Divorcing Reimbursement From Real-World Prices: Medicare Still Uses 2003 AWPs For Some Drugs

Average wholesale prices (AWPs) have long been recognized as a flawed payment benchmark because they are list prices that do not reflect the real-world prices available in the marketplace. For that reason, a common joke in the drug pricing world panned AWP as “Ain’t What’s Paid.” After years of reports from the Office of Inspector General (OIG), analysis from the Government Accountability Office (GAO), and litigation that highlighted the flaws in AWPs, Congress required in 2003 that reimbursement of Part B drugs be set 106 percent of their average sales price (ASP). ASPs are calculated based on the prices at which manufacturers sell the drugs to wholesalers and other private supply chain participants (with some exceptions, such as pharmacies participating in the 340B drug discount program). Following the implementation of the ASP law in 2005, reimbursement amounts for most individual Part B drugs became much better aligned with costs. The birth of ASP for Part B is likely familiar to Health Affairs readers. However, likely not well known is that about two-to-three dozen durable medical equipment (DME) infusion drugs were exempted from the switch to ASP; instead, the law set reimbursement for these drugs at their respective AWPs from October 2003. The reasons why Congress exempted DME infusion drugs are unclear, but the consequences have been well documented in several recent OIG reports. OIG studies have repeatedly shown that Medicare’s reimbursement methodology for...
Source: Health Affairs Blog - Category: Health Management Authors: Tags: Costs and Spending Drugs and Medical Innovation Medicare Payment Policy Average wholesale prices durable medical equipment Medicare Part B Office of Inspector General Source Type: blogs