What is NADAC & How Does It Differ From AWP?

Despite continuous calls to lower prescription drug prices, it seems that they only increase month after month and year after year. On any given day, you’re bound to see news stories centered on legislation and policies enacted to bring prices down.

Why do drug prices keep going up for patients? If you follow how most PBM and employer contracts are written, which is likely the price you pay for your prescriptions are determined through your benefits, you’ll discover that the prices are based on a benchmark of Average Wholesale Price (AWP). But, what if we tell you there's a better, more reliable price index? It's called National Average Drug Acquisition Cost (NADAC). This article covers everything you need to know about NADAC and how it differs from AWP.

What is Average Wholesale Price (AWP)?

AWP is an artificial number that is generally highly inflated from the manufacturer’s price and can be compared to the “list price” or “sticker price” of a drug. Think of it like the MSRP at a car dealership – no one ever pays the list price.

Traditional PBM contracts are written around validating false guarantees based an average discount off an AWP list price measured over the course of a year. These discounts are applied to buckets of claims that can be easily manipulated, allowing traditional PBMs to fluctuate prices by moving drugs into different buckets to generate margin opportunities.

We can compare the prescription drug market to shopping at a grocery store where every aisle has a different discount applied to the items on their shelves. But you don’t get to see the prices of the items until you check out, the items can also move between aisles at any time and the prices change for each customer in the store.  Imagine buying groceries and all you had was a long document describing the different costs, instead of actual prices?

  • There are no listed prices until you check out → annual effective rates
  • Items move between aisles at any time → drug re-classification
  • Prices change for each customer → multiple MAC lists
  • “Pay-to-play” for putting products on the shelves -> pharma rebates

What Is National Average Drug Acquisition Cost (NADAC)?

NADAC was jointly developed by the Center of Medicare and Medicaid Services (CMS), and it calculates the average price that pharmacies pay for prescription drugs. This average price value is used as a standard for the supply and demand of prescription drugs, and it involves the use of invoice prices paid by retailers, rather than a fabricated and inflated value that does no good for patients. Moreover, NADAC can be accessed through a public website, which means that PBMs should have no trouble in referencing it.

NADAC provides more transparency and insight into drug spending and pricing, making it the obvious choice for PBM contracts. Moreover, it is updated on a weekly basis by CMS, which means that it can be used to represent the patients’ wellbeing and pharmacy benefits in a better way than AWP.

Comparing AWP & NADAC

If you put AWP side-by-side with NADAC, you can clearly see that the former doesn’t do much to reduce drug pricing or increase rebates and reimbursements for patients. Referring to the Generic Drug Price Index for 2015 to 2020, it can be clearly seen that the AWP unit prices have stayed stagnant, and have also increased 1%.

On the other hand, the drug prices based on NADAC have significantly decreased over the past five years. Rather, the prices have been decreased by more than half, which clearly shows why NADAC should be used as the benchmark for PBM contracts. This is why it is all the more appalling why PBMs continue to prefer AWP.

While PBMs continue using Average Wholesale Prices for generating contracts that don’t benefit the common man, we at Capital Rx strive to change the way prescription drugs are priced for patients. Our study with 3 Axis Advisors clearly state that billions of dollars can be shaved of prescription drug prices if NADAC is used. You can get in touch with us to find out more about NADAC and how we use it in our Clearinghouse Model.

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