pharmaceutical pricing and contracting an overview march 2006 n.
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Pharmaceutical Pricing and Contracting: An Overview March 2006. Lauren Barnes. Pharmaceutical Pricing Definitions (illustration based on fictional $100 product). AWP (Average Wholesale Price). $125. Spread of 25% on top of WAP. 95% AWP (Medicare Reimbursement). $118.75.

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Pharmaceutical Pricing and Contracting: An Overview March 2006


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pharmaceutical pricing definitions illustration based on fictional 100 product
Pharmaceutical Pricing Definitions(illustration based on fictional $100 product)

AWP (Average Wholesale Price)

$125

Spread of 25% on top of WAP

95% AWP (Medicare Reimbursement)

$118.75

WAP or WAC (List or Wholesaler Acquisition Price)

$100

Spread of Average Discounts 10% taken from WAP

AMP (Average Manufacturer’s Price to Retail)

$ 98

$ 90

ASP (Average Sales Price)

Best Price (Most Favored Customer Price with <15.1% off AMP)

$ 85

Medicaid Submission Price (15.1% off AMP)

$ 83.20

FSS Price

(Federal Supply Schedule 76% of Non-FAMP less CPI-U fees + 0.5% IFF – Industrial Funding Fee)

$ 74.49

there are various entities who can receive discounts from manufacturers
There are Various Entities Who Can Receive Discounts from Manufacturers

Wholesaler

Manufacturer

Prompt Pay Discounts

Purchaser Discounts

Back end rebates

Ships Product

Payer Rebates

Pharmacy

Hospital

Physician Office

Government

a variety of discounts are offered to customers
A Variety of Discounts are Offered to Customers

$100 product

Prompt Pay Discount: 2%

Physician Office Off Invoice Discount: 10%

Wholesaler

Manufacturer

Pays $100 to manufacturer

$ 2 prompt pay discount

$10 rebate to wholesaler

Pays $90 to wholesaler

Physician Office

  • 10% Back-end rebate
  • based upon:
  • Clinical metrics
  • Volume threshold
  • Market share goal

$9 rebate to physician office

medicaid receives payment from manufacturer and the federal government
Medicaid Receives Payment from Manufacturer and the Federal Government

$125 AWP/$100 WAC/ AMP = $90

CMS National

Manufacturer

Manufacturer

Medicaid Matching Funds Disseminated

CMS Sets Federal Upper Limits for Drugs

Medicaid Rebate = $13.5

Pharmacy

Medicaid

Pharmacy Reimbursement = 90% AWP = $112.50

Dispensing Fee = $4.00

amp reform is critical to future manufacturer rebates as well as medicaid reimbursement
AMP Reform is Critical to Future Manufacturer Rebates as well as Medicaid Reimbursement
  • The DRA mandated that the definition of AMP be clarified
  • There are a number of outstanding issues in regard to calculating AMP:
    • Determining if certain rebates are included in AMP
      • Long term care pharmacy
      • PBM
    • Clarifying how prompt pay terms and fair-market-value fees are incorporated
    • Addressing lagged price concessions, returned goods, and update frequency
  • AMP reform will have two primary impacts on the industry:
    • Medicaid rebate calculations and payments
    • Medicaid pharmacy reimbursement rates