We will identify the more common pharmaceutical acronyms, pricing, and the roles of various players like manufacturers, wholesalers, pharmacies, and Pharmacy Benefit Managers (PBMs). Highlighting the challenges in understanding drug prices due to confusing acronyms like AWP (Average Wholesale Price) and WAC (Wholesale Acquisition Cost), which don’t always reflect real-world costs. The overview of the National Average Drug Acquisition Cost (NADAC) as a benchmark for fair pricing and how PBMs negotiate rebates, often leading to spread pricing, where they charge plan sponsors more than they reimburse pharmacies, pocketing the difference.
Key Discussion Points
Understanding Pharmacy Acronyms and Pricing: AWP and WAC are list prices set by manufacturers, not calculated, and can be arbitrary. Wholesalers negotiate discounts from manufacturers, and pharmacies then purchase drugs from wholesalers. Prices for patients depend on insurance coverage and PBM involvement.
The Role of PBMs: PBMs originally adjudicated claims but now negotiate rebates with drug manufacturers. They determine how much pharmacies are paid and how much patients owe, which can lead to pharmacies being under-reimbursed. Spread pricing occurs when PBMs charge plan sponsors more than they pay the pharmacy, keeping the difference as profit.
NADAC as a Price Benchmark: NADAC, managed by Myers and Stauffer on behalf of CMS, calculates the average price pharmacies pay for drugs. It is based on a retail price survey and offers a transparent benchmark. Plan sponsors can use NADAC to assess whether they are being overcharged by PBMs.
Generics vs. Brand-Name Drugs: For brand-name drugs, AWP is typically 20% higher than WAC, but these prices are still set at the manufacturer’s discretion. Generics have a different dynamic, with potential for very high profit margins due to a lack of pricing transparency.
Incentives and Market Dysfunction: The current system often benefits from higher drug prices, creating a dysfunctional market. PBMs may favor drugs with higher rebates or control dispensing through their own pharmacies to maximize profits.
Impact on Pharmacies and Patients: The convoluted pricing system can lead to financial strain on pharmacies, potentially causing closures and reduced access to medications. Patients may face higher out-of-pocket costs or limited pharmacy choices.
Actionable Advice Plan sponsors should utilize NADAC data (available at data.medicaid.gov) to gain insights into fair drug prices and evaluate PBM practices. Increased transparency in drug pricing is essential to address market dysfunctions and ensure fair access to medications.