Introduction
[00:00:00] Stacey Richter: Episode 429, "Following the Dollar Through Pharmacy Acronyms Like WAC, AWP, and NADAC". Today I speak with Luke Slindee.
American Healthcare Entrepreneurs and Executives You Want To Know. Talking, Relentlessly Seeking Value.
Today we're talking about pharmacy acronyms, or terms, like AWP and WAC and not really an acronym, but we'll also talk pharmacy list prices, rebates, discounts. We also have NADAC, but that's slightly off to the side for reasons we'll get to in a sec.
Most of these acronyms refer to a number with a dollar sign in front of it, and it's hell on wheels to figure out if, and, or, to what extent that number reflects what is going on in the real world, especially if you are a patient or a plan sponsor and all you see is the list price that pharma puts out on one side of the storyboard, and then what the patient pays, or if you're lucky, what the plan pays for the drug on the way other side of the whole chain of events.
What's a black box a lot of times for patients and plan sponsors is what goes on in the middle wherein many middle people get their mitts on the transaction. Real quick here, let's run through the Mr. Rogers Neighborhood of all of these middle people right now and we're going to do this really briefly.
Most of you are already going to know most of this, but I just want to remind you so that when my guest today, Luke Slindee, and I kick into the conversation about the acronyms and the terms and we try to follow the dollar, yeah, you can put a name to a face. All right.
Understanding the Pharmacy Supply Chain
[00:01:50] Stacey Richter: So first we have pharma manufacturers.
The pharma manufacturer, and this is largely going to be true, whether it's a branded drug or a generic pharma manufacturer, but the manufacturer sets a list price. This list price is going to be called an AWP or a WAC price, and we're going to get into the differences and what those terms actually mean in the show that follows, but pharma decides their price point.
They go to wholesalers with that price. Wholesalers say they want a discount to purchase the product. Some kind of rebate or discount is negotiated. Now the wholesalers have the drug and they get calls from pharmacies. pharmacies have patients who have scripts for that drug. So the pharmacies need to buy the drug.
What price does the pharmacy now pay the wholesaler for the drug? Short answer, it's nuts. It's nuts how the wholesalers decide what to charge the pharmacies for the drug. We talk about that in the interview that follows, but suffice to say that now we have the list price turning into whatever price the pharmacies wound up paying to get the drug from the wholesalers for. And anyway you cut it, the wholesalers are making some money.
Okay, now we get to the part where we're figuring out how much the patient or the plan sponsor will pay to pick up that drug that started at the pharma manufacturers and went to the wholesalers and now is at the pharmacy. How much are the patients going to pay? How much are the plan sponsors going to pay?
If you spend any time in the real world, not the drug supply chain world, what you'd expect to happen next is that the patient would go into the pharmacy and the pharmacist would charge a markup and or a dispensing fee on the price that they bought the drug from the wholesaler for, like, that'd be normal.
And this can be the case when patients pay cash. Listen to the show with Mark Cuban, who started a pharmacy called Cost Plus Drugs. Get it? Their prices are cost plus. You have had other pharmacies for years doing similar things like Blueberry in Pittsburgh. They get the drug, they buy it from a wholesaler or etc, but they buy the drug for some price and then they sell it to their customers ie, patients at their cost plus.
But most of the time in pharmacy supply chain world, things don't work that way. Because many patients have insurance, when a patient walks into the pharmacy, someone has to figure out how much the patient owes and how much their insurance will cover. Right?
Role of PBMs in Drug Pricing
[00:04:22] Stacey Richter: So enter PBMs.
They originally started out doing this math, ie, adjudicating claims, figuring out what the out of pocket will be for the patient and then what the insurance will cover. Then, drugs started to get really expensive and a few other developments, and then all of a sudden we have PBMs negotiating with pharma for how much of a rebate the PBM is going to demand for the PBM to put the manufacturer drug on formulary.
The PBM also is determining how much they will pay the pharmacy for said drug on behalf of plan sponsors, in addition to doing the math for how much the patient will pay. So, let me say that again because it kind of begs at "what now" with eyebrows sky high as the appropriate response to what I just said, especially if you think through the ramifications here. Ramifications which I discuss at length with Vinay Patel, Benjamin Jolley, Scott Haas, Paul Holmes and others.
So again, the PBM is not just adjudicating claims. They are also negotiating rebates from pharma. So plan sponsors do not have to pay the full amount that the wholesalers paid pharma, and that the pharmacies paid the wholesalers, which maybe is a lot of money.
The PBMs are like, hey pharma, you need to give me a piece of your action because we, the PBM, have big market power. I serve 100 million patients or something. So if you want access to my 100 million lives, you got to shell it out. You got to shell me out some rebates. So fine, pharma gives the PBM some amount of money in the form of a rebate.
And it has to work that way if you think about it, because the drug was originally sold to the wholesalers. You see what I'm saying? So the pharma company has to give the PBM a separate rebate amount. This is in addition to how much the PBM told the plan sponsor, the plan sponsor owes for the drug, which is also paid to the PBM.
But now, the PBM is also still in charge of adjudicating the claim. So they're telling the pharmacy how much to charge the patient. Somehow or another, also, the PBM also got itself in charge of deciding how much money the pharmacy itself would be reimbursed by that PBM. In the rest of the world, the pharmacy might tell the PBM, like, hey, this is the price.
But not in pharmacy supply chain world. In pharmacy supply chain world, the PBM tells the pharmacy how much it's gonna pay. The end.
Implications of High Drug Prices
[00:06:37] Stacey Richter: And this, my friend, is how so often pharmacies get themselves in the pickle of having to pay the wholesaler one price to get the drug while they get reimbursed a totally different price to dispense the drug.
And because independents have very little negotiating leverage on actually either side of that equation. They so very often buy high and sell low. Please listen to the shows with Benjamin Jolley and Vinay Patel where we get into this in a lot of detail. But I just want to emphasize this point. All of that whole drug supply chain I just went through where the manufacturer sells to the wholesaler who sells to the pharmacy and the PBM pays the pharmacy and the patient is paying something and the plan sponsor is paying something.
Many of the middleman transactions in there happen under the cover of darkness a lot of times. If I'm a plan sponsor, do I have any idea how much the PBM paid the pharmacy for any particular drug? Unless you're good at looking at the NADAC numbers, more on this coming up, no, I do not have any idea what a fair price for that drug actually is and how much people are making on the back of that drug as it goes through the supply chain.
And this, my friends, is how come spread pricing can exist because spread pricing is when the PBM charges the plan sponsor more than they are paying the pharmacy, pocketing the difference and then calling what they pocket a trade secret. Even if it's the plan sponsor whose butt is on the line to make sure that what the PBM is pocketing is fair and reasonable compensation.
I mean, if only J&J had listened to this show, link in the show notes, to the lawsuit which is about J&J paying ridiculous amounts and spread pricing. If what I just said is really confusing, I'm going to validate that and say, yeah, it is really confusing. And to a certain extent, that might be the main point where there's mystery, there's margin and all of that.
Exploring the NADAC Benchmark
[00:08:35] Stacey Richter: The one acronym in this whole stew that is not questionable at all is the NADAC. So let's talk about the NADAC for a moment, the National Average Drug Acquisition Cost price benchmark. I was really thrilled to get Luke Slindee to be my guest today, or one reason I was so thrilled is because Luke works for the accounting firm who, on behalf of CMS and the federal government, administers this NADAC, the National Average Drug Acquisition Cost.
I'll put a good NADAC explainer in the show notes if you're interested, but in brief, NADAC was jointly developed by the Centers for Medicare and Medicaid Services and it calculates the average price that pharmacies pay for prescription drugs. NADAC is based on a retail price survey.
Interview with Luke Slindee
[00:09:22] Stacey Richter: My guest today, as aforementioned, is Luke Slindee.
He is a second generation pharmacist. His family owned a pharmacy in Minnesota when he was growing up. Now he is a senior pharmacy consultant for Myers and Stauffer, which is the accounting firm that calculates the NADAC price benchmark on behalf of CMS and the federal government.
My name is Stacey Richter. This podcast is sponsored by Aventria Health Group.
Luke Slindee, welcome to Relentless Health Value.
[00:09:50] Luke Slindee: Thanks, happy to be here. I'm a big fan of the podcast.
[00:09:52] Stacey Richter: If I'm a plan sponsor, you'd think in an ideal world, the plan sponsor would understand how much they're paying for the product and how much they're paying to the vendor that the vendor's putting in their pocket. That would seem normal.
[00:10:05] Luke Slindee: Yeah. I mean, everyone involved in the process is necessary and is providing a valuable service. It's just that it's important to understand exactly what the going rate for providing that service is across each of the steps in the supply chain.
Unpacking the Pricing of Branded Drugs
[00:10:22] Stacey Richter: If we start at the very beginning, and let's talk about a branded drug right now. So we have a pharma manufacturer and those pharma manufacturers are setting a price. How is it calculated?
[00:10:35] Luke Slindee: First of all, it's not calculated. We refer to that as a list price. So in general, there's two major industry versions of list prices. AWP, which stands for Average Wholesale Price, although those three words are kind of a misnomer at this point.
[00:10:52] Stacey Richter: Yeah, I've also heard it stands for Ain't What's Paid.
[00:10:55] Luke Slindee: Yes, that's one of the common comments. So that AWP is one, and then the other one is Wholesale Acquisition Cost or WAC. And again, it's not calculated.
Both the AWP and the WAC are numbers that are at the sole discretion of the manufacturer of the product. They can just pick any number they want, and they transmit that information out to the public, mostly by providing the information to the major pricing databases. Compendia, that exist in our industry. So specifically First Data Bank, Metaspan, there are a couple others, but for AWP and WAC, those are the list prices, but the manufacturer, they just pick a number that they want, and then that gets transmitted to the Compendia, and then the entire industry basically gets the information from the Compendia.
[00:11:49] Stacey Richter: There was a bunch of public information relative to how does pharma pick those list prices.
It was very much, how much do we think people will pay? And that's normal in the world. If you're manufacturing pretty much anything, you're going to figure out what your costs are and then you figure out what your market will bear.
[00:12:06] Luke Slindee: That is certainly true. Although I would just add, in addition to that, now, with the rise of PBMs and what's been called the gross to net bubble, shout out to Adam Fine.
So yes, when they're setting the list price, the manufacturers are choosing what will the market bear, but then they also have to take into consideration what rebate am I going to have to pay in order to get this drug onto the the formulary. So for example, if you know that you're going to have to pay a certain percentage or a certain dollar amount of a rebate in order to gain market access, then that would also get factored into the list price that they set.
Because if you know ahead of time that you have to pay a rebate, you're going to set the list price higher than you would above and beyond whatever your net money that you're actually going to make would be.
[00:12:55] Stacey Richter: I think the point that you're making is that in this supply chain, we've got PBMs who are trying to maximize their rebates.
You want to make sure your customer's happy. And if you know your customer wants to maximize those rebates, then the higher your list price, the bigger the rebate that you can subsequently offer. So there's reasons why those AWPs or WACs, whatever we want to call that list price is as high as it is.
[00:13:22] Luke Slindee: Correct.
[00:13:22] Stacey Richter: What's the difference between AWP and WAC? Are they synonyms?
[00:13:26] Luke Slindee: For branded drugs that do not have generic competition, the relationship between the WAC and AWP is fixed. So usually the AWP is the WAC times 1.2. There's some historical basis for all of that. Most of it has to do with people determining that the AWP base system was problematic.
And trying to come up with an alternative, unfortunately, the alternative that they came up with, which is WAC, basically they didn't change any of the underlying concepts. And so the same problematic things that happened with AWP also happened to WAC. And so now, basically, we just have two different versions of list prices that aren't particularly helpful.
[00:14:11] Stacey Richter: Okay. The pharma company, they set their list price and to the points that you made, if we're talking about WAC, and just to clarify, the WAC price is 20 percent less than AWP. Is that a rule?
[00:14:24] Luke Slindee: It's a fixed ratio.
[00:14:25] Stacey Richter: Yeah. Okay. So whatever the AWP is, the WAC price is going to be 20 percent less than that at the end.
[00:14:31] Luke Slindee: For branded drugs.
[00:14:32] Stacey Richter: For branded drugs. But if I'm a pharma manufacturer, I've set my price. I tell the market, this is my price. So keeping in mind that who's going to buy the drug from the pharma company is a wholesaler who's going to drive a truck over and pick the drug up. They've got refrigerators and they're storing it and making sure that there's safety in the supply chain, etc.
So, how much does the pharma company sell the drug to the wholesaler for?
[00:15:00] Luke Slindee: I don't have any insider information exactly to the prices that wholesalers purchase from manufacturers, but I do have access to the information, one link down the supply chain of where pharmacies are buying from wholesalers.
And so you can kind of impute and guesstimate what wholesalers are paying to the manufacturers and so for again, for a branded drug where there's no generic competition, the wholesalers are typically purchasing below the list of prices, so that's not particularly shocking. Usually, if I were to put a very guess number on it, for most branded drugs, wholesalers are typically purchasing drugs around a 2 to 2.5 percent discount from the WAC, which then would translate to a 20ish percent discount from the AWP.
On the buy side, pharmacies and wholesalers and manufacturers tend to use WAC more than they do AWP. On the sell side, it might be different. But yes, so to answer your question in a nutshell, there is a relationship to what wholesalers are paying for branded drugs to the manufacturers to the list prices.
It's usually about a two to two and a half percent discount from the WAC value.
[00:16:23] Stacey Richter: When we talk about rebates and discounts, a lot of times in the pharma supply chain, we talk about them in the context of PBMs, but there's a whole other discount rebate thing going on with the wholesalers.
It sounds like off of the WAC price, there's a two to 2.5 percent discount and you have managed to figure that out. So then the wholesaler is selling it to the pharmacy. How much is the pharmacy buying it for from the wholesaler?
[00:16:50] Luke Slindee: This is where we get into the information that is provided to us from the pharmacies that voluntarily provide this information.
[00:16:58] Stacey Richter: And this is where your NADAC information comes into play.
[00:17:03] Luke Slindee: The ingredient cost is available via the public NADAC data benchmark for a branded drug, you will see a range when you calculate the average, which we do for the NADAC process, it usually comes out to around a 4 percent discount from WAC. So as a general rule on branded drugs, you can assume that pharmacies are paying about a 4 percent discount from WAC to acquire from the wholesaler.
[00:17:32] Stacey Richter: So the wholesaler, okay, I'm confused because it sounds like the wholesalers are buying for 2.5 percent under WAC and selling for 4 percent under WAC, which is less than they are buying the drugs for.
[00:17:47] Luke Slindee: There's another factor that comes into play, which would probably have to be a different podcast, but when pharmacies are purchasing drugs from a wholesaler, there is an explicit relationship tied between the purchase price of the brand drugs that pharmacy purchases to the volume of generic drugs that a pharmacy purchases from the same wholesaler.
[00:18:12] Stacey Richter: Okay, so this is what we had discussed in an earlier conversation. And I'm remembering that you told me that Benjamin Jolley also wrote an amazing Substack on this exact topic, which I will link to in the show notes. So wholesalers make the purchase price of brands dependent upon the volume of generics that they have purchased.
[00:18:34] Luke Slindee: And so you have a situation where the purchase price of the brands actually become dependent upon the quantity or the volume of generic drugs you buy from the same wholesaler.
[00:18:44] Stacey Richter: If we're thinking about this from a pharmacy standpoint, if I'm an indie, if I'm a little indie pharmacy, then my drugs are more expensive.
The branded drugs that I'm buying and probably the generics as well is my takeaway from everything that you said is that there's volume discounts here for what the acquisition costs of the drugs are going to be.
[00:19:02] Luke Slindee: Yeah, I would say that on branded drugs, the differential between the size of the pharmacy chain organization versus a little pharmacy is probably a lot smaller than most people think on branded drugs.
The delta is really on the generic side.
[00:19:18] Stacey Richter: The other interesting takeaway that I have from what you just said, and Joey Dizenhouse made this really clear in a recent episode where he said, pay attention to who benefits when the prices are higher. And so when you were talking, I was immediately thinking about how in a normal circumstance, the customer who's buying something, is the one that kind of holds like supply and demand, right?
Like you're holding the customer's job in a way for a functioning free market is to hold the price down. But when we have a case where the one buying it also has a benefit to see the price be higher.
[00:19:56] Luke Slindee: Unfortunately, we've built a system where every single player in the system is benefiting from higher drug prices.
So it shouldn't be a mystery that the system produces high drug prices.
[00:20:07] Stacey Richter: Yeah, free markets are amazing, but we have a situation here where the, at a basic, even just microeconomic supply and demand standpoint, Houston, we have a problem. So okay, then we have the situation where the pharmacy sells the drug to a patient.
If I'm a pharmacy, can I sell the drug, I mean, it's, it's my store, can I sell the drug for whatever price I want to a patient?
[00:20:33] Luke Slindee: Absolutely. If a PBM is not involved, you can set any price you want and sell it to the patient for any price that they're willing to accept.
[00:20:42] Stacey Richter: Well, that is a pretty big caveat.
If a PBM is not involved, because a lot of patients will go into the pharmacy with an insurance card. So most pharmacies will have a contract with a pharmacy benefit manager. And this is where things get weird because you've got a pharmacy, who just bought the drug using that whole supply chain that we just talked about.
But if that patient has insurance, then there's this whole other operation that goes on wherein a pharmacy benefit manager is getting paid by a plan sponsor to reimburse the pharmacy and the PBM will reimburse the pharmacy based on a different set of math. It doesn't have anything to do with how much the pharmacy bought the drug for, which is why you wind up with these weird situations where these pharmacies are underwater, where their acquisition costs are actually higher than what they're getting reimbursed from the PBM.
[00:21:32] Luke Slindee: Correct.
Understanding Generic Drug Pricing
[00:21:33] Stacey Richter: All right. So we started out when we were defining AWP and WAC, and I said very specifically, Hey, let's talk about this if it's a branded drug with no generic competition.
But if we go way back up to the top now, and we're talking about the supply chain from a generic standpoint, we started talking about AWPs and WAC prices. So pharma manufacturer, let's just say it's generic manufacturer now. If I'm a generic manufacturer, do I also set an AWP and a WAC price? How does it work at the very beginning if I'm a generic manufacturer selling to a wholesaler?
[00:22:09] Luke Slindee: So everything in general is the same except for the relationship between the list prices that are set by the manufacturer and the actual sales prices as the drug flows from manufacturer to wholesaler to pharmacy to PBM. As I said previously, the relationship between what happens on a branded drug as it moves through the supply chain is not particularly unknown.
Once you have an understanding of the percentage relationships between the different things, if you know one number, you can kind of impute the rest. None of that is true on the generic side. And so for generic drugs, again, the manufacturer is responsible for setting an AWP and a WAC, those numbers can be literally anything.
[00:23:01] Stacey Richter: So, in other words, the WAC price isn't always 20 percent less than AWP.
[00:23:05] Luke Slindee: Correct. Eventually, we can get into an example here that provides some of the, just how absurd this gets. Like the word I usually use for AWP and WAC values for generic drugs is gibberish. It's not an exaggeration. It's just a number that gets made up.
It does not have any relationship whatsoever to what is actually being sold into the wholesalers and then the wholesalers selling to pharmacies. And so that predictable relationship for generic drugs just goes out the window.
[00:23:35] Stacey Richter: So if I'm a pharma manufacturer on the branded side, there's actually some math that goes on, on the pharma side to try to figure out how high they need to make it be so that they can make sure that they're attractive to PBMs and get on formularies and there's this whole thing called a rebate cliff, right?
So if there's another brand on formulary, and that PBM is making buku dollars on that other brand, they're not going to put a new brand on formulary and then jeopardize the money that they're getting off of that other brand. So there's considerations that are happening on the pharma side as they contemplate what they want their list prices to be.
Is there any similarity going on in the generic side?
[00:24:19] Luke Slindee: There are incentives and there are considerations. They're probably just different incentives and considerations. I would summarize it as there are perverse incentives because basically the profit margins to everyone, wholesalers, pharmacies PBMs, the profit margins on generic drugs are sky high expressed as a percentage.
It's not that the dollar amounts are particularly high, but as a percentage profitability, that is where all of the profits come from in the supply chain basically is on the generic side.
[00:24:56] Stacey Richter: And this is actually fundamentally different from the branded side, because on the branded side, the percentages are pretty low, but because the drugs are really expensive, you know, if it's a hundred thousand dollar drug or something, 2 percent is not chump change.
But if we're talking about a generic, where it's 47 cents, then somebody might be making a hundred percent profit margin. But because the vast majority of drugs prescribed in this country. I think I interviewed Dr. Steve Quimby about this and it was like billions of generic drug prescriptions that happen in this country every year.
So 50 cents times billions, yeah, it's a volume game there.
[00:25:34] Luke Slindee: If you look at these large companies, like the big three wholesalers or the big pharmacy chains, or to a certain extent, the PBMs, the vast majority of the profits come from the generic side. And the profitability is downstream of the fact that no one knows what a reasonable price for a generic drug is.
Antonio Ciaccia says, where there's mystery, there's margin, and I mean, that's kind of it in a nutshell. The profitability that comes on the generic side is available because no one really knows what a reasonable market price for a generic drug is, and so that just introduces a lot of opportunities for high profits and or price gouging, depending upon your perspective.
[00:26:15] Stacey Richter: Which is why we have Civica Rx right now. It's a joint venture with a bunch of hospitals who got together, who started manufacturing their own generic drugs. Partly it was because of drug shortages, but also it was because there's a bunch of people who are like, maybe I should just, why don't I just manufacture my own drugs? This is nuts.
[00:26:34] Luke Slindee: When people look at market dysfunction, and now that this has gotten to the point where it's even been included in like congressional hearings and things like that, the area where things get to be the most absurd is this kind of oxymoronic space called generic specialty. And there are particular drugs that have really been focused on quite a bit in the public.
Gleevec or Imatinib is certainly one, Truvada and the generic equivalent of that, Tecfidera, dimethylfumarate. So there, there are some quintessential examples that I think have made it out there into the drug pricing nerd ether, if you will.
[00:27:14] Stacey Richter: Maybe we should just run through a quick example so that it becomes clear the magnitude of what we're talking about.
Could you just give an example of maybe one drug?
[00:27:24] Luke Slindee: Definitely another example of a drug that is also in that generic specialty space. The drug in question, the original brand version of the drug is called Aubagio. It's a drug used to treat multiple sclerosis. And prior to March of 2023, so a little, little under a year ago, it was brand-only there was no generic competition.
So Aubagio, the brand version was the only one that was available. And currently the WAC value of that drug is about $311 per tablet. And then because of that fixed ratio between WAC and AWP on branded NDCs, then the AWP value is the WAC times 1.2, which is about $374ish dollars per tablet. So again, $311, $374, those are the various list prices.
[00:28:20] Stacey Richter: Per tablet, we're talking about here. So if somebody's taking it once a day.
[00:28:25] Luke Slindee: Yep, every day. Every day,
[00:28:26] Stacey Richter: Okay. So basically, if we're looking at a 30 day supply, it's $311 or $374, if we're talking about AWP, times 30.
[00:28:34] Luke Slindee: When the generic competition entered in, very quickly, the true market prices that are reflected in terms of what wholesalers were selling the drugs to pharmacies plummeted and I mean way way way down almost to a comic extent. And so at the current moment the NADAC for the generic equivalents of this drug sit at 69 cents per tablet.
So we went from the list price previously was the WAC was $311, the AWP was around $374 per tablet. Now it is 69 cents. That's what the pharmacies are actually paying the wholesalers approximately to put that drug on the shelves. But this is the point I'm trying to make. If you look at the WAC and the AWP values for those generic NDCs, which competitively can be sourced around 69 cents a tablet.
There's a range, so the WAC value, and this is where I talk about it being gibberish, and by the way, there are now 11 generic manufacturers that are all competing in this space. So we went from having one, right, it was just Sanofi, and now there are 11 generic manufacturers that produce this drug. The lowest WAC is about a dollar and the highest WAC is $68 per tablet.
So that just shows you the range on that particular drug in terms of the WACs. And then on the AWP side, the lowest AWP is $10 and the highest AWP is $343. So to take that example of the AWP value on this drug, which is, it's the same NDC...
[00:30:17] Stacey Richter: So the pharmacies are purchasing this drug for, and I know you're using pharmacy talk, which is per tablet.
I'm using patient talk, which is how much did the prescription cost. Basically a pharmacy is buying a 30 day supply for $20 bucks. But at the beginning of the food chain, it could be $1 to$ 68 or 10$ to 343$, right? So, actually there's discounts that are happening along the way somehow or another off of the original price.
[00:30:44] Luke Slindee: This is where the word gibberish comes into play. So on generic drugs, and in particular on generic specialty drugs, the AWP and the WAC values literally don't mean anything. But what's scary is that on the pay side, which can affect patient out of pocket, of course, and certainly affect the plan sponsors, there is this is incredible delta between what the pharmacies are actually sourcing the drug for and what the manufacturer set list prices are.
And then if AWP is the basis of your contract and that's what you're paying off of.
[00:31:21] Stacey Richter: When you say the basis of your contract, who's contract, the pharmacy or the plan sponsor?
[00:31:27] Luke Slindee: Well, either, but probably the more concerning one to your audience would be the contract between the PBM and the plan sponsor.
So you could literally be looking at a situation where the pharmacy is buying the drug for 69 cents a tablet. They're getting paid probably a little bit over that from the PBM. So let's say 75 cents a tablet or who knows. And then the PBM is turning around and charging the health plan sponsor a number based upon the AWP value, which is $343.
[00:32:01] Stacey Richter: A tablet?
[00:32:03] Luke Slindee: Yes. It's less the branded is $373. The highest generic AWP is $343. So it's less than the brand, but not by much, but yeah, basically it creates these truly absurd situations again. These have been like put on charts and congressional hearings and stuff like that. And so, in general, on the generic side, and especially on the generic specialty side, the framing of this that I use is the differential between the NADAC, which is that representation of what pharmacies are actually paying the wholesalers to source something, and the AWP value.
The difference between the NADAC value is the bigger the difference is there, the more rope that various intermediaries are given to hang people with.
[00:32:49] Stacey Richter: In other words, the more money the middlemen are taking.
[00:32:51] Luke Slindee: Yeah, it just creates these really absurd situations. And there's been a lot of criticisms about the PBMs because on a drug like this, you're not likely to get it at a Walgreens.
You're not likely to get it at a mom and pop pharmacy. The dispensing of these drugs is usually strongly controlled so that the PBM will force you to get it from their pharmacy that they own.
[00:33:14] Stacey Richter: Well, of course they would because they're making that much money.
[00:33:16] Luke Slindee: Correct. And so this is an area that many people besides me have tried to shine a light on.
I know as the criticisms around PBMs with respect to what they do with a manufacturer rebates on branded drugs amped up, then the PBMs basically, they're kind of like a ball of mercury if you hit it with a hammer, right? They're just going to go do something else and figure out other ways to make money.
And this is one of the spaces that they moved in is this generic specialty space where they pay themselves because they own the pharmacy and they do that based upon the AWP value and then turn around and charge that to the plan sponsor and then the delta between the 69 cents they're buying it for and the $343 AWP value is they just it's kept.
[00:34:03] Stacey Richter: Well, that is a great example of just how much slosh there is in the middle. Another word for slosh is waste. And let's not forget that someone's waste is someone else's profit. There's just so much money that's shrouded in mystery. I like how Antonio Ciaccia puts it, “where there's mystery, there's margin,” right?
There's all of these numbers are hidden and they're laying there on the table. And someone's picking It up.
[00:34:26] Luke Slindee: And if I can toot my own horn for a moment, the fact that this would be able to be analyzed publicly by people like Antonio is the fact that the reason why we can do this is that the NADAC exists.
And so that's why I take a lot of pride in my job is that we take information that otherwise would not exist to the public and we make it publicly available so that researchers and nerds and advocates can go out and actually piece this stuff together for themselves. So the fact that this whole system is paid for by the government and then all of the data is fully public so anyone can use it for any reason. Just go to data.medicaid.gov and it's available to anyone. There's incredible value in that system taking information which otherwise would be a proprietary trade secret and actually just making it public.
[00:35:17] Stacey Richter: Data.medicaid.gov.
Advice for plan sponsors is look at these NADAC prices because this will give you an indication of if you have a PBM as a vendor, like this is an indication of how much that PBM might be pocketing.
And you can see that's the spreadsheet of all the NDCs, which are the code, the numbers that represent each of the individual drugs. So go to data.medicaid.gov and pull down that spreadsheet.
[00:35:46] Luke Slindee: It's free. It's put there for this reason, is we want to provide more transparency to the drug supply chain, so that's why it's done, and we encourage everyone to use it as a public resource.
[00:35:58] Stacey Richter: Got it. Luke, is there anything else that you want to mention?
[00:36:01] Luke Slindee: I think we've covered a lot. There is one other thing I'd like to say.
Impact of Drug Pricing on Pharmacies
[00:36:04] Luke Slindee: All of this dysfunction ends up causing downstream effects with respect to the working conditions for staff inside of pharmacies. As well as pharmacies closing and creating this concept of pharmacy deserts where there's neighborhoods or entire rural areas that don't have access to a pharmacy.
All of this dysfunction doesn't solely just waste money for patients and plan sponsors. I mean, it would be bad enough if that were the case, but all of this wacky math that benefits wholesalers and PBMs often comes at the expense of pharmacies, and that results in less money to pay pharmacy staff.
So in the chain pharmacies, you've seen walkouts recently that the staffing is just at such incredibly low levels that a lot of the chain pharmacies are just not functioning. And that's personal to me because I worked for Walgreens for 14 years. So I care about the concept of a chain function, chain pharmacy operating appropriately and delivering good customer service for their patients and that's just not happening right now.
And then also you have all these independent pharmacies just closing because this wacky math that we talked about is just incredibly damaging and it's not possible to run a business in this irrational environment for a lot of independent pharmacies, so that results in lack of patient access to pharmacies.
I just want to draw that connection to know that this isn't just patients and health plan sponsors money being wasted. It also has this negative effect of making pharmacies just not function and or not exist.
[00:37:44] Stacey Richter: Luke Slindee, thank you so much for being on Relentless Health Value today.
[00:37:47] Luke Slindee: Thank you so much.
Conclusion and Final Thoughts
[00:37:48] Stacey Richter: So let's talk about going over to our website and typing your email address in the box to get the weekly email about the show that has come out. Sometimes people don't do that because they have subscribed on iTunes or Spotify and or we're friends on LinkedIn. What you get in that email is a full and unredacted, unedited version of the whole introduction of the show transcribed.
There's also show notes with timestamps just apprising you of the options that are available. Thanks so much for listening.