California Healthcare News
Articles, Jobs and Consultants for the Healthcare Professional

How Pharmacy Reimbursement Methods Have Evolved

First few Article Sentences

Drug reimbursement from commercial insurance carriers changed considerably over the last decade. The old standard used to be Average Wholesale Price (AWP), which reflected the average prices of drugs sold to hospitals, physicians and pharmacies. Insurance companies often reimbursed drugs using AWP, or more likely a percentage above or below AWP, as agreed to by a carrier and provider. From the perspective of an insurance company, payment based on AWP was a positive event, reducing reimbursement, as prior to AWP medications were often paid on a percent-of-charge basis.

Earlier this decade, however, interested parties began to notice problems with AWP as a standard for drug reimbursement. AWP was criticized as arbitrary, as it was not based on actual drug costs but on the prices charged by wholesalers and manufacturers for drugs. Manufacturers of course built a profit margin into their charges for medications, so the AWP standard could be established at an artificially high level. AWP was additionally self-reported by the drug manufacturers and did not take into account the discounts and rebates often agreed to in negotiations of drug reimbursement. By 2003 or so AWP was widely considered to be inaccurate at best, and a meaningless payment standard at worst.

Johnson, FHFMA, Dwight


Coopersmith Health Law Group

Provider Reimbursement

October 21, 2010

back to library