February 15, 2024

The world of pharmacy benefits could be described as a sea full of acronyms. Especially when it comes to drug pricing. And all those letters can create confusion. Just try following this next paragraph.

AWP is the most used pricing model in the third-party pharmacy benefits managers (PBM) space, but what about the emergence of NADAC? And of course, you must weigh how WAC fits in. Your contract talks about MAC, is that a typo for WAC? In the same section as MAC, U&C comes up regarding logic. And when you have made it through all that, you can’t really look at drug costs without considering your medical benefit, so the ASP will be important as well.

Phew. That is more than enough acronyms for anyone. Let’s define six of the most important drug pricing acronyms you need to know.

AWP = Average Wholesale Price

The average wholesale price is often the basis of drug reimbursement in contracts between plan sponsors and PBMs. AWP is a pricing benchmark that estimates the average price paid by a pharmacy to a wholesaler for the drug. However, AWP is not the amount paid by the pharmacy — or anywhere else in the equation.

Within a PBM contract, pricing is often referred to as “AWP – X%” meaning there is a discount off the arbitrary AWP pricing. Although AWP is the most used pricing model, there are concerns over inflating AWP prices year after year — especially in comparison to decreasing generic drug prices.

NADAC = National Average Drug Acquisition Cost.

National average drug acquisition cost corresponds to the estimated wholesale price retail pharmacies pay to drug wholesalers to purchase drugs. NADAC pricing is determined by a monthly voluntary survey of retail pharmacies to determine the price of drug.

This is important because most large chain pharmacies do not respond to this survey, so the results are from a select number of pharmacies who also may not get as aggressive pricing as the larger chains. Additionally, not all drugs have NADAC pricing. This pricing, unlike AWP, is readily available on Medicare’s website. While NADAC has found its way into some PBM models, it is limited in comparison to AWP.

WAC = Wholesale Acquisition Cost

Wholesale acquisition cost is defined as the manufacturer’s list price to wholesalers. You can relate this to a more common pricing term: Manufacturer’s Suggested Retail Price or MSRP. While not exact and unrelated, it is often found that WAC is close to the “AWP – X%” for brand name drugs.

MAC = Maximum Allowable Cost

This is the upper limit of what the PBM will pay for multisource generics. Within the multisource generic space, price per unit may vary widely depending on manufacturer and stock. The MAC price exists, in part, to incentivize the use of the product with the best price point. It is important to note that MAC lists are not as straightforward as they seem. The frequency at which they are updated, as well as how many are used, can have an impact on your pharmacy benefit.

U&C = Usual and Customary Price.

This is the price that the pharmacy charges its cash-paying members. Typically, the PBM should be getting better pricing under your contract. When this is not the case, it is important that this is part of your pharmacy benefits equation to ensure cost savings.

ASP = Average Sales Price.

ASP is used by the Centers for Medicare and Medicaid Services to establish the baseline for paying for drugs within the Medicare Part B program. As a result, only a small subset of drugs has ASP pricing established for it. Despite this fact, ASP is the measuring stick by which drugs administered by health care providers and covered on the medical benefit are measured. Unlike “AWP – X%,” ASP pricing for a drug is boiled down to the equation “ASP + X%”

 

Hopefully, this breakdown creates clarity among the host of acronyms. But the world of drug pricing in pharmacy benefits remains complex. It is important that your pharmacy benefit consultant understands what these terms mean AND how to use these concepts to set you up for success.

Comparing PBMs with different pricing models is both a science and an art that Innovative Rx Strategies has perfected. Reach out today to find out how we can help you through the sea of pricing acronyms.

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