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Average Wholesale Price

Overview

Many states have established, through law or regulation, drug payment methodologies for the drugs covered by the state’s Medicaid program based on the “average wholesale prices” for the drugs. These Medicaid drug payment methodologies are often, though not exclusively, expressed as a discount off AWP plus a dispensing fee.

Policy

States typically use reporting services such as FirstDataBank, Red Book or Micromedex to obtain AWP information. The lack of a fixed definition for the term “average wholesale price” or “AWP” has sparked considerable confusion among legislatures, regulatory agencies, lay media, and courts. Focus has been on the characterization of AWP as a fictitious price that may be neither “average” nor “wholesale”.

The claim that manufacturers allegedly have the ability to “manipulate” AWP in order to market a “spread” between acquisition cost and reimbursement rate to providers has been the subject of several ongoing state lawsuits.[A number of states] have filed suits against several manufacturers alleging “improper” AWP price manipulation. Claims include violations of state false claims acts, state antikickback laws, state racketeering laws, state consumer protection/unfair trade practices acts, breach of Medicaid drug rebate contracts, fraud, and commercial bribery.

Excerpt from Lynn Shapiro Snyder, Medicaid Overview, Institute on Medicare & Medicaid Payment Issues (American Health Lawyers Association March 2005).

Authority

The prominence of federal investigations [into the pharmaceutical industry] was launched with the TAP Pharmaceutical Products, Inc. (TAP) global settlement of 2001, which cost the manufacturer of the prostate cancer drug Lupron $875 million in criminal and civil penalties. See OIG, DHHS, SEMIANNUAL REP. at 18 (Oct. – Mar. 2002), available at oig.hhs.gov/reading/semiannual/2002/Spring%20SemiAnnual%202002.pdf (last visited May 24, 2007). TAP was the federal government’s first “big win” against a major player in the pharmaceutical industry (and, as is common practice with government settlements, created a source of funding for ongoing efforts to investigate and prosecute pharmaceutical companies).

See GlaxoSmithKline Settles Fraud Allegations Under False Claims Act, INSIDE CMS, Oct. 6, 2005, at 20. Cf. Pamela H. Bucy, The Path from Regulator to Hunter: The Exercise of Prosecutorial Discretion in the Investigation of Physicians at Teaching Hospitals, 44 ST. LOUIS U. L.J. 3, 15 (2000) (explaining the self-funding mechanism for prosecutions under HIPAA in the context of teaching hospital prosecutions, called PATH audits); Robert Salcido, The Government’s Increasing Use of the False Claims Act Against the Health Care Industry, 24 J. LEGAL MED. 457, 463 & n.35 (2003) (describing how certain provisions of HIPAA facilitated use of False Claims Act recoveries for additional prosecutions). The prosecution’s theory in the TAP case was that the company had guided physicians to receive reimbursement for samples of drugs; had “marketed the spread” between the cost to physicians of purchasing Lupron and the reimbursement available from the federal government due to the average wholesale price (AWP) of Lupron, arguably facilitating over-reimbursement by its buyers; and had given kickbacks to physicians for prescribing certain TAP products.

Press Release, DOJ, TAP Pharmaceutical Products Inc. and Seven Others Charged with Health Care Crimes; Company Agrees to Pay $875 Million to Settle Charges (Oct. 3, 2001) [hereinafter Press Release, TAP], available at www.usdoj.gov/opa/pr/2001/October/513civ.htm (last visited May 24, 2007); see OIG, DHHS, Civil Monetary Penalties: Kickback and Physician Self-Referral (Jan. 13, 2003), available at oig.hhs.gov/fraud/enforcement/administrative/cmp/cmpitems.html#3 (last visited May 24, 2007) (noting that physicians who received kickbacks from TAP were also charged under the Anti-kickback Statute). The sales practices described in the complaint were not unique to TAP, but a TAP sales representative had attempted to pay a kickback to a doctor, who then reported the bribe to the federal government, thus bringing TAP’s business practices to the attention of federal prosecutors. Press Release, TAP, supra.

Excerpt from Nicole Huberfeld, Pharma on the Hot Seat, 40 J. HEALTH L. (Feb. 2008).

Future Direction

In June 2005 and February 2006, members of PAL [Prescription Access Litigation Project] filed a lawsuit alleging that First DataBank and a wholesaler, McKesson, engaged in a scheme to increase the spread of certain prescription drugs by reporting higher AWPs. This case was eventually settled, and First DataBank announced it would discontinue publishing AWPs no later than September 26, 2011.

Since the announcement of First DataBank’s settlement, many stakeholders (e.g., purchasers, pharmacies, providers) have speculated about the various other pricing benchmarks that could be used as the basis for Medicaid reimbursement. These include, but are not limited to, WAC, average acquisition cost (AAC), average manufacturer price (AMP), and average sales price (ASP). There is little industry consensus as to which, if any, of these benchmarks will be used by States. Some stakeholders believe that an AWP replacement may not even be necessary, at least not in the short term, as States will have access to AWPs in pricing compendia published by other companies, such as Medi-Span.

In the first quarter of 2011, 45 States estimated the [prescription drug] acquisition cost based on AWP; 37 of these States obtained AWP data from the pricing compendium published by First DataBank. However, Office of Inspector General reports have consistently found that the fundamentally flawed nature of AWP-based reimbursement has caused Medicaid to pay too much for certain drugs.

Excerpt from Department of Health and Human Services Office of Inspector General, Replacing Average Wholesale Price: Medicaid Drug Payment Policy, OEI-03-11-00060 (July 2011).