The Employer's Guide Blog for Overseeing PBMs

The Definition of Oversee: to watch over and direct (an undertaking, a group of workers, etc.) in order to ensure a satisfactory outcome or performance.

10 Benchmarks of PBM Pricing

A price source refers to a data source that provides information on prices of goods or services. In the context of the prescription drugs, a price source would be a database or other source of information that provides pricing data on pharmaceutical drugs. This data is used to calculate the AMP, which is a key metric used by the US government to determine reimbursement rates for drugs covered under the Medicaid program, for example. Price sources can be private or public, and may include data from manufacturers, wholesalers, or other entities such as Elsevier, First Databank, Medispan, and Merative. Listed below are 10 benchmarks of PBM pricing aggregated by price sources.

Learn the 10 Benchmarks of PBM Pricing at Certified Pharmacy Benefit Specialist.
Register for CPBS today!
  1. The Average Wholesale Price (AWP) is a measure of the average cost of a medication to a wholesaler, which typically includes the cost of the drug, plus a markup. This markup can vary depending on the specific drug and the manufacturer, but it is around 25% to 30%. The AWP is used by some insurance companies, pharmacy benefit managers (PBMs), and government programs to set reimbursement rates for drugs. However, it should be noted that the AWP is not an actual price that is paid by any one entity, and it is not necessarily reflective of the actual cost of a drug. It is important to notice that the AWP is different from the wholesale acquisition cost (WAC) which is the price a wholesaler pays to acquire a drug from the manufacturer and is typically lower than the AWP.
  2. Wholesale Acquisition Cost (WAC) is the price at which a pharmaceutical manufacturer sells a drug to a wholesaler or distributor. It is the price that a wholesaler pays to acquire a drug from the manufacturer, and it is typically lower than the Average Wholesale Price (AWP). The WAC is an important metric in the pharmaceutical industry, as it is used to set reimbursement rates for drugs covered by insurance companies, pharmacy benefit managers (PBMs), and government programs. It can also be used as a benchmark for determining the price of a drug at the pharmacy level. However, it should be noted that the WAC is not necessarily reflective of the actual cost of a drug, as it does not consider discounts or rebates that may be negotiated between manufacturers and payers. WAC can be considered a published catalog or “list price” of a drug, and it’s important to note that the final cost of a drug to a patient can be different than the WAC, and it can be affected by factors such as insurance coverage, rebates, or negotiations with pharmacy benefit managers.
  3. Direct Price (DP) refers to the price that a pharmaceutical manufacturer charges for their products when they are sold directly to a pharmacy, hospital, or other healthcare provider, as opposed to through a wholesaler or distributor. Direct Price can be considered as the “net price” after any rebates, discounts or other price reductions have been applied. Pharmaceutical manufacturers may offer DP to certain customers, such as hospitals, to increase sales or gain market share. These prices are usually lower than the wholesale acquisition cost (WAC) of a drug, but higher than the prices paid by large pharmacy benefit managers (PBMs) or government programs. PMDPs can vary widely between manufacturers, and they are not always publicly available. Additionally, it should be noticed that the DP does not always reflect the final cost to the patient as it can be affected by insurance coverage, deductibles, or copays. It is also worth noting that DPs are different from the prices set by the manufacturer for the drug when it is sold to the government, which are usually incredibly low, and are set under the Medicaid Drug Rebate Program.
  4. Average Acquisition Cost (AAC) rate schedules are based on the premise that chemically equivalent drug products in the same strength and dosage should be reimbursed similarly. AAC rates are designed to maximize the cost-effectiveness of pharmacy services by setting reimbursement amounts for therapeutically equivalent drug products at the same price, based on the cost of the products. The Centers for Medicare & Medicaid Services (CMS) uses this same premise to establish federal upper limits (FULs) for drug products. AAC rates are state Medicaid programs version of CMS FULs.
  5. The average invoice cost a pharmacy spends to purchase a medication is represented by the National Average Drug Acquisition Cost (NADAC) survey. The purpose of NADAC was to “create a national reference file to help State Medicaid programs in the pricing of Covered Outpatient Drug claims to reflect the Actual Acquisition Cost (AAC) of medications,” according to the Centers for Medicare and Medicaid Services (CMS). The most thorough public measurement of market-based retail pharmacy acquisition costs is what NADAC seeks to achieve. For the benefit of CMS, Myers & Stauffer, an accounting firm that focuses on public healthcare and social service organizations, compiles NADAC. It is created from data collected from 2,500 randomly chosen retail pharmacies in a voluntary monthly invoice cost survey with 450 to 600 respondents.
  6. Maximum Allowable Cost (MAC) is a term used in the pharmaceutical industry to describe the highest price that a pharmacy benefit manager (PBM) or another payer will reimburse for a specific drug. It is a type of reimbursement method where the payer sets a maximum price that they will pay for a drug, regardless of the price charged by the pharmacy or the manufacturer. PBMs and other payers use MACs to control costs and ensure that they are paying a fair price for drugs. They typically establish MACs for generic drugs, which are usually less expensive than brand-name drugs. The MAC for a specific drug is based on the prices of other drugs in the same therapeutic class and the prices of the same drug from different manufacturers. The MACs are updated regularly to reflect changes in drug prices. PBMs and other payers may also use a MAC pricing strategy to negotiate lower prices from manufacturers and pharmacies. When a pharmacy or manufacturer charges a price that is higher than the MAC, the payer will only reimburse the pharmacy or manufacturer for the lower MAC price. This can incentivize pharmacies and manufacturers to offer lower prices to be reimbursed fully. It’s important to note that this pricing strategy is used primarily for prescription drugs covered by public and private insurance plans, and it is not necessarily reflective of the actual cost of a drug, as it does not consider discounts or rebates that may be negotiated between manufacturers and payers.
  7. Pharmacies are reimbursed by the PBMs (as a pass through from clients) for the ingredient cost of the drug dispensed plus a dispensing fee, less the member’s co-pay or co-insurance. Ingredient cost is usually [but not always] based on the lessor of methodology, which is the lowest of four calculations, depending on the drug dispensed: AWP, maximum allowable cost (MAC), usual and customary (U&C), or copayment. Reimbursement rates vary depending on the network. To ensure their clients receive the lowest possible price for drugs, pharmacies are contractually obligated to limit their reimbursement to the price they would charge a cash-paying customer. This price is called Usual and Customary (U&C) and is determined by the pharmacy. For example, if a retail pharmacy charges a cash-paying customer $20 for a drug, the retail pharmacy cannot invoice the PBM for an ingredient cost greater than $20, regardless of the AWP discount or MAC price in effect for that drug.
  8. The 340B Drug Pricing Program, also known as the 340B program, is a federal program that requires drug manufacturers to provide certain outpatient drugs to eligible healthcare organizations and covered entities at significantly reduced prices. The program is named after Section 340B of the Public Health Service Act, which established the program in 1992. The 340B program is intended to help safety-net providers such as Federally Qualified Health Centers (FQHCs), Ryan White HIV/AIDS Program grantees, and certain children’s hospitals, to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services. These providers use the savings from the 340B program to expand access to care and provide more comprehensive services to vulnerable patient populations. The 340B price is the price at which manufacturers are required to sell their drugs to 340B covered entities, it is significantly lower than the average wholesale price (AWP) or the wholesale acquisition cost (WAC) of the drug. The 340B price is set by the manufacturer and the Department of Health and Human Services (HHS). It is important to note that the 340B program is not a reimbursement program, 340B covered entities are responsible for purchasing and dispensing the drugs, and they are not reimbursed by the government for the drugs they purchase at the 340B price. Overall, the 340B program is intended to help safety-net providers stretch their resources further, reach more patients, and provide more comprehensive services, while also helping to reduce the cost of drugs for uninsured, low-income, and other vulnerable patients.
  9. Average Sales Price (ASP) is the manufacturer’s revenue from sales of a drug to all customers in the U.S. during a calendar quarter divided by the total quantity of the drug the manufacturer sold during that same quarter. Any discounts are taken out of the ASP. The Centers for Medicare & Medicaid Services has been using an ASP-based payment system to cover the majority of Medicare Part B-covered medications since January 2005.
  10. Average Manufacturer Price (AMP) is a metric used primarily by the US government to calculate reimbursement for drugs covered under the Medicaid program. AMP is defined as the average price paid to the manufacturer by wholesalers for a drug, net of all discounts and rebates. The AMP is used to determine the reimbursement rate for the drug under Medicaid. It is also used to calculate the Medicaid Drug Rebate Program (MDRP) which requires drug manufacturers to pay rebates to states for drugs covered by Medicaid.

The 10 benchmarks of PBM pricing are standards or reference points used to measure and compare prices of prescription drugs. In many cases, a price benchmark is used to determine if a price is fair or reasonable. In the context of the Average Manufacturer Price (AMP), a price benchmark would be a standard or reference point used to measure and compare the prices of pharmaceutical drugs, for instance. This benchmark can be used as a starting point to determine if a drug’s price is fair and reasonable, and if it is in line with prices of similar drugs. Price benchmarks can be used for various purposes such as setting prices for prescription drugs, evaluating price changes over time, determining reimbursement rates, and identifying price disparities between different pharmacy benefit managers. Finally, the price benchmark matters less when the PBM doesn’t take a spread.

Tyrone Squires, MBA, CPBS

I am the proud founder and managing director of TransparentRx, a fiduciary-model PBM based in Las Vegas, Nevada. We help health plan sponsors reduce pharmacy spend, by as much as 50%, without cutting benefits or shifting costs to employees.

Leave a Reply