Insight, analysis & opinion from Joe Paduda

< Back to Home


Repackagers and the myth of AWP

From Jim Andrews of Cypress Care comes a heads-up of an article by a former California state representative who’s endorsing the doctor-dispensing trend, noting that it has “small costs and huge benefits.”
Perhaps to his consulting clients, who include the drug repackagers that supply the drugs to docs.
Here’s the deal. The CA fee schedule drastically reduced the amount paid for drugs under workers comp by requiring compliance with the Medi-Cal fee schedule. I have issues w the drastic reduction, but that’s for another post.
So, entrepreneurs sensed an opportunity. The new fee schedule applied to drugs speicfically listed under Medi-Cal; drugs that were not listed were to be paid at the old fee schedule, which was much much much more generous.
Surprise – these wily entreprenueurs figured out that if they repackaged drugs from lots of 100 into 90 or 50 or 101, they fell outside the fee schedule. And, there was no Average Wholesale Price per se, as these creative business folk were creating a whole new drug/dosage/count combination. Voila, they came up with their own “AWP”.
In the article on Workers Comp Exec, the ex-legislator (Thomas Calderon) notes that “The drug debate has centered on the so-called “loophole” created by SB 228 allowing doctors to bill at the pre-SB 228 fee schedule, which is 140 percent of the average wholesale price (AWP). But has this loophole raised rates to employers? Absolutely not (no proof statement provided by Calderon)…We could do as I suggested above by using 90 percent of AWP. Another way would be to increase the handling fee to reflect the costs of dispensing.”
Well, gee Tom, if your clients are setting the AWP, and then you are offering a 10% “discount” off that AWP, how exactly does that reduce payers’ costs? I should note that several of my payer clients are seeing costs for these repackaged scripts that are five to ten times higher than for scripts that are covered under the Medi-Cal fee schedule.
Calderon is disingenuous at best, and advocating cheating the system, patients, and employers at worst.
Repackagers could add value, patients could get their drugs faster, and docs could make a few bucks on the side, and everyone would be happier. But the only people making out on this deal are Calderon’s clients and a few docs who are taking advantage of the system.
What does this mean for you?
We need to fix this loophole.

3 thoughts on “Repackagers and the myth of AWP”

  1. Joe, you seem to be implicitly arguing for some form of cost based reimbursement scheme, is that right? In that case we need to start thinking about prescription drug prices as an output of a formula akin to the rate-setting formula employed by public utilities (guarantee a certain level of economic profit).

  2. Martin – no, I’m not arguing in favor of a wholesale redo of pharma pricing in WC. You cost-based reimbursement scheme would be very difficult to implement in WC, much less in the rest of the payer sectors.
    I am arguing against people like Calderon saying thir interests are to help the poor injured workers, when in reality they are attempting to justify outrageous profits. This makes me nuts.

  3. The payors aren’t stupid – They may pay a few of these claims initially, but in the end they will deny these Rx claims, and the Doc’s doing this are only cutting their own throats for future business.

Comments are closed.

Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



© Joe Paduda 2024. We encourage links to any material on this page. Fair use excerpts of material written by Joe Paduda may be used with attribution to Joe Paduda, Managed Care Matters.

Note: Some material on this page may be excerpted from other sources. In such cases, copyright is retained by the respective authors of those sources.