Glossary

What is Average Wholesale Price (AWP)?
AWP is the average price at which drugs are purchased at the wholesale level.  It is primarily used to determine pharmacy reimbursement. Its relevance is limited primarily to brand name drugs. The use of AWP with generic drugs is only to increase the spread between what the pharmacy is paid and what the employer is billed.

What is “the spread”?
The spread is the difference between what PBMs charge employers for prescription drugs and what the PBMs actually pay the pharmacy.  The higher the difference between the two, the more profit the PBM makes.

What is Maximum Allowable Cost (MAC)?
MAC is an arbitrary number determined by the PBM to determine pharmacy reimbursement and employer cost. MAC is not the same for the employer and pharmacy. PBM uses the spread between the two numbers to inflate employer cost

What is a PBM?
Pharmacy Benefit Managers (PBMs) are third party administrators for prescription drug programs that negotiate drug prices with manufacturers and handle the exchange of money between pharmacies and health plan enrollees (employees of private companies and government agencies as well as those on welfare programs). The three largest PBMs are Medco Health Solutions, Express Scripts and CVS Caremark.

What is a rebate?
Rebates are incentive dollars given by brand name manufacturers to the PBMs to drive market share to their drug. Rebates result in increased costs for both employer groups and consumers.  Employers get a small portion of the rebate, if any at all. PBMs keep the rest. This results in higher costs in the long run for all drugs and all payers (consumers and employers).

What is MMO?
Mandatory Mail Order (MMO) is an increasingly common tactic employed by PBMs to secure larger market shares. MMO requires enrollees to order 90-day supplies of maintenance medications (drugs taken for extended periods of time to treat chronic conditions) directly from pharmacies owned or contracted by PBMs, rather than stores in the local community.