Average wholesale price inflation continues

Importance of managing pharmacy costs and utilization emphasized

The average wholesale price (AWP) of brand and generic medications regularly changes. Factors influencing whether there is a rise or fall in AWP include the level of generic competition, increased/decreased demand, availability of substitute medications, government, payer, and PBM-driven efforts to reduce demand, and supply chain disruption. Annually we report on the impact of changes in AWP in our drug trend report. The workers’ compensation industry historically has seen increases in AWP inflation for brand medications more so than generics.

In preparing the 2015 Workers’ Compensation Drug Trend Report, we find this is the case once again. While our analysis shows a slight decrease in brand AWP, from 13.3% to 12.5%, it remains higher than inflation in generic AWP.

In last year’s drug trend report, we discussed that the inflation rate for generic medications was higher than in previous years (0.7%), but still followed a typical trajectory. This year, we find that in 2014, generic AWP did not follow the historical trajectory; it increased ten-fold, moving from 0.7% to 10.0%. And while not every generic medication in our book of business saw an increase, several of the most commonly prescribed medications did; oxycodone-acetaminophen (increased 97%), hydrocodone-acetaminophen (increased 16%), oxycodone (increased 72%), and morphine sulfate (increased 57%). As a result, in 2014 the weighted and combined overall increase in AWP was 11.4%—the highest we have ever reported.

Cause of AWP inflation rates

Likened to the sticker price of an automobile, pharmacies and payers use AWP as the basis for linking to a medication’s National Drug Code (NDC), the universal product identifier for over-the-counter and prescription medication. The various workers’ compensation pharmacy fee schedules rely upon AWP to guide pharmacy reimbursement rates, as do PBMs in calculating network discounts subsequently offered to their clients.

As to the cause for these dramatic inflation rates, several industry leaders have offered their analysis:

  • Lower patent expiry impact, lack of substantial innovation, and price increases for single-source generics (IMS Institute for Healthcare Informatics, 2014)
  • Tightened FDA oversight, regulatory reform, product shortages, rising cost of goods sold from greater product liability risk, higher fees, and increased shipping costs, as well as increased barriers to market entry (Gottlieb, 2014)
  • “Mega-consolidations” of generic manufacturers and delays over new products entering the market (Barlas, 2014)

Mitigating the impact

Continued growth in AWP emphasizes the importance of working with a PBM to manage both cost and utilization. For example, at Helios, we provide our clients with a comprehensive suite of tools to moderate the impact of AWP inflation.

  • Strong network capture –the more prescriptions captured in-network, the greater control a payer can have over both cost and utilization. When in-network, prescriptions are subject to network discounts, drug utilization review criteria, formularies, and other business rules intended to make certain injured workers receive the right medication at the right time.
  • Proactive mail order programs – the use of mail order can serve to reduce overall costs by extending days’ supply versus their retail counterpart without sacrificing utilization management.
  • Generic enforcement and conversion programs – despite the current trend, generic medications are a cost-effective alternative to brand medications.
  • Global medication management – using tools such as early intervention programs and advanced analytics, as well as comprehensive, evidence-based clinical programs, can successfully mitigate the cost of generic medications.

For more information about how these solutions can help you better manage pharmacy cost and utilization, visit HeliosComp.com.

Works Cited
Barlas, S. (2014, Dec). Generic Prices Take Flight. Pharmacy and Therapeutics, 39(12), 833-845. Retrieved from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4264670/

Gottlieb, M. S. (2014). Why Are Some Generic Drugs Skyrocketing in Price? Testimony Before the United States Senate Committee on Health, Education, Labor and Pensions. Retrieved from https://www.aei.org/wp-content/uploads/2014/11/Gottlieb-Generic-Drug-Testimony-112014.pdf
IMS Institute for Healthcare Informatics. (2014, April). Reports. Retrieved from IMS Health: http://www.imshealth.com/deployedfiles/imshealth/Global/Content/Corporate/IMS%20Health%20Institute/Reports/Secure/IIHI_US_Use_of_Meds_for_2013.pdf