How the 9/26/09 AWP Calculation Change Affects Pharmacy Profit

Click on chart to enlarge picture

As you can see from the chart above a pharmacy submitting a claim for a drug with a $1000 AWP before the 9/26/09 AWP calculation change (WAC x 1.25) would make a $30 profit above WAC. If their contract discount does not change, after the conversion to the WAC x 1.20 calculation, they would lose $3.33 (below WAC). In order to keep the pharmacy profit approximately the same the discount off of AWP would have to change to about 13.568%.

This primarily affects Brand Name drugs since most generics are priced at lesser of MAC, U/C, or advertised discounts. The pharmacy would be affected on a generic drug that was not priced at “lesser of” but the profit structures on generics are vastly different than brands. Actual costs or WACs of generics are much, much less than the chart above indicates. Pharmacies were allowed to gain a profit advantage on generics in order to initiate, promote and reward switching.


Developed by Barry Pascal, PharmD, Pro Pharma Pharmacist

AWP update

Several clients have asked about what to do with the change in AWP when they receive calls from pharmacies complaining about reimbursement. Many clients have signed amendments to their agreements that allow the PBM to change the AWP or to change the AWP discount. Please consider the following when you receive complaints from pharmacies:

• Ask the PBM to review the pharmacy/PBM agreement (possible in pass through contracts) to ensure that the AWP change is consistent between what was promised by the PBM and what is being paid to the pharmacy; namely, if the pharmacy is to be kept whole, then the pharmacy contract should reflect the same language and AWP calculation as in the amendment that the purchaser signed with the PBM.
  
• Make sure that you have the specific telephone number at the PBM to refer pharmacy complaints.
  
• Ask the PBM for a report every month of the number and nature of pharmacy complaints regarding AWP changes, and determine if the complaints are being handled to your satisfaction.
  
• Ensure that the formulas used by the PBM for calculating AWP are fixed and does not change for the term of the contract with the purchaser.
  
• Please remember that the only gold standard for the AWP is the one that is published by the manufacturer. Everything else is a calculation and may not reflect the same AWP. As a result, the pharmacy computer system may, or may not, have the same AWP as the PBM.
  
• Closely monitor your invoices and supporting claims for the impact on cost inflation.
  
  

Please call if you require clarification or need assistance.

Be well,
Dr. Craig Stern