Alternative to the traditional discount method of wholesaler purchasing

A program of purchasing drugs from wholesalers at the wholesaler's exact invoice cost plus a percentage is described and compared with the traditional method of average wholesale price (AWP) less a discount. The comparison was conducted by the pharmacy department of a 310-bed, teaching hospital that awarded a one-year contract to a wholesaler offering its items at the exact cost plus a pre-established percentage. Data collected from monthly wholesaler computer printouts gave the following information on each product: (1) list price per item, (2) actual cost to pharmacy per item, (3) percentage discount from AWP, and (4) quantity ordered. The net percentage discount from AWP for 12 months was calculated and compared to the former (traditional) discount rate. The net discount from AWP was 15.6% for purchases made by the hospital during the first 12 months of the program. When compared with the smaller discount the hospital traditionally received, the new program saved the hospital $5758 on annual purchases of $136,419. The actual dollar savings to an institution that changes from a traditional discount program to a cost-plus-percentage program depends on: (1) the negotiated percentage added to wholesaler cost, (2) the discount from AWP that the institution was previously receiving, and (3) the volume of wholesale purchases.