Welcome to Ask an Adviser, EBN’s new weekly column in which benefit brokers and advisers answer (anonymous) queries sent in by our readers. Looking for some expert advice? Please submit questions to
This week, we asked Allison De Paoli, founder of Altiqe Consulting, to weigh in on the following: Why do average wholesale price discounts (AWP) not matter, and what strategy should my pharmacy benefit manager (PBM) be implementing instead?
This question comes up frequently with employer clients when I push back on “discounts” in PBM contracts. I put this word in quotation marks for a reason. In my experience, a transparent price carries infinitely more weight than any discount off the AWP.
What most people don’t realize is that the majority of prescription drugs across a number of therapeutic classes have multiple AWPs. Most pharmacy benefit contracts either include a high AWP or don’t stipulate the AWP at all; nor do they disclose what they pay the pharmacy.
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That 84% AWP discount sure looks great on paper, but let’s take a closer look by comparing two prescription drugs with variable AWPs:
As you can see in this table, the dollar value of your client’s savings depends entirely on a highly variable prescription price. What’s more, the discount that seems more attractive in dollar value ($4,103 in the case of Keppra) still saddles you with a higher final bill ($781 vs $39). It’s classic smoke and mirrors.
To avoid these issues in your own PBM, you need to review your current contract for provisions regarding rebates, third-party revenue, AWP pricing structure and discounts. But don’t be surprised if you don’t have the actual contract. We’ve seen many clients who have a “master client agreement” or something similar, along with a formulary, but no actual contract.
Once you have the contract, look for these warranties: The plan sponsor is charged the exact price paid to the pharmacy; all drug manufacturer revenues are passed back to the you, the employer; and the PBM accepts only the administrative fee you have agreed to and does not accept other third-party revenue.
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If you don’t find this language in your contract, request two or three PBM proposals that do include it. Make sure you get a sample of the contract as well, and identify the language for yourself.
Once you’ve made your final choice of PBM partner, review the contract again for that language before you sign.
