If you don’t fully understand average wholesale price (AWP) or question its value, this blog is for you. Below are 3 reasons why the average wholesale price or AWP is misunderstood.

• Don’t penalize AWP as a drug reimbursement benchmark due to cheating by third parties. The “Average Wholesale Price,” or AWP, is a benchmark figure used by health plans and pharmacy benefit managers to calculate reimbursement to pay pharmacies for prescription drugs that are dispensed to plan participants. For example, a health plan may have a contract to pay a pharmacy AWP minus 18% for brand drugs dispensed to its members. Manufacturers report either the AWPs for their drugs, or another benchmark, Wholesale Acquisition Cost (WAC) to publishers of pricing information such as First Databank or Medi-Span. The days for drug manufacturers or price reporting services colluding to artificially inflate AWP are over which leads me to the second point.

• AWP manipulation is the primary problem. Take this definition from the contract of a PBM that claims to be pass-through and transparent, “Average Wholesale Price or AWP means the average wholesale price for a given pharmaceutical product as published by drug pricing services such as Medi-Span or other third-party pricing sources which Acme may select (“Pricing Source”).” People who are disengaged from pharmacy benefits management literacy typically reach for the low hanging fruit. For instance, a misinformed advisor might say AWP is unreliable as a source of pricing information. AWP is only unreliable if you don’t fully understand PBM contracts or know when, where and how to use AWP. The definition provided above is a perfect example of opacity at work and how AWP is manipulated. If you know just enough about pharmacy benefits management to be dangerous, join our next Certified Pharmacy Benefits Specialist class.
• AWP makes it easier to compare, interpret, and calculate relative prescription drug prices. The MAC Effective Rate is the average percent discount off the AWP for drugs adjudicated by the MAC or maximum allowable cost list to be applied to your billed amount, for example. With MAC Effective Rate, you are backing in the MAC price to calculate the discount performance off AWP for a MAC’d drug claim. AWP as a price benchmark allows for easy comparisons of price ratios instead of comparisons of absolute price differences. How do we compare drug prices if one PBM is using National Average Drug Acquisition Costs (NADAC) and another PBM is using AWP, U&C or MAC on a specific drug claim? PMPM doesn’t work either because it takes into consideration other cost drivers like product mix or cost share. AWP provides us with a useful price benchmark when the PBM is radically transparent.

Conclusion

Despite its name and its use as a price index AWP is not based on actual transactional, marketplace price data. A wholesaler or other direct purchaser from a pharmaceutical manufacturer may agree to sell its products to one or more of its customers at a price that is different (i.e. AWP minus 18%) than the published price. When gamesmanship has been eliminated, by those with a trained-eye, AWP is a useful price benchmark.