On September 26, 2009, self-insured employers who sponsor prescription drug plans for their employees and dependents found that their pharmacy benefit managers (PBMs) and/or health plans began billing them under a new methodology thanks to a class action lawsuit settled in the United States District Court in Massachusetts. In New England Carpenters Health & Welfare Fund, et al v. First Databank, Inc., et al, plaintiffs alleged that defendants engaged in a racketeering enterprise (the "Scheme") to fraudulently state the average wholesale price (AWP) for numerous prescription drugs beginning in late 2001, in violation of 18 USC § 1964 and California State Law. The Scheme allegedly inflated the AWP by 5 percent for over 400 brand-name, self-administered prescription drugs sold through retail and mail service pharmacies.

The defendants (publishers of AWP) were ordered to roll back their practice of marking up AWP to a ratio between WAC (wholesale acquisition price) and AWP that had previously been WAC times 1.25 to WAC times 1.20. The impact to employers is theoretically neutral since PBM employer contracts generally allow for industry adjustments under the guise of "economic neutrality." However, PBMs and health plans have essentially three potential approaches to achieving economic neutrality and therein lies the proverbial devil in the details.

Employers need to understand which of the following three approaches their PBMs and/or health plans implemented on September 26. Moreover, employers will want to ensure that whatever approach adopted by their vendor, the outcome was indeed price-neutral to the employer-sponsored prescription drug plan. Early analyses by independent actuaries suggest that some approaches create winners and losers. When engaging in an RFP process or a contract renewal, a direct comparison of AWP discounts may no longer be an apples-to-apples comparison.

The first approach is to Revise AWP Discounts. Here, the PBM will concurrently reduce AWP discounts for brand, and possibly generic, drugs as First DataBank and other affected publishers of AWP reduce AWP prices consistent with the WAC times 1.20 ratio. The goal of this approach is to determine the AWP discounts in a manner such that when applied to the new AWP prices, the discounted drug prices to employers will be cost-neutral when compared to the old discounted prices.

The second approach is to Revise AWP Price Points. Here, the PBM will concurrently adjust the published AWP prices of each prescription drug based on historical WAC markup factors. Describing the strategy in different terms, the adjusted AWP will ensure that the markup over WAC is equal to the markup over WAC before the reduction to the AWP.

The third approach is to Use an Alternative Price Basis. This strategy would use a different pricing basis, perhaps WAC. If WAC were used, the PBM would base the ingredient cost in terms such as WAC plus a percentage, instead of AWP minus a percentage. The downside to this alternative is that at present, not all generic prescription drugs have a listed WAC price.

Albeit not part of the settlement, both First DataBank and MediSpan, the two predominant publishers of AWP, have asserted that they will cease publishing AWP within two years from the settlement. Therefore, employers, PBMs and health plans will look to negotiate new terms as they relate to prescription drug discounts during the next two years.

For questions about these approaches and pharmacy benefits management generally, feel free to contact Chris Goff, Esq., Corporate United’s PBM category manager and industry expert at 330.639.2290.