Below is an article we published in March, 2010 and a response it solicited from one of our subscribers (published with his permission). We welcome feed back on all of our publications!
AWP CHANGES
On September 26th 2009, the Average Wholesale Price (AWP) for over 95% of brand medications changed. "The New England Carpenters vs. McKesson & First Data Bank" ruling required that effective September 26th 2009, the Average Wholesale Price (AWP) of 1442 specific National Drug Codes (NDC), be reduced from a Wholesale Acquisition Cost (WAC) mark up of 1.25% to 1.20%.
First DataBank & Medi-Span also announced a voluntary roll back of all brand medications that had an AWP markup greater than 1.20%. This voluntary AWP adjustment from First DataBank increased the effected number of NDCs to over 20,000.
Finally, AWP is expected to be replaced by WAC in 2011.
COMMENT: AWP is the basis for PBM payments to pharmacies. Consider changing contracts to WAC now to prepare for 2011. Payers and purchasers are not receiving compensation for the inflated AWPs that they have been paying on for years. Pharmacies, PBMs, Health Plans, etc., don’t want to be disadvantaged so they requested the previous prices be based on AWP = WACx1.25. If you wish to pay a more cost-based price, then consider contracts based on a cost of WACx1.2.
From: John Cronin
Sent: Thursday, March 11, 2010
To: Dr.Craig Stern
Subject: RE: Pharmacy Benefit News #127
Craig:
Couldn’t help but notice the comment in this newsletter that “Payers and purchasers are not receiving compensation for the inflated AWPs that they have been paying on for years.” As you are aware, PBM contracts with pharmacies were quickly adjusted over the years to compensate for the “inflated AWPs” with reimbursements falling from AWP -12% to AWP -17% on average. When the First Data Bank case was settled, many, but not all, PBMs re-adjusted their reimbursement rates to keep pharmacies whole – something that was necessary in order to maintain the pharmacy networks. The major payer who did not make that change in California is the Medi-Cal program, which has had two federal lawsuits challenging their (in)action.
Despite what the federal judge in Mass. has to say on the matter, the reality is that most PBMs were not paying pharmacies based on “inflated AWPs”; how the PBMs dealt with payers is a matter you know better than I. I’m not sure this distinction is clear from your comment and hope you’ll clarify it in a future newsletter.
Thanks
John A. Cronin, Pharm.D., J.D.
Wednesday, March 17, 2010
Subscribe to:
Post Comments (Atom)
The response from John Cronin identifies that there are different opinions depending on the stakeholder. The purchasers and payers looked at the adjustments in price, i.e., AWP discounts, as marketplace adjustments to the cost of drugs. These adjustments were thought to be the typical pricing adjustments required to meet the competitive marketplace. The purchasers were never informed that the AWP was inflated. If they had, they would probably have requested that the AWP was adjusted to correct the imbalance right away. The pharmacies on the other hand benefited from the inflated AWP, and continue to request that they maintain the same pricing margins from the PBMs by requesting a “roll-back” to the WAC*1.25 that they had before 9/26/09.
ReplyDeleteThis issue clearly has its advocates on all sides of the question. The ultimate issue is the actual cost of drugs and the margins that purchasers are willing to pay. The marketplace will surely continue to address all elements of the cost of drugs in the pricing equation whether we use AWP, WAC, ASP, AMP, or any other pricing parameter. Purchasers and managed care plans do expect that the price of drugs includes all information so that they are paying a reasonable price. In this regard the purchasers view the drug marketplace no differently than investors view the stock market where they expect that the price of stocks contain all relevant information to price the company’s stock. The debate over price will continue. The next round should occur next year as AWP begins to phase out as it is replaced by WAC.
Craig Stern