Wednesday, March 18, 2009

Farewell, AWP

Yesterday, Judge Patti Saris approved the settlement in the long-running First Databank Average Wholesale Price (AWP) litigation, rejecting objections raised by the pharmacy industry. Judge Saris also offered some damning words about AWP as a pricing benchmark for pharmacy reimbursement, adding further urgency to the need for an alternative model.

So what happens now?
  • The WAC-to-AWP spread will be rolled back to 1.20 from 1.25 (a 4% reduction) for many drugs, not just the 1400 NDCs in the case.

  • First Databank will stop publishing Blue Book AWP values within the next two years.

As always, I encourage you to read Judge Saris' (surprisingly well-written) decision for yourself: Order Granting Final Approval of Settlement – March 17, 2009. You should also read First DataBank's statement.


I’ve been following this saga for some time on Drug Channels. Here are the two key articles that will catch you up:

Briefly, First Databank's plan to roll back the AWP-to-WAC markup for so many drugs and discontinue publishing the Blue Book AWP data is not formally required by the settlement. Many pharmacy groups objected to this outcome because a roll-back of this crucial benchmark price would translate into lost dollars for pharmacies that get reimbursed based on AWP.

Objectors include a who’s who of the pharmacy association world: the National Community Pharmacists Association (NCPA), the National Association of Chain Drug Stores (NACDS), the Food Marketing Institute (FMI), the Long Term Care Pharmacy Alliance (LTCPA), the American Society of Consultant Pharmacists (ASCP), the Independent Pharmacy Cooperative (IPC), and the Pharmaceutical Care Management Association (PCMA).

Judge Saris soundly rejected their objections and offered these stinging words:

“[T]hese pharmacies (both chain and independent) and PBMs, reimbursed on the basis of AWP, were unjustly enriched when drug prices were fraudulently inflated during the scheme, yet they have not been asked to disgorge their profits. None of the pharmacies protested the windfalls they received when prices were unilaterally inflated by five percent.” (page 14)

Needless to say, the pharmacy groups are not happy. Click here to read NACDS’ statement.


Judge Saris left no doubt about her views on AWP as a pharmacy reimbursement benchmark:

“AWP has been exposed as a faux inflated price unrelated to actual drug prices. Reliance on AWP is a trap for unwary and unsophisticated TPP (third-party payors) purchasers and results in consumers paying unwarranted co-payments.” (page 13)

Keep in mind that Judge Saris has previously identified “speed limits” for the WAC-to-AWP markup in unrelated AWP litigation. (See Judge Saris on Fictitious AWPs.)

Pay attention. The stakes have just been raised in the Average Manufacturer Price (AMP) debate.


  1. What happens when FDB stops publishing in 2 years - how will pricing be determined with no reference? Will TTP rely on PBMs?

  2. I am confused, but what else is new. If FDB or anyone else stops posting an AWP but still posts a WAC what is the big deal? Can't you just take the WAC and "do the math?"

    What I am even more surprised at is the calculation for WAC! Talk about a can of worms! Geez, NO pharmacy is actually paying WAC so THAT should be the target.

    Just plain makes me wonder...


  3. The judge makes a pretty Naive statement:
    "Reliance on AWP is a trap for unwary and unsophisticated TPP (third-party payors) purchasers and results in consumers paying unwarranted co-payments"

    What "unsophisticated and unwary" TPP is she talking about? Do we know any of these? If so I would like to contract with them. The pharmacies are far less sophisticated and resource and data poor compared to TPPs.

    What unwarrent co-pays? As Walgreen's is so fond of advertising "Everyone pays the same co-pay" in the vast majority of the cases-- and the poor and those in skilled nursing facilities do not pay their co-pays in most cases.

    Right now every service in pharmacy is funded by the margin spread. So if that spread goes away then the service costs will be unbundled or eliminated. Unless a large dispensing fee is instituted to cover the service and distibution costs.

  4. I know of 4 major suppliers of the AWP; First Data Bank, Medispan, Gold Standard, MicroMedex (Redbook). Each of these vendors might have similar methodologies to calculate AWP, however their AWP's can vary as much as 20%. Many PBM's use an AWP source different than the pharmacy or utilize multiple sources and then use the lowest to calculate ingredient cost. When contracting with the PBM's it is important to define the source of AWP or any other benchmark used.

  5. The more I think about it, I hope AMP is instituted. It obviously needs to be fixed to more accurately represent the true cost of drugs to pharmacies. After this occcurs, though, it might be a blessing in disguise. It will allow for a more level playing field in terms of pharmacy purchasing power. And more importantly, it will allow for a real benchmark for generics. I'm so sick of PBMs setting ridiculously low MACs on generics--like a total reimbursement of $2.50 for a prescription.

    And to Barry,

    I don't know exactly what the judge meant when referring to unwary third party payers. However, I would say that PBM tactics leave a lot of their clients in the dark. And AWP definitely allows them to more easily implement manipulative practices. For example, it's widely known that PBMs will repackage drugs, giving them unquie NDC numbers and elevated AWPs. Then they boast to their clients that they'll fill prescriptions at their mail order pharmacies for AWP-25%. Want proof of this? Just check the Red Book, and look at the corresponding AWPs.

  6. Mr. Medsaver

    I agree with you but allow me to clarify. I am assuming the judge meant "PBM" when she is speaking about TPP's. (of course I could be wrong) I believe most pharmacy people think of the PBM and their associated contract pharmacy (often vertically integrated with PBM) when they are thinking of a TPP. It is these TPP/PBMs (i.e. Anthem, Caremark etc) that are repacking and jacking (Jacking up the price-that is) to the poor small/medium business benefit managers who DO NOT understand the economics of how that PBM makes its money. Yes, they see AWP-55% for their drugs and say "what a deal we are getting".

    My point is that a PBM/TPP are usually one and the same to a pharmacist and usually to the typical company benefit manager and they are sophisticated deal makers who maximize their gain at the expense of the retail/LTC pharmacy and the real payer- which is the employer or in the case of Part D- the Federal Goverment.

    They are not Naive- they are the savvyist of the bunch who have maximized the "AWP" benchmark to their benefit.

  7. Barry,

    I would tend to agree with you that the judge has no idea what she's talking about if she's referring to PBMs. On the other hand, if she meant those who ultimately pay for prescription drugs, then it was a pretty lucid comment. lol

    Also, the comment about pharmacies being "unjustly enriched when drug prices were fraudulently inflated" also shows that she doesn't have much of a comprehension of these matters. I don't know about all of you, but our contracts have already been adjusted to reflect these "inflated" AWPs.

  8. What About Big 3 wholesalers, who are making millions out of their own network of pharmacy by not distributing rebates that they receive from manufacturer.

    Everybody is forgetting that major culprit in the system is middle men Mckesson, amerisource and cardinal on an average they are making more than 25 % on generics.

  9. AnonymousMay 22, 2009

    Is the list of the 1400 NDCs posted somewhere? Where do we get it?