug Benefit
  2. quantity limits
  3. require precertification through a Pharmacy Benefit Manager (PBM)
  4. require precertification through Medical Management
  5. standard exclusions (such as weight loss medications, fluorides, vitamins

Generally, medications are listed alphabetically with an explanation of how precertification is obtained and under which benefit it is covered.

While a medication by itself may not require precertification, specific exceptions such as Home Care for the administration of medication may require precertification, or there may be an exception for the first few days of therapy.

Generally both Medicare and Private Payors map to HPCPCs codes.

Related Posts
Drug Pricing Legislation Efficient Markets
Expert witness for Medical Billing and Coding
Expert Witness

Portions of this post cite:

Michael F. Arrigo

Michael Arrigo, an expert witness, and healthcare executive, brings four decades of experience in the software, financial services, and healthcare industries. In 2000, Mr. Arrigo founded No World Borders, a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device, hospital, surgical center, physician group, diagnostic imaging, genetic testing, health I.T., and health insurance markets. His expertise spans the federal health programs Medicare and Medicaid and private insurance. He advises Medicare Advantage Organizations that provide health insurance under Part C of the Medicare Act. Mr. Arrigo serves as an expert witness regarding medical coding and billing, fraud damages, and electronic health record software for the U.S. Department of Justice. He has valued well over $1 billion in medical billings in personal injury liens, malpractice, and insurance fraud cases. The U.S. Court of Appeals considered Mr. Arrigo's opinion regarding loss amounts, vacating, and remanding sentencing in a fraud case. Mr. Arrigo provides expertise in the Medicare Secondary Payer Act, Medicare LCDs, anti-trust litigation, medical intellectual property and trade secrets, HIPAA privacy, health care electronic claim data Standards, physician compensation, Anti-Kickback Statute, Stark law, the Affordable Care Act, False Claims Act, and the ARRA HITECH Act. Arrigo advises investors on merger and acquisition (M&A) diligence in the healthcare industry on transactions cumulatively valued at over $1 billion. Mr. Arrigo spent over ten years in Silicon Valley software firms in roles from Product Manager to CEO. He was product manager for a leading-edge database technology joint venture that became commercialized as Microsoft SQL Server, Vice President of Marketing for a software company when it grew from under $2 million in revenue to a $50 million acquisition by a company now merged into Cincom Systems, hired by private equity investors to serve as Vice President of Marketing for a secure email software company until its acquisition and multi $million investor exit by a company now merged into Axway Software S.A. (Euronext: AXW.PA), and CEO of one of the first cloud-based billing software companies, licensing its technology to Citrix Systems (NASDAQ: CTXS). Later, before entering the healthcare industry, he joined Fortune 500 company Fidelity National Financial (NYSE: FNF) as a Vice President, overseeing eCommerce solutions for the mortgage banking industry. While serving as a Vice President at Fortune 500 company First American Financial (NYSE: FAF), he oversaw eCommerce and regulatory compliance technology initiatives for the top ten mortgage banks and led the Sarbanes Oxley Act Section 302 internal controls I.T. audit for the company, supporting Section 404 of the Sarbanes Oxley Act. Mr. Arrigo earned his Bachelor of Science in Business Administration from the University of Southern California. Before that, he studied computer science, statistics, and economics at the University of California, Irvine. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto-economics at the Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA). Mr. Arrigo is qualified to serve as a director due to his experience in healthcare data, regulations, and economics, his leadership roles in software and financial services public companies, and his healthcare M&A diligence and public company regulatory experience. Mr. Arrigo is quoted in The Wall Street Journal, Fortune Magazine, Kaiser Health News, Consumer Affairs, National Public Radio (NPR), NBC News Houston, USA Today / Milwaukee Journal Sentinel, Medical Economics, Capitol ForumThe Daily Beast, the Lund Report, Inside Higher Ed, New England Psychologist, and other press and media outlets. He authored a peer-reviewed article regarding clinical documentation quality to support accurate medical coding, billing, and good patient care, published by Healthcare Financial Management Association (HFMA) and published in Healthcare I.T. News. Mr. Arrigo serves as a member of the board of directors of a publicly traded company in the healthcare and data analytics industry, where his duties include: member, audit committee; chair, compensation committee; member, special committee.

Leave a Reply