AWP (Average Wholesale Price)

AWP (Average Wholesale Price) is a published pharmaceutical pricing benchmark historically used as the reference point for pharmacy reimbursement formulas in PBM contracts, Medicare Part B, and Medicaid programs. AWP is published by drug pricing compendia (First Databank, Medi-Span, Red Book) based on manufacturer-reported pricing. The PBM and payor reimbursement formula typically applies a discount to AWP (AWP minus 15 percent, AWP minus 20 percent, AWP minus a higher percentage for generics) to arrive at the actual reimbursement.

How AWP works

Manufacturers report wholesale pricing data to the compendia. The compendia publish AWP values that are used by PBMs, plans, and payors to set reimbursement levels. The AWP-minus-discount formula determines the pharmacy reimbursement on each brand claim; generics typically use a MAC pricing framework instead. For specialty and infusion drugs, AWP often remains the operative benchmark even for the high-cost products outside the generic MAC framework.

The 2007 First Databank settlement and the subsequent industry-wide adjustments to AWP reporting (the so-called AWP markup reductions) compressed the difference between AWP and actual wholesale acquisition cost (WAC). The 2009 to 2015 period saw extensive multi-state Attorney General litigation against drug manufacturers alleging that AWP overstatement supported Medicaid fraud. Most matters resolved through settlement; the AWP framework continued to operate with adjusted reporting methodologies.

When AWP applies

AWP applies in any reimbursement contract that references the AWP benchmark. Most commercial PBM contracts, Medicare Part B, Medicaid programs, and state and federal employee plans use AWP-based reimbursement for at least some categories of drugs. The Medicare Part D framework has shifted partially toward Average Sales Price (ASP) for certain categories. State Medicaid programs vary in their reimbursement framework, with some using AWP, some using a State Maximum Allowable Cost (SMAC) framework, and some using a pass-through model.

The pharmacy's exposure under AWP-based reimbursement

AWP-based reimbursement is generally favorable to pharmacies on brand drugs, where the AWP-minus-discount produces a margin over WAC. The exposure category arises where the PBM or payor disputes the AWP value used or applies a different discount than the contract specifies, producing recoupment exposure on the disputed claims. Federal payor matters where the AWP overstatement theory has been litigated can produce FCA exposure for both manufacturers and pharmacies in narrow circumstances. The defense framework focuses on the AWP value reconciliation, the contract terms applied, and the methodology challenge where the audit applies a different framework than the contract specifies.

Related terms

• MAC pricing The generic reimbursement framework that operates alongside AWP-based brand reimbursement.
• Spread pricing The PBM economic mechanic that operates within AWP-based reimbursement structures.
• DIR fees The Medicare Part D performance-based mechanic that interacts with AWP-based reimbursement.
• Formulary The PBM document that defines drug tier placement governing AWP-discount application.

See also

• Practice area
  PBM Audit Defense

  PBM audit defense framework covering AWP-based reimbursement disputes.

• Practice area
  Recoupment Defense

  Defense framework for AWP-driven recoupment demands.