Usual and customary prices explained

Starting July 18, 2025, California's Medicaid pharmacy program began rejecting claims that left one box empty. A claim with a blank or $0.00 entry in NCPDP field 426-DQ, the Usual and Customary Charge, would be denied with reject code DQ and a message to resubmit, Medi-Cal Rx told pharmacies¹. The rule applied to every claim with a date of service on or after that day.

A usual and customary price, or U&C, is the pharmacy's own statement of what it charges the general public for a prescription. It rarely appears on a receipt, yet it sits on nearly every claim a pharmacy sends, and Medicaid programs, Medicare drug plans and many commercial contracts use it as a ceiling. The payer compares it with its own formula and pays the lower number.

That comparison is called lesser-of logic, and it explains why a pharmacy's cash price can cap what a public program pays. This explainer covers how federal and state rules define U&C, how the lesser-of test works with a worked example, the discount-program question the HHS inspector general raised, and how Medicare Part D uses the same idea. GxRadar's guide to how a pharmacy claim is processed shows where the field sits in the transaction.

How the rules define it

No single federal definition covers every payer. Each program writes its own, and states add detail.

The Texas rule is the most detailed about who counts as the public. It excludes anyone whose prescriptions are paid by a third party, including insurers and Medicaid. If a discount is given or advertised to any segment of the public, the pharmacy must factor it into the Medicaid U&C when the Medicaid patient would otherwise qualify, and it may not disqualify the patient because a discount requires presenting a card, asking verbally, or paying a particular way.

New York's notice carries a warning. Knowingly submitting inaccurate U&C prices "may be considered fraudulent billing," it says, citing the federal False Claims Act and state law, and can lead to exclusion from Medicaid.

How the lesser-of test works

Under the federal Medicaid rule⁴, the formula side of the comparison is actual acquisition cost plus a professional dispensing fee. 42 CFR 447.502⁵ defines actual acquisition cost as the state's determination of what pharmacies actually pay for a drug, and many states use NADAC for it. The U&C is the other side.

States write their own versions into their plans, and CMS collects them in a quarterly reimbursement chart⁸. A sample from the edition for the quarter ending September 2026:

A simplified example shows why the U&C can win. In early November 2026, the CMS NADAC survey¹³ put what pharmacies pay for a 10 mg lisinopril tablet at $0.01797. Pair that with New York's $10.18 fee and two hypothetical cash prices.

NADAC measures acquisition cost and is not the price a customer pays at the counter. The U&C figures are illustrations, and real claims also involve copays and other state edits. The direction holds: when a pharmacy's own cash price is below the program's formula, the cash price becomes the payment. GxRadar explains the formula side in what NADAC measures and how dispensing fees work, and state approaches in how state Medicaid programs pay for generics.

The discount-program question

Low-price generic lists made the issue concrete. In an August 2009 report⁹, the HHS Office of Inspector General looked at 291 drugs that large retail chains were selling for $4.00 a month under discount generic programs. Medicaid's average payment for a 30-day supply of those drugs was $8.01, including the dispensing fee.

If a Medicaid beneficiary filled one of those drugs at a pharmacy with such a program, the OIG wrote, "usual and customary charge provisions would generally apply," so Medicaid "should (and may) have reimbursed the pharmacy no more than a total of $4.00," with no added dispensing fee. Paying all pharmacies at the $4.00 price would have cut spending on those drugs by an estimated $87 million in the fourth quarter of 2007 alone. The report also noted that CMS had no stated policy on whether prices in a program that charges a membership fee meet the definition of U&C.

State rules like the Texas and New York definitions above are one answer to that question, since both pull advertised and loyalty discounts into the reported price. The 2009 report was about the federal upper limit, which GxRadar covers in a separate explainer. Discount cards raise related issues, described in how prescription discount cards work.

Medicare Part D and commercial plans

In Part D, U&C matters most outside the network. Under Part D's definitions², a drug's actual cost is the negotiated price at a network pharmacy and the U&C price when a beneficiary buys at an out-of-network pharmacy, which is allowed in limited cases under 42 CFR 423.124³. Inside the network, CMS's May 2018 memo¹⁰ said existing policy already required plan sponsors to make sure enrollees pay the lesser of the Part D negotiated price or their copay.

Commercial plans write lesser-of terms into contracts, and some states have written them into law. Utah's 2018 law, as described by the Source on Healthcare Price and Competition¹¹, bars a PBM from requiring an insured patient to pay more than the lesser of the plan's cost share or the drug's retail price without coverage. A 2018 JAMA research letter¹² had found that in 2013, 28.17 percent of generic claims involved a copay above the average pharmacy reimbursement for the same prescription. Federal laws passed that year let pharmacists tell customers when that happens, as GxRadar details in the laws that ended pharmacy gag clauses.

For a customer, the closest thing to a U&C is the price a pharmacy quotes without insurance. A pharmacist can say what that price is and whether it would be lower than the plan's charge. GxRadar's pharmacy finder lists pharmacies by ZIP code. Medi-Cal Rx's notice, meanwhile, told pharmacies that a claim under the 340B program must carry the actual acquisition cost plus dispensing fee in both the gross amount due and the U&C field, or it will be denied.