Response to Pharmacy Benefit News, Issue 127

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.

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