US Pharm . 2007;32(4):3.
Two decades ago I used the same headline as this editorial, but instead of average manufacturer price (AMP), it was average wholesale price (AWP). As Casey Stengel is fond of saying, "It's déjà vu all over again."
I had four years left to graduate from pharmacy school when Medicaid was created in July 1965. The mood in retail pharmacy was much different back then. While they didn't particularly like it, most pharmacists supported a government program that offered health insurance to low-income individuals and families. While each state was to administer its own Medicaid program, the Healthcare Finance Administration, or HCFA (today it is called the Centers for Medicare and Medicaid Services, or CMS) was to determine how it should be funded. When I graduated from pharmacy school, most retail pharmacies still catered to mostly cash- paying customers. Medicaid comprised a relatively small portion of their customer base, so making a little less profit to help the indigent was not a huge problem for most pharmacy owners. Although it involved cumbersome paperwork to get reimbursed, most retail pharmacists felt that, for a government program, they were getting paid a fair price at AWP plus a dispensing fee. It wasn't long before private-sector insurance companies looking to sell prescription benefit programs to their customers adopted the Medicaid model, thus starting the evolution to the third-party payer mess we have today.
The AWP was initially intended to represent the average price at which wholesalers sold their prescriptions to pharmacists. But it quickly became evident that it did not build in discounts, rebates, and other incentives. It didn't take long for payers to start chipping away at the AWP. In hindsight, maybe the AWP was a little overinflated, but it was the best we had to work with. What really bothered me, and I think the majority of pharmacists today, is that while the AWP was often not the actual price pharmacists paid for their drug products, nobody knew what the actual AWP really was. Despite this, third-party payers started to discount it with apparent disregard for current market indicators. It is a lot like buying a car. You really don't know what the dealer paid for it, but you know it should be discounted because it is assumed the dealer paid lower than the sticker price; but you really don't know how much lower. The only difference is that a car dealer would let you walk out the door if their profit goal was not met; pharmacists who dispense life-saving prescriptions cannot do this because of their contractual relationships with third-party vendors, including the U.S. Government.
Zoom forward 40 years and, incredibly, we are having the same debate. This this time, however, it is over the AMP. Unfortunately, this time the stakes are much higher. Cash customers are basically nonexistent, and pharmacists are not enjoying the profits they were 40 years ago to make up the difference in heavily discounted reimbursements. And, like 40 years ago, right now the talk is to apply AMP only to Medicaid prescriptions. It is only a matter of time that the private sector follows suit. And, like four decades ago, nobody can accurately calculate the AMP.
The most disturbing fact is that, like four decades ago, all this talk about AMP only concentrates on the cost of the product and not the price tag to be put on the value that pharmacists bring to health care. I wonder how important the price of a prescription would be when there are no longer any pharmacists to fill them…and that is no laughing matter.
Harold E. Cohen, R.Ph.