Why do specialty medications cost so much?

Understanding Pharmacy Pricing:
A Closer Look at AWP and Hidden Fees

Pharmacy pricing can be complex and confusing, especially for those unfamiliar with the industry. In this article, we aim to demystify the pricing structure and shed light on hidden fees that can impact the final cost of medications.


The Role of Average Wholesale Price (AWP)

Many pharmacy contracts are based on the Average Wholesale Price (AWP), which is similar to the manufacturer’s suggested retail price for a new car for example. It represents the highest listed price for a drug.

For instance, if a contract states AWP-18%, it may seem like a good deal, implying that the buyer pays 18% less than the wholesale price.

However, it’s important to note that there is another price called the Wholesale Acquisition Cost (WAC), which is typically 20% lower than AWP.


Unveiling Hidden Charges: Administrative Fees and Rebates

Rebates play a role in pharmacy pricing, but the impact they have on the actual cost is often negligible. Additionally, hidden charges in the form of administrative fees can affect the rebates that were initially expected. Let’s consider an example using Eliquis 5mg:

AWP (As of 01/05/2021): $598.88

AWP-18%: $491.08 (the price the plan/member would pay before rebates)

In the mentioned example, there is a reference to an administrative fee of up to 4% of the Wholesale Acquisition Cost (WAC). Using the following figures:

WAC: $479.11

WAC x 4%: $19.16 (profit paid as an “administrative fee” for negotiating rebates)

This simple illustration demonstrates how hidden charges, such as administrative fees, can impact the expected savings from rebates.


Understanding the True Cost

It is crucial to comprehend the different pricing metrics and hidden fees within pharmacy contracts. By gaining this understanding, individuals and organizations can make more informed decisions when it comes to managing medication costs.

Please explore other articles in our resources tab where we explore alternative pricing models and solutions that prioritize transparency and cost-effectiveness in the complex world of pharmacy benefit management.