AWP (Average Wholesale Price)

AWP, the Average Wholesale Price, is a published benchmark price for a prescription drug. Despite the name, it is not an average and nobody pays it wholesale. It is a list number, set by the manufacturer and published by data companies like Medi-Span and First Databank, and it runs about 20 percent above the manufacturer's own list price (the WAC). Pharmacy contracts and PBM contracts have used it as the starting point for reimbursement for decades: "AWP minus 17 percent" for a brand drug, "AWP minus 80 percent" for a generic.

The trouble is that AWP has almost nothing to do with what a pharmacy actually paid for the drug. A generic that costs the pharmacy $4 a bottle can carry an AWP of $90. So a contract that pays "AWP minus 75 percent" still pays $22.50 for a $4 bottle, and the difference sits somewhere in the chain. I have watched employers read their PBM contract, see a big discount off AWP, and believe they had a good deal, when the discount was off a number that was inflated to begin with. Courts noticed too: a 2009 settlement forced the publishers to cut AWP on thousands of drugs by about 4 percent after it came out that the markups had been quietly widened.

The takeaway: a discount off AWP tells you nothing until you know what the drug really costs. Ask your PBM to show reimbursement next to NADAC, the government's survey of what pharmacies actually pay, and judge the contract on that gap.