The ABC’s of AWP & AMP

WASHINGTON —Policy-makers and pharmacy advocates sometimes call it “alphabet soup.” But unlike chicken soup, the litany of acronyms swirling around the pharmacy reimbursement debate—such shorthand terms as AWP, AMP, WAC and FUL—isn’t always good for you.

For good reason, such terms as average wholesale price (AWP), average manufacturer’s price (AMP), wholesale acquisition cost (WAC) and federal upper limit (FUL) resonate with pharmacy and managed care groups. Each term conveys a meaning that can determine whether pharmacies make a profit off the prescriptions they dispense or end up slipping into financial ruin. And as the nation, the White House and Congress wrestle over competing visions for reforming the fractured U.S. healthcare system and the way that system pays for prescription medicines, a fair pharmacy reimbursement system hangs in the balance.

One thing is certain: That system is changing. Thanks to a recent court ruling resolving a long-standing legal challenge, the AWP-based formula for setting drug prices—a formula at the heart of public and private managed care prescription payments to pharmacies—is now in rollback mode, and may even fade away over the next two years. And given the pharmacy industry’s opposition to most AMP-based payment formulas floated by the government in recent years, the future of third-party pharmacy reimbursement—which now accounts for more than 9-of-every-10 prescriptions dispensed in U.S. pharmacies—is extremely clouded.

For pharmacy leaders, the most immediate challenge is adapting to a new AWP-based payment formula. Rejecting an appeal from the National Association of Chain Drug Stores and other pharmacy groups, a federal court upheld a settlement Sept. 3 between two drug-price publishers and health plan payers (see story on p. 13). That settlement paved the way for a reduction in the markup of more than 1,400 commonly prescribed drugs between WAC and AWP.

First publication of the new drug price data was set for Sept. 26.

“The terms of the First DataBank/Medi-Span Settlements require First DataBank to reduce the AWP from 125% of…WAC for the majority of the affected products to 120% of the WAC for 1,442 drug products,” NACDS noted. “In addition, First DataBank/Medi-Span have announced that they will reduce the AWPs for an additional 20,000 distinct prescription products.”

What’s more, noted Adam Fein, founder and president of Pembroke Consulting, “first Databank will stop publishing Blue Book AWP values within the next two years.”

On the private-payer side, the eventual impact of the AWP rollback likely is to be mitigated by ongoing contract negotiations between PBMs and pharmacies. But pharmacy leaders clearly are concerned over the effect the 120% formula will have on government-sponsored payments. “Medicaid is another story and will likely mean real cuts,” Fein predicted after the appeals court ruling.

Indeed, NACDS noted, “These changes to AWP will reduce Medicaid reimbursement to pharmacies by about 4%, which translates to a conservatively estimated loss of more than $350 million each year in Medicaid payments to community pharmacies.”

The loss could be significantly higher, according to NACDS president and CEO Steve Anderson, who predicted that the reductions “may force many pharmacies to close, reduce hours or stop providing Medicaid pharmacy services.”

Beyond AWP, the battle over Medicaid drug reimbursements has raged in another, higher-profile setting: Congress. Pharmacy groups have lobbied hard to halt a plan by the Centers for Medicare and Medicaid Services to shift to a new, AMP-based payment system for generic drugs dispensed under Medicaid. They’ve successfully fought the plan in court, obtaining an injunction to halt its implementation until CMS develops an acceptable definition of a multiple-source drug on which to base the AMP formula. And they’ve enlisted support within Congress.

If implemented in its original form, an AMP-based Medicaid reimbursement model would have cut federal and state pharmacy payments by some $2 billion, according to industry analysts. Subsequent efforts by lawmakers have eased that threat, culminating with a health-reform bill hammered out in the Senate Finance Committee and unveiled by committee chairman Sen. Max Baucus, D-Mont., in mid-September.

The Baucus bill, 1-of-4 health-reform proposals unveiled in Congress in recent months, is a big improvement over the original, draconian cuts envisioned for Medicaid, pharmacy leaders noted, although they remain cautious about its long-term impact on pharmacy margins.

“The Baucus proposal sets federal upper limits for the reimbursement of Medicaid generic drugs at 175% of the weighted average of the average manufacturer’s price,” noted Bruce Roberts, EVP and CEO of the National Community Pharmacists Association. “While we’re still analyzing the full impact of this change, no other health-reform proposal goes so far to ensure community pharmacies can continue serving Medicaid beneficiaries.”

Anderson said his group remains “extremely concerned that an insufficient ‘multiplier’ for establishing federal upper payment limits for generic drugs could have extremely negative consequences for pharmacies and their low-income patients,” adding that NACDS “has questions” about the 175% formula.

“That being said, NACDS strongly commends the framework’s adoption of a ‘weighted average’ AMP rather than the lowest AMP to set FULs, as was the case under the Deficit Reduction Act of 2005,” Anderson added. “The use of a weighted average AMP would deliver a much needed improvement that takes into account the wide range of market prices for generic drugs.”