Historically, Average Wholesaler Price (AWP ) was the national average of list prices that a wholesaler charged to pharmacies. It was used to calculate Medicare/insurance rebates to pharmacies. Today, AWP has virtually no factual basis because it is not based on actual prices and is often set by the manufacturer. When looking at Medicare abuses for pharmacies, AWP is almost always involved. There are drugs for which the AWP is $175 and the actual average cost is $2.25.
There have been several attempts over time to move away from the AWP, which has long been used as a pricing benchmark for almost all prescription drug sales in the United States. Health plans, employers, and Medicaid and other government programs determine how much to pay pharmacies and doctors to reimburse them for drugs that are dispensed to patients by using formulas based on the AWP for individual drugs.
As part of the Medicare Modernization Act of 2003 (MMA), Congress did away with Medicare’s use of AWPs to set its reimbursement levels for drugs covered by Medicare Medical Insurance (Part B), and instead created a new benchmark, the Average Sales Price (ASP). Unlike the AWP, the ASP is based on actual sales. The Centers for Medicare & Medicaid Services (CMS) has the power to audit drug companies’ ASP data, with the potential for significant penalties if the data are fraudulent. In 2005, the Deficit Reduction Act eliminated the use of AWPs in the federal government’s calculation of how much it reimburses states for Medicaid generic prescription drug purchases. Instead of AWP, the federal reimbursement is be based on a figure called Average Manufacturer Price (AMP), which, like ASP, is based on actual sales data. In July 2007, CMS issued its final rule on how AMP will be defined and calculated.
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