Bye Bye AWP

The Wall Street Journal’s lead story on Friday was a fascinating report on the tentative settlement of a lawsuit against First Databank, the Hearst subsidiary that publishes the most popular pharmaceutical Average Wholesale Price (AWP) list. Prescription benefit managers (PBM) often use this list to price brand name drugs for their health plan customers. The Wall Street Journal quips that AWP also means ain’t what’s paid or as Kramer put it on Seinfeld “only suckers pay retail.”

The lawsuit being settled was brought by the New England Carpenters Health Benefits Fund and AFSCME District Council 27 Health and Security Plan in the federal district court in Boston. The lawsuit alleges that First Databank and the drug wholesale McKesson conspired to crank up the AWP prices in 2002 using on a “survey” of only one wholesaler — McKesson. (McKesson has denied any liability, but the plaintiff’s lawyers are continuing to pursue McKesson.)

Under the settlement, without conceding liability, First Databank agrees to reduce many of its AWP prices by 4% and to phase out publishing its AWP listing in 2008. An economist hired by the plaintiffs’ lawyers reportedly projected that this settlement will produce $4 billion in prescription drug cost savings for health plans and Medicaid in 2007. The tentative settlement report negatively impacted the stock prices of pharmacies, drug manufacturers, drug wholesalers, and prescription benefit managers on Friday. A federal judge in Boston must approve the tentative settlement before it can become final and binding.

CVS, the major pharmacy chain, already is fighting back with an announcement that it will negotiate higher fees.