The Average Wholesale Price (AWP) refers to the average price for a prescription drug purchased at the wholesale level. The US government used to calculate reimbursement rates for Medicare physician-administered drugs (Part B drugs) using the AWP price, however new legislation enacted in 2015 updated the formula to include the Average Sales Price (ASP).
Value-based drug pricing relies on the comparative value of a particular drug to stakeholders, including patients and payers. Under a value-based pricing framework, a pharmaceutical drug can be priced based on health technology assessment (HTA) outcomes, clinical-comparativeness assessments, as well as through pricing and reimbursement agreements that are based on measurable health outcomes.
Most developed countries regulate drug prices through various pricing and reimbursement policies and regulations, with the exception of the United States. In the United States, the pharmaceutical industry operates under a free market, and list prices are not regulated or negotiated.
In the United States, the pharmaceutical industry operates under a free market, and list prices are not regulated or negotiated. However, for certain public programs such as Medicaid and the VA, the federal government has set reimbursement rules that mandate statutory rebates be paid by participating manufacturers in order to ensure that these pubic programs are effectively paying among the lowest net prices for prescription drugs.
Any new pharmaceutical product entering the market for a particular indication will need to be priced, and in some cases also approved for reimbursement before it can be effectively commercialized. In fragmented markets, pharmaceutical companies may need to submit reimbursement applications to multiple private and public payers, however in some countries with a single-payer system, one entity would be responsible for facilitating access to a new product or indication.
Reference pricing is typically used by payers to cap prices or reimbursement rates for a particular drug based on certain comparative criteria. Internal or therapeutic reference pricing incorporates prices for other comparators within that particular market, whereas external or international reference pricing (ERP/IRP) would look at prices for the same product in other markets.
International or External Reference Pricing (ERP) is a framework typically used by payers that ties pricing in a particular market to those for the same product in other markets. Often, countries that use ERP will have a basket of reference countries that they regularly check for prices and will usually rely on a particular formula for applying ERP (ie. taking the median price in the basket of countries).
In order for a pharmaceutical product to be commercially successful, drug manufacturers will need to ensure their product has adequate market access. Several criteria could impact market access including pricing, competition, reimbursement status, health technology assessments (HTAs), supply chain and logistics, among others.