Rx Drug Plans -

[Guest MexDomer]

Ok, I'm not sure if anyone is aware but there was a major settlement involving two companies which I believe is going to have a drastic impact on the cost of Rx drugs. A class action lawsuit was filed against First Databank Inc. and McKesson Corporation. The issue was their raising the Average Wholesale Price of hundred of Rx drugs by 5% on an arbitrary basis.

Essentially, from what I gather, a manufactor creates a drug and sells that to a wholesaler. The wholesaler then sells that to pharmacies. The price pharmacies pay are based on a published index called the "Wholesale Acquisition Cost" (WAC). The WAC is set by drug manufacturers and published by companies such as First Databank. Wholesalers will then use the WAC to set the price they charge to pharmacies. The pharmacy is then paid by my (or the participant's) co-payment and a reimbursement from the Rx drug plan. The Reimbursement is based on a benchmark called the Average Wholesale Price which is also published by First Datanbank and other such companies. Simple economics show that the profit a pharmacy receives is based on the price they pay to a wholesaler (based on the WAC) and what they are paid by the insurance co under the AWP. The AWP is not based on what the pharmacy actually paid for the drug, but instead is supposed to be an estimate of what pharmacies generally pay for that drug. Moreover, the WAC-to-AWP spread does include a markup which is historically 20%

The essence of the litation is that First Databank and others arbitrarily raised the WAC-to-AWP spread by 5% on over 400 drugs beginning in 2002 and continuing until this court action (filed in the district court of Mass). From what I gather, the increase was added to the AWP of many drugs. The parties reached a settlement whereby First Data agreed to roll back the "WAC-to-AWP" spread from 25% to 20% on affected drugs.

As you can imagine, Prescription Drug Benefit Managers and Pharmacies are worried because this cuts into their profits. Our PBM has presented us with an amendment to the Rx plan whereby we would continue to use the pre-litigation AWP. Has anyone else received such an amendment? If so, have you executed it and if you have not, what was the consequence? Did the PBM terminate the agreement?

I would imagine that the premiums a plan pays are based on the AWP. Certainly, the Rx plan negotiates with a pharmacy to pay a discounted rate based on the AWP. For example, the rate could be equal to: AWP - 15% + $3.00 dispensing fee.

If the AWP is lowered, the members of the plan should be charged less for a particular drug. I'm asking because I don't see any benefit in signing this amendment other than keeping the PBM (my fear is that they will terminate the agreement). The rep indicated that pharmacies are worried and have indicated that they would terminate their participating network agreements if the new rates were imposed.

I need to advise a client on this and personally, I believe the whole pricing scheme is just that....a scheme. I feel like they should not sign the amendment and force the PBM to use the new AWP and have them fight it out with the pharmacies. What I don't want to do is have an interruption in Rx coverage for plan participants.

Any thoughts on this? Sorry about the length but I felt that background was necessary