Deciphering the Alphabet Soup

Here is a short glossary of the alphabet soup of pharmacy pricing terms:

AWP -- Average Wholesale Price

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The AWP operates as a suggested list price and is not typically what is paid since buyers almost always negotiate lower prices through discounts, rebates or negotiations. AWP is the most commonly used price index in pharmaceutical transactions and is published by three main sources identified earlier in this article.

According to Red Book, AWP pricing is "based on data obtained from manufacturers, distributors and other suppliers." AWP is not defined in law or regulations and there are no requirements that AWP reflect the price of any actual sale of drugs by a manufacturer.

Although this provides one definition, questions remain, such as why there are three different sources defining AWP.

AMP -- Average Manufacturers Price

The AMP is the average price paid to a manufacturer by retail pharmacies or by wholesalers for drugs distributed to the retail pharmacies. AMP is calculated quarterly by the individual drug manufacturers by dividing their total retail sales dollar value for each drug type and strength by the number of units sold. There is talk in the industry that we may move from AWP to AMP as a basis for the pricing, but it will add little clarity as there is no standard for AMP or regulatory body that can help payers understand pricing comparability.

MAC -- Maximum Allowable Cost

The MAC establishes a maximum cost per unit of medication, a tablet, a capsule, for example, for a particular generic drug. A PBM or health plan establishes their maximum and then reimburses each pharmacy within the network at that per unit price regardless of the acquisition cost of the drug.

This sounds like a reasonable approach. However, there are also many versions of the MAC, including the federal MAC, also referred to as the FUL or Federal Upper Limit, individual state MACs, as well as individual health plan and PBM MACs.

There are several ways to set a MAC, such as lowest published price, actual pharmacy acquisition costs or use of the federal MAC. But again, there is no standard for this pricing. Clearly understanding how your PBM's MAC was established and how it relates to the pharmacy's U&C for the particular drug is critical to your ability to compare prices.

WAC -- Wholesale Acquisition Cost

The WAC is the recommended list price established by the manufacturers for sale to wholesalers for drugs. It, like the AWP, is a suggested price and typically is not what is paid. WAC is a proprietary price set by pharmaceutical manufacturers and is usually published in the same resources as the AWP--Red Book, First DataBank and Medispan.

FUL -- Federal Upper Limit

The FUL (mentioned above as the HCFA MAC) is maximum allowable cost established by Medicaid for a drug with three or more generic equivalents. There are FUL prices for about 200 drugs and the Federal government updates these prices every six months. The maximum is set at 150 percent of the lowest prices listed for a therapeutic equivalent drug.

October 15, 2007

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