|
INSIGHTS |
GROUP MAKES RECOMMENDATION TO REPLACE AVERAGE WHOLESALE PRICE
In the last issue of Healthcare Matters, we spoke to Gerald Novak, director of operations, pharmacy benefit strategies at Thomson Reuters, on the issue of Average Wholesale Price (AWP) and his participation in a national focus group facilitated by the National Council for Prescription Drug Programs (NCPDP). This group of industry experts had embarked on a mission to make a recommendation regarding the drug pricing benchmark — whether AWP should remain the benchmark or be replaced by another. The focus group included representatives from various sectors: manufacturing, government, retail, long-term care, consulting, pharmacy benefit managers, compendia, and wholesale.
AWP has been the basis for contractual discounts and payments between many of the players in the prescription world. But recent court rulings have put the spotlight on whether AWP is the ideal pricing model.
The group reconvened in May; here is an update on what happened at that meeting and what their final recommendation is.
Q: Tell us about the NCPDP meeting in May.
A: The meeting included a larger group consisting of NCPDP members and others — around 75 people. The first thing that happened was a presentation from a representative from the state of Alabama. They presented the state's potential solution to AWP. They're trying to get new legislation passed to use what's called the Average Acquisition Cost (AAC). That's very difficult to obtain, because they have to survey all the pharmacies.
Each pharmacy will be surveyed every two years, but they're going to do this on a semi-annual basis. So every six months, they would have a set of pharmacies to survey. And they're surveying them for one month of invoices. That submission would then be evaluated, and the state will determine what the AAC is. For the period of time between surveys, the state will apply any relative increase in price from published data.
One of the things they did mention is that, if the industry gets closer to the actual acquisition cost, then the dispensing fees will most likely change. And they will change dramatically — to upward of $10. We typically see dispensing fees presently in the retail sector hovering around $2.00.
The next item on the meeting agenda was a discussion about whether all the states should follow Alabama's lead. One issue with AAC is that the data can be skewed. For example, different states have different mixes of chain vs. independent pharmacies. The chains have larger purchasing power, so if you have a state that's predominantly chain, the AAC will be much lower, and the independent pharmacies will have a difficult time.
Q: What recommendation did the group come to, regarding AWP?
After a recap of the different options and a lengthy discussion, we finally came up with a decision. The recommendation was that Wholesale Acquisition Cost (WAC) be utilized for single-source products. WAC is the list price before any rebates, discounts, allowances, or other price concessions. So in essence, it's the manufacturer's average price to the wholesaler.
For multi-source products, like generics, the group recommended leaving it up to the industry to decide what to use. After review of everything that's available, there was nothing that met the appropriate requirements for a new baseline price for multi-source.
WAC can be utilized now for most of the products that have only one source, as most brands. However, the multi-source world is lacking this benchmark. The thought is that perhaps if the industry as a whole changes to WAC, the manufacturers, while not legally required to, will report on this more comprehensively.
The big question is whether AWP is going away or not. I do not think that AWP will last long term because of the government's search for the appropriate pricing benchmark to make sure that they are not overpaying. However in the short term, there is a remote possibility that AWP will not disappear. With RED BOOK® and Pharmacy Gold maintaining the publication of AWP, and with the lack of a true comprehensive consensus, AWP may not be vanishing.
Q: What can our readers do to protect themselves in regard to prescription drug pricing?
They need to make sure that their contract will protect them against any potential base pricing changes. Many current contracts between the PBMs and the payers have used AWP as a basis because it is available for all of the drugs — both brands and generics. Contracts are typically based on a discount to the AWP so you need to make sure you understand if your PBM will continue to support AWP pricing.
Thomson Reuters uses an extremely specific contract template that is customized for clients after analyzing their needs. We then produce the RFP and request bids from various PBMs. We provide clients with the RFP response analysis and then narrow down the bidders — typically to three. Each of these PBMs then present to the client in a finalist presentation. We assist the client in awarding the final contract, which typically has a three-year duration.
Thomson Reuters can help you ensure cost-neutrality with possible pricing source changes. We assess compliance through pricing validation audit(s), including pre- and post-AWP rollback assessments, pre-price source changes, and ongoing due diligence.
To learn more on how your organization can benefit from PBM contract negotiation, contact Craig Caldwell, director of sales, at craig.caldwell@thomsonreuters.com or +1 414 454 3904.
