The First DataBank/Medispan/McKesson litigation settlement is finally coming home to roost. The impact begins with the scheduled change in Average Wholesale Price (“AWP”) benchmarks occurring imageon September 26, 2009. For prescription drug plan sponsors, it presents a potential opportunity to sit down with your PBM and renegotiate your cost structure (

Of course, that’s the last thing that PBMs want you to do. They much prefer that a plan sponsor simply accept their seemingly benign language to accommodate a “business as usual” continuity. We believe it should be anything but status quo.

Let’s revisit the settlement: First DataBank and Medispan publish AWP. McKesson, the country’s largest drug wholesaler, had inflated the price by adding 25% rather than their practice of adding 20% to Wholesale Acquisition Cost (“WAC”). The selement calls for AWP to be reduced so the markup will be no greater than WAC plus 20%. This should mean a reduction in cost to the plan sponsor.

But, not so fast! Many PBMs business models are built on creating pricing spreads between what they must pay wholesalers for drugs and what they bill plan sponsors. Their margins are dependent on these spreads, so any reduction in baseline cost to the plan sponsor without a corresponding reduction in their wholesale price erodes the PBMs margins!

That’s why most of the PBMs have included language in their contracts that addresses a change in AWP or the use of an alternative pricing benchmark. Their language calls to maintain the “original economic intent” of their agreements. WBC asks “Who’s original economic intent?” We thought the PBM’s job was to reduce the plan sponsors cost. In our opinion, any changes that create cost savings to the plan sponsor should belong to the sponsor not inure to the benefit of PBM shareholders.

In order to maintain the status quo, most PBMs are suggesting that adjustments be made to reduce the pricing discounts in their contracts so that the net result is cost-neutral to themselves and their clients. This may mean that an AWP-16% discount might become AWP-14.5%, for example.

Some plan sponsors may feel these adjustments are fair and reasonable. On the other hand, it may present an opportunity to re-think the basic business model deployed by your PBM and whether their business goals are aligned with yours. The questions of real transparency, acquisition-cost pricing and direct contracting are much bigger issues and have vastly greater savings impact than just an adjustment in AWP markup.

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