1. Beyond Average Wholesale Price….
Sapna N. Patel
UCSF Pharm. D. Candidate 2008
Preceptor Dr. Craig S. Stern
March 13, 2008

2. Relevance to Pro Pharma
Average Wholesale Price (AWP) originally considered payment benchmark
Pending lawsuit settlement may cause AWP discontinuation
Alternatives to AWP create differences in contracts between Pharmacy Benefit Managers (PBMs) and clients
Clients may have increased drug product expenditures as payment benchmarks change
Pro Pharma consultants must take an active role in learning alternative pricing strategies and how they are used to help save clients from increased costs
Explain what contracts are here

3. Contracts with PBMs
Clients make prescription coverage contracts with PBMs
Unclear contract definitions of pricing terms and lack of disclosure increase costs for the client
PBMs obtain much higher discounts for drug purchases that do not translate to client plans (ex: higher AWP markdowns)
Contracts need to be clarified to achieve savings with new price benchmarks

4. Average Wholesale Price (AWP)
AWP does not represent the true cost of the product to purchasers so several new drug payment benchmarks as alternative options more representative of true costs
AWP= WAC + 20%

5. Alternatives to AWP Wholesale Acquisition Cost (WAC)
Average Manufacturer Price (AMP)
Average Sales Price (ASP)

6. WAC “list price”, “wholesale net price”, “book price”
Cost that wholesalers pay manufacturers for drug products
Serves as basis for price negotiation between manufacturers and private payers (discounts and rebates are subtracted from WAC) for both medical and pharmacy benefit products

7. Calculating WAC AWP = WAC + 20% Price varies by manufacturer
Each manufacturer has their own formula (not readily accessible) to determine the price
First DataBank, Medispan, and Red Book report WAC prices based on information supplied by manufacturer
AWP = WAC + 20%

8. WAC Pros: Publicly available Published on daily basis
Cons:
Not available on all drug products
Varies by manufacturer
Non-inclusive of negotiated discounts and rebates between manufacturer and private payers
Does not apply to generic drugs under Medicaid
Pros:
Publicly available
Published on daily basis
Payment benchmark

9. AMP
Average price paid by retail pharmacies or drug wholesalers to manufacturers for drug products distributed to retail pharmacies
Made by CMS for determining Medicaid rebates
Replaced AWP for calculating the Federal Upper Limit (FUL)-currently set as 250% of drug’s AMP
Average price paid
FUL: max amt federal government will pay for state medicaid funds

10. Calculating AMP
Computed every quarter by individual drug manufacturers
Total retail sales dollar value per each drug type and strength/ # units sold

11. AMP Pros Publicly available Reported monthly
Initiation as benchmark in Medicaid generic reimbursement
Cons
Lag time to publication
Can be below the acquisition cost of independent pharmacies
Variable, based on individual manufacturer’s sales data
Brand-name Medicaid drug products still use AWP
Single-source: drug is either generic or brand

12. ASP Close match to the manufacturer reported actual sale price
Includes discounts based on volume, rebates and other price reductions
Replaced AWP as a payment method for drugs under Medicare’s medical benefit
Medicare part b

13. Calculating ASP
ASP is the weighted average of all nonfederal sales to wholesalers
Net price= Drug Cost- Discounts, rebates, and other benefits tied to the purchase of the drug product, whether paid to the wholesaler or retailer
Physician Office Drugs/Medicare Part B: ASP+6%

14. ASP 10% of 500=$50, versus 10% of 100=$10 Publicly available
Cons
6-12 month lag time from sale to publication
Volume based discounts-disadvantage to small buyers
Preference for highest cost drug products
Medicare Reimbursement (ASP+6%) creates difficulty in retrieving acquisition costs of infrequently used drugs
Pros
Publicly available
Reimbursement incentives for preferred, lower-cost products
Reduces drug payments for Medicare versus AWP
Larger groups pay lower prices
10% of 500=$50, versus 10% of 100=$10

15. Summary
Alternatives to AWP will create differences in contracts between PBMs and clients
Clients need to be concerned about contracts as these payment shifts occur to prevent increasing costs
Pro Pharma consultants must also be aware contracts in regards to use of alternative pricing options and their applications in an effort to save clients from unnecessary drug product costs

16. References
1. AMCP Guide to Pharmaceutical Payment Methods
2. of managed care terms. March 4, 2008.
3. Guide to Understanding Common Prescription Drug Pricing Terms. March 4, 2008.
4. Borden,D,Breimhorst M, Change in AWP Pricing Methodology-Class Action Settlement. Pharmaceutical Strategies Group. 5.