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2 posts from March 2016

03/21/2016

Drug pricing - The Basics

Whether a pharmacist practices in retail, hospital or industry, buying and dispensing medication to patients will be important. Both processes are transactions which involves drug pricing. Drug pricing is therefore important, because without its consideration, patients may not be able to afford their medication and pharmacies may close.

In order to stay profitable, pharmacy managers must pay special attention to several methods of drug pricing. Herein, I will walk through the three main methods of drug pricing – the AWP, WAC and AMP. First, the Average Wholesale Price (AWP), represents a benchmark price wholesalers charge to pharmacies. AWP is also a price insurers consider when negotiating how much they pay per drug to pharmacies. Second, the Wholesale Acquisition Cost (WAC), is the price wholesalers pay to the manufacturer for individual drugs. The profit a wholesaler makes on and individual drug is represented by the difference between AWP minus WAC. Third, is the Average Manufacturer Price, AMP, the net price wholesalers pay to manufacturers for all purchased drugs. The AMP may therefore be even lower than WAC because it factors in potential deals that wholesalers may receive from manufacturers.

Since the AWP is typically the “sticker price” of a drug, it is not the price typically paid by a pharmacy. Therefore, the AWP less a percentage is considered the price paid by a pharmacy.  The pharmacy, in turn, is reimbursed by an insurer on a percentage off the AWP (e.g., AWP-16%).   The pharmacy will buy drugs from wholesalers at a discounted AWP and reimbursed by the insurer at AWP minus a percentage. Subtracting the price paid from the amount reimbursed by the insurer would represent the pharmacy’s profit margin.

The wholesaler does not sell drugs to pharmacies at AWP. Instead, the wholesaler will sell to the pharmacies at WAC or AMP plus a negotiated percentage. This benefits the wholesaler by attracting more pharmacies to purchase drugs from them. Each pharmacy manager knows that they get paid at AWP minus a percentage. They therefore want to purchase at a price lower than the reimbursement rate of AWP-%. The wholesaler selling at WAC or AMP – prices which typically lower than the discounted - will attract more pharmacies than those selling at a discounted. At the end of the day, this arrangement is beneficial for both the wholesaler and independent pharmacy. The wholesaler gets a competitive edge and the independent sell drugs at competitive prices while remaining profitable.

 

Robert Bond

P2 Pharmacy Student

03/01/2016

Can technology stop drug prices from rising?

There has been a well-documented trend toward higher drug prices in the US. Turing Pharma turned heads by raising the price of Daraprim® by 5,000 percent, and there has been more news coverage of the practice of hiking drug prices. At the same time, new technologies and group purchasing power are being harnessed to counteract this trend. These two competing forces will help shape the ongoing debate on drug pricing.

In early February 2016, Blink Health announced the launch of its mobile app and website, purposed to help consumers secure the lowest possible retail price. Blink is not a retail pharmacy, but it works with MedImpact, a pharmacy benefits management company affiliated with 60,000 pharmacy locations. Users can supposedly get better prices on generics, because Blink can use its group purchasing power to negotiate lower prices. The app and website quote a price, which the user pays prior to going to the pharmacy. He/she still must provide a prescription to the retail pharmacy, but the price is secured for any of the affiliated locations.

Blink claims that users can save 80% on generics; that 40% of its medications cost less than $5; and, that 50% of its medications cost less than $10. The company claims that higher prices cause patients to skip doses and to stop the regimen entirely. They claim that their tool will help increase access to medications through lower prices.

Navigating drug pricing is notoriously labyrinthine. Most retailers do not post their prices and prices vary for different consumers and consumer types within the same market. Lisa Gill, deputy editor of Consumer Reports Best Buy Drugs is quoted by the NY Times saying, “The prices are all over the map, even within the same ZIP code.”

Since 2006, Wal-Mart, the world’s largest retailer, has been providing certain generics for $4 for a 30 day prescription. The company maintains a list of drugs that it provides at that price. The company provides this price by using its purchasing power, and by taking advantage of its distribution system. There are other programs, such as GoodRX, that aim to provide patients the lowest possible prices on generics. GoodRX is similar to Blink Health, but it provides coupons to be used at the retail site. Blink allows patients to pay for the drug prior to picking it up at one of the affiliated pharmacies.

Brand name drugs fall outside of the scope of these programs. In addition, generic drugs like Daraprim®, which is a sole-source product, will not likely be affected by these and similar price control programs. However, Wal-Mart, Blink, GoodRX and others are applying downward price pressure to the market for generic drugs. Whether this is sufficient to keep prices under control, overall, is yet to be seen. The companies leverage technology to secure lower prices. Consumers demand lower prices, and these services will survive and profit if they provide value to consumers. The prices they offer are closer to the prices paid by insurers.

High drug prices can have a deleterious effect on patient behavior. As Blink Health has claimed, higher prices often discourage patients from filling out prescriptions and often push them to skip doses. Tools that help patients secure drugs at lower prices, even if only in retail settings, should have a positive effect. A case can be made that these tools address only the symptom of higher prices and not the causes. Factors that drive up prices may be ignored, since these tools provide lower prices as an end result. Drug companies can refuse to address higher prices by pointing to these tools as proof that their drugs are ultimately affordable.

The ongoing drug price debate, fueled by Turing’s move and others, highlights the high cost of prescription medications. The new tools take advantage of the information gap between consumer and producers. They do provide a valuable service, although the debate continues. Should there be price controls on critical drugs? Should the US move to a single buyer system, as is the case in Canada and European countries? If so, Blink, GoodRX, and other similar businesses will be impacted, since they would be unable to provide lower prices than that set by the government.

Magdi Stino, Health Policy PhD Candidate

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