The Incredibly Slow (But Very Nearly Certain) Death of AWP


We’ve long held that use of the Average Wholesale Price (AWP) benchmark in commercial drug benefit contracts has enabled outsized generic dispensing margins in the drug trades (PBMs, drug retail, drug wholesale); and, that the replacement of AWP by either of the alternatives (Average Manufacturer Price or “AMP”; National Average Drug Acquisition Cost or “NADAC”) called for in the Affordable Care Act (ACA) will result in falling generic dispensing margins

In order for AWP to be abandoned as the commercial benchmark, it must first be abandoned as the Medicaid pricing benchmark by the federal government, and by a convincing majority of the states

Three states (Alabama, Idaho, Oregon) have formally abandoned AWP in favor of Average Acquisition Cost (AAC), a close cousin to NADAC; eight more states have announced decisions to follow suit. These 11 states account for 42 percent of national Medicaid spending

Many other states are in advanced stages of replacing AWP; for example Medicaid agencies in both Mississippi and Utah have asked their legislatures to authorize a shift to AAC/NADAC

A recent posting by the Centers for Medicare and Medicaid Services (CMS) establishes August 2013 as the likely date on which CMS will: 1) replace Wholesale Acquisition Cost (WAC, a close cousin of AWP) with AMP as the basis for its calculation of the maximum amounts states may pay pharmacies for Medicaid prescriptions; and 2) make NADAC an official alternative to AWP for the states

For technical reasons explained in this note, CMS’ action should catalyze adoption of AAC/NADAC by the states. States’ fiscal 2014 begins on July 1, 2013; we expect many states will officially replace AWP (and adopted AAC/NADAC) by July 1st

The steps to replacing AWP are becoming increasingly concrete; however most of the negotiations for 2014 commercially sponsored drug benefits will be finished by the time CMS’ rule is official this August. As a result, widespread displacement of AWP as the commercial pricing benchmark is unlikely to occur before 2015

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