Have questions about how drugs are priced? Wondering which pricing methodologies apply to your drug claim? Curious about the origins of the various types of drug codes? Join RJ’s Product and Clinical teams as they walk through the multitude of different combinations of drug claims and pricing methodologies, via clips from the webinar “Shedding Light on Medically Covered Specialty Drug Pricing Methods.”
All past RJ webinars are viewable on-demand here: rjhealth.com/webinars.
Average Wholesale Price (AWP)
Chris Webb: Typically, a term that’s been around forever is AWP. This is an acronym for Average Wholesale Price. So, again, it’s supposedly, way back when, was the average price that the drugs could be purchased for at a wholesale level. There could be what we call a suggested AWP price, where basically the manufacturer would suggest what the AWP rate is, but the AWP rate is typically added to a standard mark-up for the direct or wholesale acquisition price. In theory, it’s typically a made-up number. I mean the manufacturer comes up with a base rate or Wholesale Acquisition or drug price. There’s a standard mark-up, more suggested AWP price from the manufacturer. It’s been around since 1970; again, it’s had its ups and downs in the past few years, but again, still very much the industry standard for third-party payors, without having a reliable method of actually obtaining these prices. So, it’s usually used as a benchmark, you kind of think of it as an MSRP of the drug world or the sticker price if you’re thinking about it as a car manufacturer.
Wholesale Acquisition Cost (WAC)
Chris Webb: Wholesale Acquisition or Direct Price or WAC is another methodology we have on the site. This one is created by the manufacturer or the labeler, it’s usually for the first point of sale. It’s not necessarily going to represent the publicly disclosed amount that a drug can be purchased at, but again, it’s typically closer to that first point of sale information. Direct prices, again, are created by manufacturers and they’re used interchangeably for a WAC and a direct price, either for, again, both dependent on the first point of sale, but then for reimbursement purposes, we typically see WAC and direct prices be the same.
Average Sales Price (ASP)
Chris Webb: Thirdly we have ASP or the Medicare allowable. ASP stands for Average Sales Price. Unlike AWP and Wholesale Acquisition, this is actually closer to the acquisition cost. CMS (Centers for Medicare and Medicaid Services) will get sales data from all the manufacturers for the products that can be reimbursed under the HCPCS code. They’ll look at first point of sale. Taking into account volume, prompt pay discount, cash discounts, and they’ll take a look at all that sales market share for that quarter. There is a lag of about two quarters, so the most recent April quarter was off of October sales data from last year. Again, it is updated on a quarterly basis. It fluctuates a lot more than AWP and Wholesale Acquisition as it requires multiple manufacturers to submit sales data, again taking that first point of sale information. If they’re trying to dump stock or having a promotion going it can fluctuate tremendously. But it is based off the HCPCS code level only. It’s not at the NDC level. All the NDCs are accounted for by CMS to come up with this rate. There is a 6% mark up when you’re looking at provider reimbursement of ASP, this will allow for, again, some profit up-share for those wholesale sellers in-between and hopefully have a closer reimbursement rate for the provider, for better or for worse. Commercial payors may provide a different mark up to these particular values. So, for AWP, typically, we’ll see a minus 5 to minus 10 to 15 percent. Wholesale Acquisition is usually 5 – 15 percent mark up. For Medicare Allowable we typically see eight, ten and twelve percent per contract. Above and beyond the products that are currently based off of ASP, for Medicare Allowable, there are also are vaccine rates, DME rates and blood rates. I believe vaccine rates are based off of 95% off of AWP, however CMS obtains that, there are some other rates for the blood rate and DME.
Ambulatory Payment Classification (APC)
Chris Webb: Our fourth level of pricing is APC rates – Ambulatory Payment Classification. These are utilized in outpatient hospitals. Again, these are published by CMS on a quarterly basis, in the majority of the cases they are based off of ASP pricing data. Right now, we see a 6 percent mark-up, but historically they are between 4 and 6 percent. This is code level only, again, based off the description of the code and billable unit. And there is a caveat to APC pricing, there are particular codes and products that do not have a separate rate, these are ones that are bundled with services. So typically to the lower-cost generic products, again, that are rolled in with the whole service for the application of the drug.
To watch this full webinar: “Shedding Light on Medically Covered Drug Pricing Methods,” click here.
Learn why different pricing methods exist, how they are different, when each is used, and how they impact reimbursement. We also cover how NDCs are linked to codes.
Christopher Webb, CPhT
Director, Product Development
Jason Young, PharmD
SVP, Clinical Data Operations