DAW Codes: What Pharmacies Need to Know

Understanding the importance of DAW codes, how they could be eating into your profits and what you can do about it.

What are DAW codes and why do they matter? 

To understand why Dispense as Written (DAW) codes are important, let’s first understand what a DAW code is and the impact it has on pharmacy billing.

A DAW code specifies the prescriber’s instruction for dispensing a specific medication or allowing the substitution of a generic equivalent. When a pharmacy submits a claim with a DAW code, the third-party payer can use that information to determine reimbursement.

The code submitted (by the pharmacy) within the claim can factor into how the third-party payer reimburses or pays the pharmacy for that prescription claim.

When the DAW code is missing, invalid, or incorrect, it may have a negative impact on both the pharmacy as well as the patient.

How DAW code errors may affect pharmacies

• Reimbursement Rate – Improper or incorrect use of DAW codes can lead to generic rate payments for brand-name drugs, potentially resulting in a loss.
• Formulary Selection – Dispensing drugs that are not on the payer’s formulary list may result in higher copays for the patient, while still reimbursing the pharmacy at the generic rate on brand-name drugs. 
• Claim Rejections – Missing or invalid DAW codes can trigger claim rejections. These rejections cause workflow interruptions because of extra processing time and rebilling in the pharmacy, along with workflow interruptions and can also result in delays in the delivery of patients’ medication.
• Audit Triggers – If the pharmacy is audited with insufficient documentation to support their DAW code usage, the third-party payer can take money back from the pharmacy at a later date.

Download the Net-Rx DAW Code Reference Chart to see common Dispense as Written codes and definitions, common use scenarios as well as the expected third-party payer outcomes.

How DAW codes can impact pharmacy profits

Based on a Net-Rx study which analyzed claims billed within a one-week period, 30% of brand claims submitted with DAW 3 or DAW 4 were NOT paid at a brand rate. And 65% of all brand claims submitted with a DAW 5 were paid at a generic rate.¹ 

Both of these situations often result in a loss or negatively impacts the pharmacy with possible lower reimbursement, audit triggers, or both. Inappropriate reimbursement is one of the main reasons to submit claims accurately. By submitting claims with correct codes, pharmacies ensure they can receive the proper third-party reimbursement based on the drug dispensed. 

How pharmacies can avoid DAW code errors

There are two things a pharmacy can do to avoid common DAW code pitfalls.

1. Train staff on correct DAW code usage: Ensure your team knows the correct DAW code to apply based on the prescription scenario. Download the Net-Rx DAW Code Reference Chart for guidance.
2. Pre-edit and Post-edit pharmacy technology: Pharmacy technology solutions are available to work as safeguards to help catch potential billing errors or missed opportunities, both before and after claim adjudication.

How Pre-edit Solutions Help

A pre-edit solution, like Script-IQ^® can alert the pharmacy of current DAW usage, before claims are sent to the payer. This can help improve workflow, lead to fewer transactions (which may reduce transaction fees), provide risk avoidance, improve cash flow and optimize reimbursement.

The examples below show how a pre-edit solution can help:

• Suppose the claim is submitted with a brand that has an available generic, but the DAW code is 0 or blank. In that case, a pre-edit can notify the pharmacy so they can either switch to a generic equivalent or use a proper DAW code based on the prescriber’s order.
• Pharmacist usage of DAW 3 rarely results in reimbursement at the contracted rate and should always be verified and well-documented. A pre-edit will help identify these so the pharmacy can review and adjust the claim before adjudicating it to the payer.
• DAW 4 often results in a generic rate payment. An alert to the usage of this code will allow the pharmacy to review their inventory and determine if they have the option of switching to the generic or if they can order the brand and utilize a more appropriate DAW code to ensure maximum reimbursement.
• A pharmacy’s usage of DAW 5 may price a brand drug as a generic and result in under-reimbursement. Messaging from a pre-edit will warn the pharmacy to determine if changes are necessary to ensure optimized reimbursement and avoid audit triggers.
• DAW 9 is assigned when a payer mandates the use of a brand-name drug instead of the generic. If a pharmacy submits a generic claim, it may be rejected or reimbursed at a lower rate. A pre-edit solution flags these claims to ensure pharmacies submit them correctly and receive proper reimbursement.

How Post-Edit Solutions Help

A post-edit solution, like EditRx, will identify whether DAW code usage has led to under-reimbursement by third-party payers. It will also show generic rate payments on brand name drugs and identify substitution opportunities and overall DAW utilization by the pharmacy to improve future outcomes.

The chart below shows a small sample of claims where missing or inappropriate DAW codes were submitted on brand-name drugs that have available generic alternatives. As a result, the prescriptions were paid at a generic MAC rate, which also lead to negative profits for the pharmacy. 

Here are just some of the ways a post-edit solution can highlight opportunities:

• Post-edits can identify DAW codes used on prescriptions that do not require or should not include a DAW, such as generics, single source brands, or OTC (Over the Counter) medications. A post-edit report can identify these claims, enabling the pharmacy to make adjustments as necessary and inform staff of proper DAW usage on future claims.
• Outdated usage of DAW 7, DAW 8, or DAW 9 can result in low reimbursement or losses. Plans update their formularies, new generics enter the market, and patients switch from Medicaid to private insurance, rendering previously submitted DAW codes invalid. Post-edits can identify reimbursement changes on these claims. The pharmacy can switch to the generic or the new preferred medication and remove the invalid DAW code to avoid generic rate payments on brand-name drugs.
• Post-edit solutions can allow the pharmacy to see generic substitution opportunities that may have been missed during the billing process. The pharmacy may want to review the payer messaging on claims submitted with DAW 2 to determine if/when the prior authorization is set to expire. With this information, the pharmacy can proactively reach out to the doctor to extend the prior authorization or discuss with their patient the benefits of switching to generic (i.e., lower copay).
• Claims submitted with DAW codes often require supporting documentation from the payer explaining why the specific DAW code was used. To prepare for retrospective payer reviews, the pharmacy can identify all DAW claims with post-edit reporting. The reports help assess internal records to ensure the proper documentation is in order should a payer audit arise.

The Bottom Line: Optimizing DAW Code Usage 

Understanding the different DAW codes and how to apply them appropriately is an important first step in pharmacy billing. When there is an error or discrepancy with the DAW code, it can eat into your profits, lead to potential audit triggers, affect reimbursement, and disrupt workflow.

Applying pharmacy technology like pre-edit and post-edit solutions can:

• Catch DAW code errors before submitting claims to third-party payers.
• Identify DAW code usage errors and potential reimbursement issues.
• Ensure proper documentation for audits.
• Maximize reimbursement and minimize losses.

Pre-edit and post-edit solutions go hand in hand, allowing the pharmacy to confirm whether the codes submitted are accurate, if the claim requires modification, or if the drug dispensed needs to be switched to a therapeutic or generic equivalent alternative.

Together, these solutions can help ensure your pharmacy uses DAW codes accurately for optimized reimbursement, reduced rejections, and reduced potential for audit triggers. 

Contact us to learn more about the pre- and post-edit solutions offered by Net-Rx. 

Source:
¹ Net-Rx Brand Claims Study, December 2020, M. Peterkin

Author

Wanda Lund  Product Lead Joined Net-Rx in 2009

With over 20 years of pharmacy experience, Wanda’s extensive industry knowledge includes retail and long-term care pharmacy pricing, contracting, billing, reimbursement, analytics, and structuring technology platforms. As Product Lead, her skills play an essential role in her daily responsibilities to enhance and grow the Net-Rx portfolio of services and solutions. Wanda is passionate about helping pharmacies maximize their business growth, allowing the pharmacy to focus on patient care. She supports various positions from dedicated analysts, developers, product owners, and operations managers to ensure customer satisfaction and build trusting relationships with our customers, partners, and associates. Wanda lives in Central Washington and enjoys the region’s snow in the winter and heat in the summer. She is an avid animal lover, and enjoys watching football, camping, and spending time with family.

Article updated July 2025