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Stay ahead of the curve.

Kay Morgan
Senior Vice President
Drug Products and Industry Standards Research and Compliance

Since the lawsuits and controversy over AWP, and its subsequent removal from FDB, stakeholders throughout pharmacy and related industries have been considering alternatives for a new standard drug price type. The commonly agreed criteria for a new benchmark are that it should be: transparent, accessible, comprehensive, timely, and immune to manipulation.

Although there have long been an array of drug price types available in addition to AWP (AAC, AMP, ASP, EAC, FUL, MAC, MLP, and WAC), none of these meets all of the desired criteria. Consequently, two new drug price types have been proposed as potential alternatives. They are the National Average Drug Acquisition Cost (NADAC) and the Predictive Acquisition Cost (PAC). What follows are brief summaries and pertinent facts about each of the two options:

NADAC

Following the lead of Alabama State Medicaid, the Centers for Medicare & Medicaid Services (CMS) is investing in the National Average Drug Acquisition Cost (NADAC), which is based on a monthly survey of 2,000 – 2,500 randomly selected pharmacies from the nationwide pool of 62,000 independent, chain, and specialty pharmacies. “Closed door” pharmacies, such as mail order and long-term care pharmacies, are not included.

Pharmacies are asked to submit their invoice data for all drug purchases made during the most recent 30-day period. Participation is voluntary and monthly submissions will not seek data on discounts, rebates, charge-backs, free goods, or other off-invoice transactions. CMS plans to conduct separate annual surveys for off-invoice transactions, which will also be voluntary. Once collected, the drug price data is compiled and a national average price calculated, which is then published. CMS estimates a two-month delay in published data, meaning, for example, that data collected in November would be published in January.

PAC

Developed by Glass Box Analytics, the Predictive Acquisition Cost (PAC) combines a range of data sources and employs predictive analytics techniques, such as those used in financial services to determine credit worthiness (FICO), to estimate true drug acquisition cost. The PAC model considers various factors, including industry MAC benchmarks, published price lists, existing price benchmarks, drug dispensation metrics, supply-demand measures, and survey-based acquisition costs.

According to its creators, PAC can estimate the drug acquisition cost with greater accuracy than any other price type to support contract negotiations, claims reimbursements, and any other drug pricing activity. No single input factor on its own provides sufficient accuracy in estimating true drug acquisition cost, but, collectively, the multiple factors PAC uses triangulate into an accurate estimation.

PAC provides multiple daily outputs to meet the various needs of the pharmacy industry: estimation of acquisition cost for a drug group, the size of the range (low and high) indicating the level of accuracy associated with PAC’s estimate of acquisition cost, and PAC-retail for use in existing contract vehicles (in place of AWP).

Independent studies indicate that PAC tracks true drug acquisition cost more closely than AWP. No data comparing NADAC with AWP or PAC with NADAC is yet available.

Weigh In

These two approaches to determining the true acquisition cost of prescription drugs could hardly be more different. NADAC depends on voluntary survey information collected directly from pharmacies about what they paid for their drugs. PAC is based on a predictive analytics model using multiple price inputs, including pharmacy survey data.

The superior method will likely prove itself over time. In the meantime, we would like to hear from you:

  1. Based on your understanding of NADAC and PAC, which do you think is a better candidate for adoption as the new drug price benchmark
  2. What concerns do you have about the accuracy and reliability of NADAC?
  3. What concerns do you have about the accuracy and reliability of PAC?
  4. Do you have any suggestions for a better way to estimate true drug acquisition cost?
  5. Do you believe that the complexity and obscurity of drug pricing contributes to the high cost of prescription drugs?

Please feel free to offer any other comments or insights on the topic of drug price types and options for a new national standard or benchmark.

Read more about NADAC here.

Read more about PAC here.

Comments
  1. I enjoy clinical pharmacology because is the bases for the rationale use of drugs

  2. PAC is the logical choice here as it is based on hard numbers and financial analysis. NADAC is based on survey information from a select group of providers which would be ‘garbage in / garbage out”. Frankly what a waste of CMS money, time and resources!

  3. Where would prices hospital pharmacies pay be used?

  4. How can you push your predictive model as a benchmark for both chains and independents. The CMS surveyed mostly chains and not independents and this type data places a unrealistic burden on the independents that buy at a higher cost, but perform an additional service.

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