By: Farzana Alam, PharmD Candidate c/o 2025, Anthony Autera, PharmD Candidate c/o 2025, Maha Saad, PharmD

Background

Drug pricing metrics are crucial in pharmacoeconomic analyses as they influence cost-effectiveness and budget impact studies. Selection of the most appropriate metric depends on the context of the analysis, the drug distribution channel, and payer perspective. The primary pricing metrics include Average Wholesale Price (AWP), Wholesale Acquisition Cost (WAC), Actual Acquistion Cost (AAC), the National Average Drug Acquisition Cost (NADAC), Average Sales Price (ASP), Average Manufacturer Price (AMP), and the Veterans Affairs Federal Supply Schedule (VAFSS).¹ Below, we analyze the relevance and limitations of each.  

Definitions and Relevance of Pricing Metrics

• Average Wholesale Price (AWP) ^2,3
• Definition: AWP is a published benchmark price often referred to as the “sticker price” of a drug. It is not legally mandated and is typically set by the manufacturer.
• Usage Context: Historically used in older pharmacoeconomic studies as a reference price.
• Where to find: Redbook on Micromedex. ⁴
• Strengths: Easily accessible and consistent across regions.
• Limitations: Frequently criticized for being an inflated estimate that does not reflect actual transaction prices. Studies have shown price discrepancies of 20-25% higher than the net price paid by purchasers.
• Recommendation: AWP, though historically widely used, has significant limitations due to its inflated nature and lack of reflection of actual transaction prices, making it less suitable for modern pharmacoeconomic evaluations.

• Wholesale Acquisition Cost (WAC) ¹
• Definition: WAC represents the manufacturer’s list price to wholesalers, excluding discounts or rebates.
• Usage Context: Often serves as a baseline for pricing in budget impact analyses or when assessing manufacturer pricing strategies.
• Where to find: Redbook on Micromedex. ⁴
• Strengths: Readily available and closer to actual purchase prices compared to AWP.
• Limitations: Does not account for negotiated discounts, rebates, or pharmacy benefit manager (PBM) fees, leading to overestimation of actual payer costs.
• Recommendation: WAC is useful for approximating costs when no better alternatives are available. However, WAC still fails to account for key factors like rebates, discounts, and PBM fees, thus overestimating actual payer costs.

• Actual Acquisition Cost (AAC) ⁵
• Definition: AAC represents the actual price that pharmacies or healthcare providers pay to acquire a drug, including any discounts or rebates from the manufacturer or wholesaler. It is a more accurate reflection of the cost to the provider compared to AWP.
• Usage Context: AAC is primarily used in the context of drug reimbursement by public payers, particularly Medicaid, but can also be used by some commercial insurers. It serves as a basis for determining reimbursement rates for outpatient prescription drugs. Medicaid, in particular, relies on AAC for reimbursing pharmacies for drugs, and states have the flexibility to determine how AAC is calculated and what sources of data are used (e.g., state surveys or average market prices).
• Where to find: Varies for each institution, but an average can be found with the NADAC.
• Strengths: AAC provides a more accurate reflection of the actual cost to pharmacies since it accounts for negotiated discounts, rebates, and other price reductions that are not included in list prices like AWP.
• Limitation: The determination of AAC can differ by state and pharmacy, making it difficult to have a consistent nationwide benchmark.
• Recommendations: AAC offers a more accurate reflection of the actual price paid by pharmacies, incorporating rebates and discounts. However, its use can vary across states and pharmacies, introducing inconsistencies.

• National Average Drug Acquisition Cost (NADAC) ⁶
• Definition: Based on a monthly national survey which represents the invoice price retail pharmacies pay for medications.
• Usage Context: NADAC is utilized to assess and compare the actual acquisition costs of pharmaceuticals for retail pharmacies, serving as a benchmark for pricing and reimbursement decisions.
• Where to find: Medicaid Website ⁷
• Strengths: Provides a weighted estimate of what pharmacies are actually paying to acquire drugs. Gives an idea of the price patients will pay at retail pharmacies.
• Limitations: Not every discount is always reported. Doesn’t account for rebates manufacturers may provide to payers. It’s an estimate of a transaction not necessarily of interest.
• Recommendation: NADAC, derived from national surveys, offers a useful benchmark for retail pharmacy acquisition costs but may miss certain discounts and rebates, making it a partial estimate rather than a comprehensive price reference.

• Average Sales Price (ASP) ¹
• Definition: ASP is the weighted average of all federal sales prices to U.S. purchasers, net of discounts, rebates, and other price concessions.
• Usage Context: Commonly used for Medicare Part B drugs.
• Where to find: Center for Medicaid Services website ⁸
• Strengths: Reflects real-world pricing, incorporating rebates and discounts, making it more accurate than WAC or AWP. It is particularly valuable in cost-effectiveness analyses involving Medicare.
• Limitations: ASP is limited to Medicare Part B drugs and may not reflect pricing for drugs distributed outside this setting.
• Recommendation: ASP is highly useful in Medicare Part B drug evaluations, as it reflects real-world pricing by incorporating manufacturer rebates and discounts. However, it is limited to Medicare Part B drugs and does not cover other distribution settings.

• Average Manufacturer Price (AMP) ¹
• Definition: AMP reflects the average price paid by wholesalers to manufacturers for drugs distributed to the retail pharmacies.
• Usage Context: Central to Medicaid rebate calculations and relevant for Medicaid-specific cost analyses.
• Where to find: data.medicaid.gov ⁹
• Strengths: Provides a net price metric specific to the retail pharmacy setting and incorporates discounts, making it more accurate than AWP or WAC.
• Limitations: Limited to Medicaid and retail pharmacy settings, and not representative of inpatient or specialty drug markets.
• Recommendation: AMP is useful for Medicaid-specific pharmacoeconomic evaluations but is less applicable in broader contexts.

• Veterans Affairs Federal Supply Schedule (VAFSS) ¹⁰
• Definition: Pricing system used by the U.S. Department of Veterans Affairs (VA) to negotiate prices for pharmaceuticals with drug manufacturers on behalf of all federal direct payers.
• Usage Context: Primarily used in the U.S. Department of Veterans Affairs (VA) healthcare system. It serves as a pricing guide for all federal health agencies, providing the most favorable drug prices available for veterans and federal enrollees.
• Where to find VA’s National Acquisition Center (NAC) ¹⁰
• Strengths: The prices negotiated through VAFSS are publicly available and can be accessed by anyone. This transparency ensures accountability and helps stakeholders understand the pricing mechanisms in place, unlike other private-sector pricing systems that may lack public visibility
• Limitations: The VAFSS price is not available to all types of healthcare payers, as it is specific to federal agencies.
• Recommendation: Its transparent, low prices make it a reliable benchmark for the lowest expected transaction costs. For broader applicability combine VAFSS with other pricing metrics, such as NADAC, to account for a wider range of drug pricing scenarios.

The landscape of drug pricing is complex, with various pricing metrics used to determine reimbursement rates and assess the true cost of pharmaceuticals.  The measurement of drug costs depends primarily on the analyst’s perspective and can vary significantly due to complex and nontransparent pricing mechanisms across supply and demand chains. For example, an analysis from a hospital perspective would most likely use the AAC if it’s available directly from their institution. From an insurance company perspective WAC would be utilized. From a payer perspective, drug prices should reflect the net amounts paid by the payer, including all rebates, copays, and other adjustments. From a government perspective, drug costs should exclude sales taxes, value-added taxes (VAT), or other taxes that serve as direct revenue offsets. For an improved method for drug cost estimation in cost-effectiveness analyses, the use of NADAC and VAFSS to represent the upper and lower bounds of drug prices, respectively is recommended. This approach provides more accurate and transparent cost estimates compared to the traditional reliance on WAC and AWP, which tends to overstate drug prices. Calculating the base case as the midpoint between NADAC and VAFSS yields costs that better reflect actual transaction prices, offering greater consistency and accuracy for health economic evaluations. These metrics help stakeholders, including public payers, insurers, and healthcare providers, understand the true costs of pharmaceuticals, thus improving pricing transparency and efficiency in healthcare delivery. ^{11, 12}

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