The Demise of AWP

Average Wholesale Price (AWP), was first introduced in the 1960s as a basis to standardize California Medicaid payments. Over time, AWP was adopted as the pricing standard for virtually all third-party prescription programs. This includes 33 states that have written AWP into rules and statutes for the calculation of workers’ compensation prescription fee schedules, as well as the Centers for Medicare and Medicaid Services (CMS). CMS announced as recently as June 2009 that AWP is to be used for calculating prescription drug prices in a Medicare Set-Aside (MSA) settlement. During this time, market forces have been at work applying pressure to the value of AWP both as a benchmark and as the actual dollar value of drugs processed through Pharmacy Benefits Managers (PBMs).

Now, without the benefit of those market forces and as the direct result of a lawsuit challenging the validity of AWP, the two largest publishers of AWP values — FirstDatabank and MediSpan — have announced that they will cease publishing AWP within two years of the lawsuit settlement date. Stated another way, AWP will not exist as we know it by March 2011.

Even though two sources, Red Book and Gold Standard, may continue to publish their versions of AWP, the entire pharmacy industry is now grappling with determining a suitable replacement benchmark. That challenge is further complicated in the world of workers’ compensation pharmacy because the majority of states where AWP pricing rules have been imbedded into policy will not be able to adapt to these changes without following the legislative rule-making process. Therefore, this 18-month window prior to the sunset of AWP must be viewed as a call to action by state legislators and their constituents.