Benchmark Does Not Represent Retail Prices, Research Finds

Pharmacy Times, September 2020, Volume 88, Issue 9

Although pharmacy benefit managers often use the average wholesale price, results of a new study show the measurement lacks accuracy.

Research published by Capital Rx shows that the average wholesale price (AWP), a benchmark commonly used by pharmacy benefit managers (PBMs) to set reimbursement rates for pharmacies, fails to accurately represent retail generic drug prices.1

The data show that AWP has increased, while the National Average Drug Acquisition Cost (NADAC) has deflated in recent years, resulting in an inflated AWP starting point for prescription drug prices charged to plan sponsors and their members, according to a statement from Capital Rx.1

Investigators evaluated AWP and NADAC price fluctuations from 2015 to 2020 for the top 1200 generic drugs in the company’s 2019 book of business. Over the period of investigation, they found that the NADAC price index deflated by 44%, while the AWP price index inflated by 1%. The findings were externally validated by 3 Axis Advisors (3AA).1

“Regardless of the methods utilized, all analyses demonstrate that for generic medications, AWP-based costs increase over time, whereas NADAC-based costs decline,” Eric Pachman, president of 3AA, said in a statement.1

Both AWP and NADAC can be used to price the ingredient cost portion of a prescription drug cost. Although AWP represents a published price for the drug based on data from manufacturers, distributors, and other suppliers, NADAC reflects monthly purchasing trends across participating retail pharmacies in the United States.1

Although AWP does not represent the average of wholesale prices from actual transactions, most PBMs guarantee a minimum cost discount based on this index, according to the statement from Capital Rx.

Some newer benefit managers have begun offering a NADAC based reimbursement methodology, but most traditional PBMs still use the AWP-based model.1

“We think the question must be asked: If NADAC provides a more accurate and stable representation of ‘real-world’ pricing for prescriptions, what has kept the industry from more widespread options?” asked Joe Alexander, chief operating officer of Capital Rx.1

Although the pay-per-prescription model has been the dominant reimbursement model for decades, value-based care payments are on the rise. The past 5 years have seen a massive growth in states and territories implementing value-based reimbursement programs, and more than 20 states have increased their efforts to implement

value-based care.2 This model allows providers to be reimbursed for the enhanced services that they provide to patients, rather than the standard fee-for-service model.2

Regardless of the increasing shift to value-based payments, understanding the widespread models and their inaccuracies is vital to ensuring the best reimbursement possible for pharmacies and to advocate for the profession.

“The industry believes it’s using the best pricing benchmark, but how would anyone know unless you compared [with] to something else?” Matt Gibbs, president of commercial markets at Capital Rx, asked in the statement.1

REFERENCES

  • Study finds flaws in widely used pricing model for generic drugs. News release. Capital Rx. June 30, 2020. Accessed July 14, 2020. https://cap-rx.reportablenews.com/pr/study-finds-flaws-in-widely-used-pricing-model-for-generic-drugs
  • Nessel J. 2020 trends in pharmacy care: value-based pharmacy and social determinants of health. Pharmacy Times®. January 22, 2020. Accessed July 14, 2020. https://www.pharmacytimes.com/news/2020-trends-in-pharmacy-care-value-based-pharmacy-and-social-determinants-of-health