Average Wholesale Price (AWP) Sapna N. Patel UCSF Pharm. D. Candidate 2008 Preceptor Dr. Craig S. Stern March 7, 2008

Relevance to Pro Pharma Pro Pharma consultants use AWP on a daily basis Pro Pharma clients seek more efficient drug spending One of the major goals at Pro Pharma is to decrease unnecessary expenditures for the client Pro Pharma clients use Pharmacy Benefit Managers (PBMs), such as Express Scripts, to process prescription claims PBMs use the AWP from Medispan, Red Book, First Data Bank to price drug products Inflated AWP translates directly to increased costs for clients Periodic audits are made to ensure that the PBM listed AWP is similar to Pro Pharmas updated AWP on file

Typical Distribution Chain Manufacturers provide drug products to wholesalers, direct purchasers (hospitals/HMOs), federal facilities, Medicaid program, PBMs Wholesalers provide drug products to pharmacies Pharmacies provide products to both PBMs and Medicaid Lastly pharmacies provide drug products to cash- paying customers

What is AWP? Amount paid by the pharmacy to the wholesaler Price dependant on drug strength, dosage form, package size, and manufacturer Originally considered the drug payment benchmark Sticker Price it rarely represents actual price of drug after discounts used Reflects an elevated number compared to Wholesale Acquisition Cost (WAC)

AWP Listings AWP can be found in 3 major data sources: First Data Bank MediSpan RedBook

How is AWP Determined? AWP pricing is based on information received from manufacturers, distributors and other suppliers No requirement that AWP should display the price of any actual sale of drugs by a manufacturer AWP is NOT defined by current laws or regulations

How is AWP used? Medicaid: use AWP to determine payment reimbursements to retail pharmacies for supplying drug products to Medicaid patients Medicare: use AWP to determine the cost of drug products given in a physicians office

How is AWP used (cont)? PBMs, insurance carriers, and other managed care organizations (MCOs): use AWP to calculate payments to retail pharmacies for supplying drug products to patients Pharmacies: use AWP as a cost basis for pricing prescriptions to patients, the Usual and Customary Price

Current Issues Recent ongoing debates regarding the most appropriate way to calculate how payers, such as government, employers, and health plans, should reimburse pharmacists and other providers for drugs Payment for drugs has been based on benchmark prices, such as the AWP, do not accurately reflect the actual acquisition costs paid for by providers such as pharmacists, physicians and hospitals

Current Issues (cont) Many now believe that federal-based programs such as Medicare and Medicaid have paid more than is necessary for prescription drugs Excess spending on federally funded programs creates unnecessary burden on taxpayers

Current Issues (cont) Ongoing Lawsuit against First Data Bank: Plantiffs include unions and employers Accuses First Data Bank of increasing AWP from 20% to 25% based on information received from drug manufacturer McKesson Estimated billions of dollars lost as a result inflated AWP rates May shift to permanent discontinuation of AWP usage as price benchmark First Data Bank does not admit any fault and has not agreed to pay any damages

Summary AWP is historically considered a pricing benchmark Pro Pharma consultants use AWP daily A major aim for Pro Pharma consultants is to help control costs for the clients to create a more efficient drug spending Inflated AWP means increased costs to clients Periodic audits are made to ensure that the PBM listed AWP is similar to this updated AWP

References 1. glossary of managed care terms. March 4, A Guide to Understanding Common Prescription Drug Pricing Terms. March 4, March 5, Borden,D,Breimhorst M, Change in AWP Pricing Methodology- Class Action Settlement. Pharmaceutical Strategies Group AMCP guide to Pharmaceutical Payment Methods Executive Summary. March 5,