The OIG recently issued an inspection report on the use of revised average wholesale prices (AWP) by state Medicaid agencies for certain prescription drugs. Medicaid's Use of Revised Average Wholesale Prices, OEI-03-01-00010 (Sept. 2001). For several years, the OIG has focused on the "inflation" of the reported average wholesale price, which is utilized by many states as the primary basis for determining drug cost reimbursement. According to the OIG, the impact of inflated AWP on the Medicaid program is clear: Medicaid ends up paying too much for certain products.

Recently, the DOJ and the National Association of Medicaid Fraud Control Units (NAMFCU) conducted a national investigation targeting the AWP issue. The investigation revealed that some drug manufacturers sold products at far less than AWP data reported by pricing services. These pricing companies, such as First Databank and Medical Economic, compile the AWP that is eventually relied upon by states for reimbursement purposes. In an effort to eliminate the inflation factor that has become integrated in drug pricing, DOJ and NAMFCU collected actual pricing data on approximately 400 national drug codes representing 51 drugs. The data was provided to First DataBank, who calculated revised AWPs for the drugs and made the revised AWPs available to states for use in calculating reimbursement.

The OIG's report takes a look at this most recent effort aimed at obtaining more accurate pricing for the Medicaid program: revised AWP. The OIG looked at 48 states and the District of Columbia. Revised AWP has received mixed reviews. The OIG found that 30 states are using some of the revised AWPs; however, the method by which the revised AWPs are used varies significantly. States are using a combination of methods, including federal upper limits and state maximum allowable costs and revised AWP, when calculating reimbursement.

The OIG found that 11 states using the revised AWP are not subtracting a percentage discount when calculating payment for drugs with a revised AWP, because the states view the revised AWP as being closer to true acquisition cost. Along these lines, states reported concern that subtracting a percentage discount from the revised AWP would cause reimbursement to fall below a provider's acquisition cost, putting drug availability and patient access to care at risk. This is a valid concern that is often overlooked in the AWP debate.

States reported both advantages and disadvantages to the use of revised prices. States supporting revised AWP seemed to focus on the "extreme" inflation of AWP and welcomed any attempt to obtain more accurate pricing. Other states, while appreciating the need for accurate pricing, questioned the usefulness of revised AWP, suggesting that savings would be minimal. Those states noted that the drugs with revised AWPs were low-utilization products and predicted that utilization will simply shift to those products not subject to the price revision. All of the states noted opposition from hemophilia providers, pharmacies, infusion providers, physicians, and drug manufacturers, who claim the revised prices are simply too low. This voiced opposition has not gone unnoticed. Two states have stopped using the revised AWP for blood-factor products after hemophilia providers claimed that they would be unable to continue treating Medicaid recipients. Other states are contemplating similar action.

Most significantly, the majority of the states expressed the view that revised AWP will result in short-term savings, but remained skeptical of any long-term effect on savings. As support, many states cited ways in which manufacturers and providers would eventually circumvent the new prices: manufacturers could obtain new national drug codes for drugs with revised AWPs and submit a higher AWP for those new codes; or providers could substitute drugs with higher-priced national drug codes in place for those with revised prices.

The OIG concluded by noting that while some states are benefiting from revised AWPs, the long-term effects of this strategy are questionable. The OIG acknowledged that the current reimbursement system that relies on reported AWP is "fundamentally flawed." CMS agreed with the OIG that the current system is problematic and agreed to continue looking for administrative and legislative solutions to this problem.