AMCP Guide to Pharmaceutical Payment Methods, 2009 Update (Version 2.0)

The methods by which the U.S. health care system pays for prescription drugs have faced increasing scrutiny in recent years. Two key developments have emerged: (a) congressional enactment of important changes in the basis for payments for prescription drugs in the Medicare and Medicaid programs; and (b) a March 2009 decision in a federal class action lawsuit that alleged fraudulent manipulation of the dominant pricing benchmark (average wholesale price, AWP), used primarily as the basis for payment for brand-name prescription drugs. The debate about prescription drug payment methods centers on determining the most appropriate basis for calculating how payers, including patients, government agencies, employers, and health plans, should pay pharmacies and other providers for drugs. Historically, payment for prescription drugs has been based on published prices that do not necessarily reflect the actual acquisition costs paid by providers, primarily pharmacies, physicians, and hospitals. This has led policymakers to believe that Medicare and Medicaid programs have paid more than is necessary for prescription drugs. Thus, in an effort to reform the payment system and reduce drug expenditures, policymakers have made significant changes to the benchmarks used by public programs to pay for drugs, and in some instances have created new benchmarks. Private payers have followed the government's lead and begun to change their own payment methods and benchmarks. They can be expected to accelerate the change as a result of the settlement agreement approved in the March 2009 federal court decision. The settlement will result in the lowering of the AWP for more than 400 generic and brand-name drugs. In addition - and technically unrelated to the litigation and any appeals that may be taken - 2 major price data reporting companies, First DataBank and Medi-Span, announced their intent to discontinue publication of AWP within 2 years of September 26, 2009. (At the time this report was prepared, there have been no similar announcements from Thomson Healthcare for Redbook or from Elsevier for Gold Standard [ProspectoRx], who are 2 other publishers of prescription drug prices). Furthermore, several manufacturers have announced that they will no longer provide either an AWP or a markup percentage on certain pharmaceuticals.3 Thus, by 2011, the AWP benchmark as we know it will no longer be widely available for use by public or commercial payers for payment of pharmaceutical products.