AWP today is a number that has nothing to do with wholesale pricing, or an average of wholesale pricing. AWP is a price generally 20% greater than what a manufacturer would sell products for to distributors and large customers. The wholesale relevance to market pricing started with an AWP price and there were discounts given to the pharmacies. Those discounts were based on volume and ended about 15 years ago when distribution pricing shifted away from using AWP. Market pricing was established to start with wholesale acquisition cost (WAC) and a percentage added to that cost. Today market pricing on brand name prescription products starts with a wholesale acquisition cost WAC and some subtraction from WAC. AWP remains in use as a product cost that the industry uses to determine how much providers will be paid for products. It also has a relationship to what payors are charged for the products by the pharmacy benefit managers. The relation to market pricing on brand drugs remains today at about 16.6% less than AWP. (AWP is a WAC price marked up 20%.) The relation of AWP to market pricing on generic drugs is not clear. Some products have AWP pricing that nearly matches the brand, yet market pricing is as much as 80% lower. The payments to providers on generic drugs relative to an AWP price generally include huge discounts taken from the AWP before a dispensing fee is added. Most payors adopt maximum payment or MAC pricing to avoid being overcharged on generics using an AWP price. There is nothing giving the industry guidelines on establishing AWP pricing. Newer generics generally have less spread between the AWP and WAC. Older generic products generally have huge spreads between AWP and WAC. Providers on generics look for low cost, high AWP opportunities to capitalize on the pricing spread.

Contributed By:

David Wright
President
Wright Consulting Group