Average Wholesale Price – not dead yet…

Wolters-Kluwer, publisher of the Medi-Span pharmaceutical pricing database, just announced it will not stop publishing that database at the end of 2011, or any other date certain.
The reasoning behind the decision appears to be the lack of consensus around a replacement for the AWP standard.
According to W-K’s press release, “discontinuation of AWP before development and industry-wide acceptance of a viable alternative price benchmark to replace AWP could create significant customer problems and confusion or disruption throughout the entire healthcare industry. We also recognize that changes to the data published in our drug information products may impact our customers’ businesses and require significant lead time for them to make corresponding technical and contractual adjustments. It appears that consensus around a comprehensive alternative pricing standard will not be reached this year…”
Included in the release is a rather detailed discussion of precisely what the ‘AWP’ is – and is not. W-K has obviously taken notice of the litigation surrounding AWP, and the release, and further details provided in an accompanying document [opens pdf], provide a pretty very thorough primer on AWP and the W-K database’s development, methodology, and limitations.
The rationale – there is no consensus on a replacement for AWP. rings true As flawed as AWP is, there are inherent problems with alternate pricing methodologies, problems that are not dissimilar from those associated with AWP. The most significant issue is the fact that AWP is NOT an Average nor a Wholesale Price. The MediSpan database is comprised of self-reported data, does not include all ‘wholesalers’ nor rebates and other behind-the-scenes financial transactions, and therefore does not reflect actual pricing. Similar issues plague Average Sales Price, Wholesale Acquisition Cost, and other metrics.

What does this mean for you?

This may motivate buyers and other stakeholders to get cracking on an alternate – either one of the current options or perhaps something new and different. What is abundantly clear is AWP remains flawed – at best. The failure of the industry to find a suitable alternative shows just how opaque the entire pharma pricing/rebate/cost picture is.

What’s replacing AWP?

As industry insiders have known for almost a year, Average Wholesale Price as published by First DataBank, is going away. Triggered by a settlement in a lawsuit filed in Boston in 2006, as of March 2011 FDB will no longer publish their version of AWP. (There’s a bit of disagreement as to timing, as one authoritative source indicates FDB is scheduled to discontinue the publishing of AWP in October 2011 (not March). I’ll find out what I can find out)
Regardless, FDB’s publication of AWP is going to cease. Sources indicate the National Association of Chain Drug Stores (NACDS) is suggesting a move to a new pricing methodology based on Wholesale Acquisition Cost, or WAC.
What’s with WAC?
WAC is the manufacturer’s list price for drug wholesalers and direct purchasers, excluding prompt pay or other discounts. (Note WAC may not bear much resemblance to the actual price paid, a problem it shares with AWP…)
NACDS and drug retailers would like to see a conversion to WAC; in fact NACDS has been advocating WAC for at least five years. WAC is generally accepted in broad swaths of the payer community; around ten states use WAC in their Medicaid pricing; the huge TriCare program is also WAC-based.
Here’s a bit of history.
The original legal case rested on FDB’s selection of McKesson as the sole source of drug pricing data. FDB’s AWP was based on the actual price that McKesson paid for the drug, plus a margin. For years the typical margin was 20%; six years ago McKesson changed the margin to 25% to make it ‘simpler to administer pricing internally’.
The price increase also earned McKesson points with its customers, retail pharmacies, who saw an immediate increase in profitability – profits on Lipitor immediately jumped three-fold after the 2002 increase. As part of the settlement in the 2006 case, FDB agreed to stop publishing prices two years after the finalization of the settlement (which is March of next year).
As cognoscenti are well aware, the suit has already had repercussions. On September 26, 2009, First DataBank and MediSpan, the firms that publish Average Wholesale Pricing tables changed their methodology to revert to the 20% margin, thereby reducing the drug’s AWP cost by almost four percent.
Wait, it gets more complicated. FDB is not the only publisher of AWP, and AWP, as published by RedBook and MediSpan, may be around in some markets for a while. The case for the persistence of AWP is that it is broadly used today, and RedBook and Medispan have not been charged with the kind of pricing manipulation that led to the FDB settlement.
Conversely, for some time AWP has been disappearing in generic pricing, where it is being replaced by MAC (maximum allowable cost), FUL (Federal upper limit), and other methodologies that seem to provide a more objective and less fungible baseline.
There’s another reason AWP may be on life support; it is broadly reviled as few payers believe, and with good reason, it has any real objective basis.
Implications for workers’ comp
As I reported several months ago, work comp regulators are wrestling with the issue, as 33 states base their work comp fee schedule on AWP (California doesn’t). Where they end up will be heavily influenced by the metric chosen by group/Medicare/Medicaid; drug spend in comp is about 2% of the nation’s total bill of $220 billion.