Friday, October 06, 2006

AWP Ain’t What Matters

Pharma industry muckraker Barbara Martinez scores another front-page WSJ story with her account of how McKesson allegedly helped to manipulate the AWP system for their (and their pharmacy customers) benefit. See How Quiet Moves by a Publisher Sway Billions in Drug Spending.

Today’s WSJ article highlights one more reason why government reimbursement for pharmaceuticals is migrating toward methods that use actual transaction prices to approximate pharmacy acquisition costs. For example, the Federal Upper Limit for Medicaid pharmacy reimbursement will be AMP+250% for generics.

I predict that private payers will migrate to AMP-based pharmacy reimbursement, with many follow-on consequences for wholesalers, PBMs, and pharmacies. (See McClellan and the Magic AMP.)

The Law for Averages

The article states that there were only two First DataBank employees who were trained to collect and update information. I guess the math was pretty easy since First DataBank only “surveyed” one wholesaler (McKesson) to “calculate” an average price!

Calculating a meaningful average is a lot harder when it requires more than just typing one company’s price list into the computer. (Ouch, that’s a cheap shot!) Check out the comments attached to the OIG’s June report on AMP, which highlights the real-world complexities of lagged price concessions, volume purchasing, price restatements, and many other technical computation issues.

The Waiting Game

As a result, I doubt that AMP will be implemented on January 1, 2007. Mark McClellan implied a delay when he said (in September) that “…within a few months CMS will publish a proposed revised definition of AMP.” (Source: Popularity of Generics Behind Lower Costs For Medicare Part D Benefit, McClellan Says). I’m very skeptical that CMS could release a new definition and then implement a few weeks later.

January 1 has not been a historically auspicious launch date for CMS initiatives. As someone named Howard Newton said: “People forget how fast you did a job, but they remember how well you did it.”

My corollary: If you do it well, then you are less likely to be sued and appear on the front page of the Wall Street Journal.

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