Inside AWP: The arbitrary pricing benchmark used to pay for generic drugs

Everyone loves a good sale. A sale means that we're getting a discount off of a set price. If we got it on sale, that means we got a good value, right?

Well, it depends.

If your discount is taken off a transparent, market-based rate, you're likely getting a good deal. If your discount is taken off an arbitrary, subjectively set rate, then you are at risk of getting ripped off.

Well, you can guess which way we pay for prescription drugs.

Average Wholesale Price (AWP) is a common benchmark that pharmacy benefit managers (PBMs) use as the discounted baseline for charging payers for prescription drugs, and unfortunately, it is a meaningless benchmark price for generic drugs.

This has been known for at least a decade, if not longer. But despite its lack of substance, AWP-based payment models just won't go away. The contractual reliance on a benchmark that has no relevance to actual price makes it very difficult for the payer to know if they are getting a good deal or not. They are left to pay a fixed discount off of an unknown combination of meaningless, non-market-based, numbers. It seems like that would be tough sell, but this is drug pricing we are talking about, so of course, it's the norm.

So, this leads us to the question of what can a couple part-time drug supply chain researchers do to help advance this discussion?

Well, we know we’re pretty good at creating visualizations, and this problem could certainly use a visualization to make it easier to “see.” As such, for the past couple months, we compiled data to create a visualization to help illustrate the problem that arises by anchoring generic drug costs to AWP.

The finished product is embedded in this latest report "Inside AWP: The Arbitrary Pricing Benchmark Used to Pay for Prescription Drugs," along with our observations and analysis.

46brooklyn co-founder Eric Pachman will be speaking today at the Artia Crossroads conference in Nashville, TN about current topics and issues in PBM transparency, recent spread pricing discoveries in Ohio Medicaid, and perspectives for moving forward in the Medicaid Managed Care space.