AWP ruling triggers urgent appeal as pharmacy leaders petition HHS

NEW YORK A murky and long-unresolved dispute over the prices pharmaceutical wholesalers pay for the drugs they distribute has finally been laid to rest, at least as far as the parties involved in the class-action lawsuit and the First Circuit Court of Appeals are concerned. But the settlement has scrambled the carefully calculated sales and profit outlook for thousands of retail pharmacies.

The three-year logjam broke early this month, when the court rejected an appeal by pharmacy groups challenging a settlement struck in March between a group of health plan sponsors and two companies that compile and publish widely used drug-price data agreed based on the average wholesale price [AWP] of thousands of drugs. Under terms of the settlement, First DataBank and Medi-Span agreed to revert to a previous price calculation that will, in effect, lower the costs health plan sponsors pay for their members’ prescription drugs. Consequently, it will also lower the rates at which pharmacies are paid.

At issue in the case is the rate at which unions and other health plan sponsors reimburse pharmacies for drugs dispensed to their members. Historically, that rate has been based on the published AWP pharmacies pay wholesalers for those drugs, but the health plan payers acting as plaintiffs in the suit charged that the wholesale price benchmark as determined by the two publishers has risen to unrealistic levels. Those levels, the plaintiffs successfully argued, no longer reflect the real differences between what wholesalers pay manufacturers for a drug — known as the wholesale acquisition cost, or WAC — and the prices those wholesalers charge their retail pharmacy clients.

All well and good for payers. But retail pharmacies found themselves caught in the middle of the pricing dispute, with limited leverage about what they can charge third party payers for the drugs they dispense. As for the leverage that dispensing pharmacies have with state Medicaid agencies that also base their pharmacy reimbursements on published AWPs, substitute “little” leverage for “none.”

What the reversion in wholesale pricing models means for pharmacy is a “flawed reimbursement” formula, NACDS president and CEO Steve Anderson charged. Because public and private health plan sponsors and PBMs base their prescription reimbursements to pharmacies on the published lists of wholesale drug prices, those payers will now assume that pharmacies have been blessed with a sudden reduction in their drug acquisition costs, from 125% of AWP to 120%. Result: they’ll reduce their own payments to those pharmacies for the scripts dispensed to the patients they cover.

The situation is most acute regarding Medicaid payment plans, since states dictate the terms of pharmacy reimbursement. Anderson predicts in his letter to HHS secretary Sebelius that “these changes to AWP will reduce Medicaid reimbursement to pharmacies by about 4%,” and force some outlets that cater heavily to lower-income populations to abandon the Medicaid market altogether.

“The AWP rollback will reduce the state pharmacy reimbursement rates to such a degree that many pharmacies may not be able to continue to provide services to the Medicaid population,” he wrote.