Average Wholesale Price

Average Wholesale Price

The Average Wholesale Price (AWP) is a benchmark used in the United States for pricing and reimbursement of prescription drugs. It is often referred to as a "sticker price" or "list price" for drugs, although it does not necessarily reflect the actual prices paid by purchasers. The AWP is used by various stakeholders in the healthcare industry, including pharmacies, insurance companies, and government programs, to determine the cost of drugs.

Overview

The AWP is published in commercial publications such as the "Red Book" and "Medi-Span." These publications compile data from drug manufacturers and other sources to provide a comprehensive list of drug prices. The AWP is typically higher than the actual acquisition cost of drugs, as it does not account for discounts, rebates, or other price reductions that may be negotiated between manufacturers and purchasers.

Calculation of AWP

The AWP is generally calculated based on the wholesale acquisition cost (WAC) of a drug, which is the price that wholesalers pay to manufacturers. The AWP is often set at a markup over the WAC, typically around 20% to 25%. However, the exact method of calculation can vary, and there is no standardized formula for determining the AWP.

Uses of AWP

AWP is used in several contexts within the healthcare system:

• Reimbursement: Insurance companies and government programs, such as Medicare and Medicaid, may use AWP as a basis for reimbursing pharmacies for the cost of drugs. Reimbursement rates are often set at a percentage of the AWP.
• Pricing: Pharmacies may use AWP as a reference point for setting retail prices for prescription drugs.
• Benchmarking: AWP serves as a benchmark for comparing drug prices across different markets and regions.

Criticism and Controversy

The use of AWP has been criticized for several reasons:

• Lack of Transparency: The AWP does not reflect the actual prices paid by purchasers, leading to a lack of transparency in drug pricing.
• Inflated Prices: Because AWP is often higher than the actual acquisition cost, it can result in inflated reimbursement rates and higher costs for payers.
• Legal Issues: There have been legal challenges and settlements related to the manipulation of AWP by drug manufacturers to increase reimbursement rates.

Reforms and Alternatives

Due to the criticisms of AWP, there have been efforts to reform drug pricing benchmarks. Alternatives to AWP include:

• Average Sales Price (ASP): A pricing benchmark that reflects the actual sales price of drugs, including discounts and rebates.
• Wholesale Acquisition Cost (WAC): The price paid by wholesalers to manufacturers, which is often used as a more accurate reflection of drug costs.

Also see

• Wholesale Acquisition Cost
• Average Sales Price
• Pharmacy Benefit Management
• Drug Pricing in the United States