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Beyond Average Wholesale Price…. Sapna N. Patel UCSF Pharm. D. Candidate 2008 Preceptor Dr. Craig S. Stern March 13, 2008.

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Presentation on theme: "Beyond Average Wholesale Price…. Sapna N. Patel UCSF Pharm. D. Candidate 2008 Preceptor Dr. Craig S. Stern March 13, 2008."— Presentation transcript:

1 Beyond Average Wholesale Price…. Sapna N. Patel UCSF Pharm. D. Candidate 2008 Preceptor Dr. Craig S. Stern March 13, 2008

2 Relevance to Pro Pharma Average Wholesale Price (AWP) originally considered payment benchmark Pending lawsuit settlement may cause AWP discontinuation Alternatives to AWP create differences in contracts between Pharmacy Benefit Managers (PBMs) and clients Clients may have increased drug product expenditures as payment benchmarks change Pro Pharma consultants must take an active role in learning alternative pricing strategies and how they are used to help save clients from increased costs

3 Contracts with PBMs Clients make prescription coverage contracts with PBMs Unclear contract definitions of pricing terms and lack of disclosure increase costs for the client PBMs obtain much higher discounts for drug purchases that do not translate to client plans (ex: higher AWP markdowns) Contracts need to be clarified to achieve savings with new price benchmarks

4 Average Wholesale Price (AWP) AWP does not represent the true cost of the product to purchasers so several new drug payment benchmarks as alternative options more representative of true costs AWP= WAC + 20%

5 Alternatives to AWP Wholesale Acquisition Cost (WAC) Average Manufacturer Price (AMP) Average Sales Price (ASP)

6 WAC list price, wholesale net price, book price Cost that wholesalers pay manufacturers for drug products Serves as basis for price negotiation between manufacturers and private payers (discounts and rebates are subtracted from WAC) for both medical and pharmacy benefit products

7 Calculating WAC Price varies by manufacturer Each manufacturer has their own formula (not readily accessible) to determine the price First DataBank, Medispan, and Red Book report WAC prices based on information supplied by manufacturer AWP = WAC + 20%

8 WAC Pros: Publicly available Published on daily basis Payment benchmark Cons: Not available on all drug products Varies by manufacturer Non-inclusive of negotiated discounts and rebates between manufacturer and private payers Does not apply to generic drugs under Medicaid

9 AMP Average price paid by retail pharmacies or drug wholesalers to manufacturers for drug products distributed to retail pharmacies Made by CMS for determining Medicaid rebates Replaced AWP for calculating the Federal Upper Limit (FUL)-currently set as 250% of drugs AMP

10 Calculating AMP Computed every quarter by individual drug manufacturers Total retail sales dollar value per each drug type and strength/ # units sold

11 AMP Pros Publicly available Reported monthly Initiation as benchmark in Medicaid generic reimbursement Cons Lag time to publication Can be below the acquisition cost of independent pharmacies Variable, based on individual manufacturers sales data Brand-name Medicaid drug products still use AWP

12 ASP Close match to the manufacturer reported actual sale price Includes discounts based on volume, rebates and other price reductions Replaced AWP as a payment method for drugs under Medicares medical benefit

13 Calculating ASP ASP is the weighted average of all nonfederal sales to wholesalers Net price= Drug Cost- Discounts, rebates, and other benefits tied to the purchase of the drug product, whether paid to the wholesaler or retailer Physician Office Drugs/Medicare Part B: ASP+6%

14 ASP Pros Publicly available Reimbursement incentives for preferred, lower-cost products Reduces drug payments for Medicare versus AWP Larger groups pay lower prices Cons 6-12 month lag time from sale to publication Volume based discounts- disadvantage to small buyers Preference for highest cost drug products Medicare Reimbursement (ASP+6%) creates difficulty in retrieving acquisition costs of infrequently used drugs

15 Summary Alternatives to AWP will create differences in contracts between PBMs and clients Clients need to be concerned about contracts as these payment shifts occur to prevent increasing costs Pro Pharma consultants must also be aware contracts in regards to use of alternative pricing options and their applications in an effort to save clients from unnecessary drug product costs

16 References 1. AMCP Guide to Pharmaceutical Payment Methods 2. &v=a/glossary of managed care terms. March 4, &v=a/A Guide to Understanding Common Prescription Drug Pricing Terms. March 4, Borden,D,Breimhorst M, Change in AWP Pricing Methodology-Class Action Settlement. Pharmaceutical Strategies Group. 5. content/uploads/2007/10/contracts-article-for-website-th doc

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