Exploring the Path of the Specialty Dollar 

Throughout the past few years, the topic of drug pricing in the United States has become increasingly controversial. The rise in patient out-of-pocket costs coupled with growing drug spending for plan sponsors has drawn the attention of stakeholders throughout the health care space, along with politicians and the news media.

Everyone is trying to understand the source of rising drug costs. It seems that many suggest changes or point fingers without truly understanding the complexity of the system and the challenges that these intricacies cause for all stakeholders.

Pharmaceutical manufacturers and pharmacy benefit managers (PBMs) take the brunt of the frustration from those who suggest solutions, but they are not the only players in the system. Rising drug costs cannot be mitigated simply by pulling a lever.

Let’s take a deeper look at the flow of the health care dollar through the lens of the manufacturer, wholesaler, specialty pharmacy, PBM, plan sponsor, and patient. Hopefully once we have a better understanding of the way that the system functions, we can work together towards a solution that is mutually beneficial for all stakeholders.

The first important factor to understand about drug pricing is that there is not a single price for a drug. There are two primary prices that can be attributed to a drug before it reaches the patient.
The first price is the wholesale acquisition cost (WAC), which is set by the manufacturer. The WAC represents the list price of the medication for wholesalers and direct purchasers.

Also to note is that WAC does not include any discounts or rebates that the manufacturer may negotiate with these entities. The second price that is attributed to a drug is the average wholesale price (AWP), which is a benchmark that has been used in the industry for more than 40 years.

It was initially intended to be representative of the average price that providers and pharmacies paid to wholesalers for drugs. However, AWP is rarely a true representation of the price that wholesalers are paid for products.

AWP is not a regulated figure and is typically calculated by adding a 20% markup to the WAC. The AWP is calculated and published by pricing publications, such as Medispan. 

Now that we understand the most common published prices for drugs, let’s review the high-level pathway that the drug takes on its way to the patient. To keep it simple, let’s talk about a pathway that includes a manufacturer, a wholesaler, and a specialty pharmacy. 

Once the drug is manufactured, it is purchased from the manufacturer by a wholesaler, who will store the medication in a warehouse until it is ordered. A specialty pharmacy then orders the medication to dispense to the patient. Sounds simple, right? 

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