AWP Goes Boom

Tomorrow’s the day that First DataBank’s Average Wholesale Price (AWP) goes boom. See What Happens When AWP Goes Boom for background.

My view is that there's not going to be much of a difference after Sept. 26. As I see it, the net impact on total U.S. drug spending will be relatively small and certainly far below the initial multibillion-dollar predictions from a few years ago.

The Medicaid issue is more complex, but not fatal. So far, New Jersey has already announced a reimbursement change that will partly neutralize the impact. (See this NACDS press release.)

And as for the future of AWP? I'm still skeptical that this benchmark will survive too much longer.

THE IMAGINARY WINDFALL

A few people have emailed me claiming that the rollback will be a windfall for Pharmacy Benefit Managers (PBMs). This makes no sense.

Since everyone has known about the change for at least 3 years, many plan/PBM contracts already have economic neutrality language. Health plans and employers are not so naïve or unsophisticated that they would allow their PBMs to reap the benefit of the rollback without sharing the savings.

The pharmacies are also likely to emerge mostly unscathed. The chain pharmacies have been talking publicly for a few years about negotiating language related to benchmark shifts. The Pharmacy Services Administration Organizations (PSAOs) already have—or should have—negotiated similar language with PBMs on behalf of independents. More than 80% of independent pharmacies rely on PSAOs to negotiate their third-party contracts and manage claims payment.

Here’s a representative comment from the recent Dow Jones story Drug-Benefit Cos Said Adjusted For Price Rollback:

Thomas Moriarty, general counsel for Medco Health Solutions Inc. (MHS), said, "A number of years ago we began to address this potential matter in our client contracts with the goal of it being essentially economically neutral" for the company and its clients. What Medco charges customers and pays retailers is adjusted along with the benchmark, he explained. "This is an arithmetic change that is going on." (emphasis added)

Healthtrans, a “privately held healthcare management solutions company,” even went so far as to issue this press release yesterday announcing their adoption of Wholesale Acquisition Cost (WAC).

THE MEDICAID CHALLENGE

My comments in What Happens When AWP Goes Boom still hold true regarding Medicaid. States aren’t particularly motivated to act quickly given the potential cost savings from a rollback.

The NACDS announced that New Jersey will restructure their brand reimbursement to AWP minus 15%, which translates to a 1.2% increase in the amount paid. NOTE: Please see clarification from David Schwed below.

But let's keep things in perspective. Medicaid’s total federal, state, and local spending on outpatient prescription drugs was estimated at $20.7 billion in 2008—about 8% of national pharmacy revenues. Pharmacies with significant Medicaid business will feel the effect, but the overall impact will not be a meltdown of the pharmacy market, especially in states using WAC.

Ka-Boom!