Dawn M. Gencarelli
This paper updates a June 2002 National Health Policy Forum Issue Brief, "Average Wholesale Price for Prescription Drugs: Is There a More Appropriate Pricing Mechanism?" Since the release of that paper, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003, which created a new, comprehensive outpatient prescription drug benefit and reduced Medicare’s reliance on the average wholesale price (AWP) in paying for prescription drugs. This paper discusses the continued use of AWP as well as other pricing benchmarks that pertain to prescription drugs. It explains the relevance of these pricing mechanisms to different government programs and sets forth some of the issues that have arisen in their use. The paper also contains a glossary of commonly used drug pricing terms, as well as an appendix that lists state Medicaid drug payment formulas.