The Average Wholesale Price (AWP) has long been the drug price benchmark for establishing reimbursement payment terms between payers, PBM’s, and pharmacies. Created in 1969 by George Pennebaker to address the need for a reference price to adjudicate California Medicaid drug claims, AWP became the standard nationwide as the shift from paper to real-time drug reimbursement claims required the use of common pricing fields. However, as early as the 1980’s, industry pundits referred to AWP as “ain’t what’s paid” because of the common and significant gap between AWP and the actual acquisition cost of a drug.
Derivation of AWP
AWP, as published in the major drug compendia, comes from three potential sources:
- Reported directly from the manufacturer
- Calculated as Wholesale Acquisition Cost (WAC) plus 20 percent
- Calculated as WAC plus 25 percent
With the exception of the Gold Standard Drug Database, which has always distinguished between reported and calculated figures, AWP was commonly published as a single price type, regardless of how it was derived.
Criticism and Withdrawal of AWP
Critics have long charged that AWP is not an average at all and is subject to manipulation and artificial interpretation. The pricing benchmark was implicated in a Medicare Part B fraud investigation for being at least partly to blame for the fact that Medicare was consistently billed more than drugs actually cost. In 2005, a lawsuit was filed by the Prescription Access Litigation (PAL) project, which alleged a conspiracy to arbitrarily increase AWP.
As a result of that lawsuit, First Databank (FDB), the original publisher of the AWP price type, chose to exclude AWP from its drug price data. Due to the allegations about AWP and FDB’s withdrawal of it, interest in a finding a new standard drug price type for reimbursement and claims adjudication grew and has become more urgent.
Alternatives to AWP
AWP is by no means the only price type available. Listed here, with brief descriptions, are others that are available but have not been commonly used for reimbursement purposes:
Actual Acquisition Cost (AAC) – Final price paid by the pharmacy after subtraction of all discounts
Average Manufacturer Price (AMP) – Manufacturer reported price for Medicaid drug rebate program
Average Sales Price (ASP) – CMS calculated price for Medicate Part B drugs
Estimated Acquisition Cost (EAC) – Estimated cost of the product or the pharmacies’ usual and customary charge
Federal Upper Limit (FUL) – CMS calculation for the upper amount to be paid in aggregate for multi-source products
Maximum Allowable Cost (MAC) – Defined by each payer for multi-source drugs
Manufacturer List Price (MLP)- Price listed by the drug company
Wholesale Acquisition Cost (WAC) – List price for a drug sold by a manufacturer to wholesaler, not including discounts
New Price Benchmark
Industry leaders and interested parties have engaged in an active dialogue about establishing a new drug price benchmark, largely agreeing that the criteria suggested by the Journal of Managed Care Pharmacy (September 2010) captures the characteristics needed. The benchmark criteria for a new standard price type are:
A brand new price type, the National Average Drug Acquisition Cost (NADAC), which is based on voluntary surveys of pharmacy invoices, has been proposed as the new standard. However, it is not yet widely available and it does not meet all of the essential criteria for a satisfactory national standard.
The following table shows the currently available alternatives to AWP and how they measure against a consolidated version of the desired criteria:
Unfortunately, neither the eight existing alternatives nor the new NADAC meet the desired criteria. So, for the time being, AWP is still used as the industry standard.
Although Elsevier/Gold Standard is committed to supplying AWP for as long as our customers require it, we also believe that the scrutiny it has received over recent years has brought to light not only AWP’s flaws, but those of other price types. A new standard that more closely meets criteria to satisfy all facets of the industry should, and likely will, be found.
We would like to hear from you about drug price types/benchmarks and the best direction for future standards. Some questions to consider:
Has the use of AWP as the industry standard for reimbursement driven up the cost of pharmaceuticals for health plans and employers?
Do you think that any of the existing drug types come closer to meeting the transparent, accessible, comprehensive, timely, unable to manipulate and simple to administrate criteria?
Is the proposed NADAC a viable alternative? Is it in the best interest of pharmacies to respond to the survey with the requested invoice data?
What would be the benefits/consequences to health plans, PBM’s and retail pharmacy of a price type that is close to true acquisition cost?
Which price type would you like to see as the industry standard for reimbursement?
Please feel free to make any relevant comments, ask questions and provide suggestions for additional information. Drug information technology specialists from Elsevier/Gold Standard will monitor and facilitate discussion.