Which AWP did you mean exactly?

In 2005, Congress enacted legislation that changed the way Medicare priced Part B drugs. Average Wholesale Price (AWP) payment methodology was replaced with the Average Sales Price (ASP). The legislation dictated that the roughly 40 or so drugs covered by Part B (mainly physician-administered drugs) be reimbursed at a rate of ASP plus 6 percent. Unlike AWP, ASP uses manufacturer sales information that includes all manner of discounts (i.e. rebates, volume discounts, prompt payment, cash pament, etc.) In 2005 the Office of the Inspector General (OIG) compared ASP and AWP for over 2,000 NDC drug codes. There were some notable differences. For instance median ASP was 26 percent below AWP for sole source brand drugs and a whopping 68 percent less than AWP for generic drugs (See Department of Health and Human Services, Office of Inspector General, Medicaid Drug Price Comparison, Average Sales Price to Average Wholesale Price, Daniel R. Levinson Inspector General, June 2005, OEI-03-05-00200, http://oig.hhs.gov )

Now that ASP is into its third year as a method for pricing Medicare Part B drugs, below is a graph showing the relative difference between Red Book AWP and Medicare ASP for the first quarter of 2008. Consistent with the OIG report in 2005, ASP remains significantly lower (with a few notable exceptions for ‘Low AWP’) overall.



A review of hundreds of payor contracts for the largest commercial payors in almost 30 states revealed several sources commonly used to determine physician administered drug fee schedules. These included 1) Medicare’s ASP rate, 2) Thompson’s Micromedix (Red Book) , 3) First Data Bank (National Drug Data File), 4) Wolter Kluwer Medi-Span Electronic Drug File , and 5) Argus Health Systems (found only with Humana contracts).

In keeping with our interest in reducing fee schedule ambiguity and improving payment accuracy, we’ll explore the benefits of using ASP as a basis for contracting with payors. The first observation is that AWP databases provided by the above vendors provide a range of AWP values for each drug. There is no such thing as a single AWP rate. The typical categories for AWP are ‘Brand’ and ‘Generic’. Within the ‘Brand’ category there will be a further demarcation into ‘Sole Source Brand’ and ‘Multi-source Brand’. In addition, these data bases will add discrete pricing within the category such as ‘Low’, ‘Mean’, and ‘High’. So the typical range of AWP options could grow to; Low Generic, Mean Generic, High Generic, Low Band, Mean Brand, High Brand, Low All, Mean All, High All. Add to this the fact that generic options do not exist for all drugs and you can see that all drug fee schedules are derivatives based on the source database used.

The typical payor contract will use language such as; “Drugs and injectables are allowed at 100% of AWP. AWP is determined using Micromedix and updated quarterly.” Almost never do we see specifics as to which of the various AWP categories is to be used. Given that the range between ‘Low Generic’ AWP and ‘High Sole Source Brand’ could be as much as 1,000%, the financial impact could be significant. Further, if predicting revenue and margin on drugs is important in addition to contract compliance, then specificity is important. As we have said before, ambiguity is expensive.

More common than not the different government and commercial payors with whom the provider has contracted are using different reference data to price drugs. This leaves the provider with two options for policing payment. The first is to subscribe to the data base used by each payor to determine AWP. The alternative is to request the drug rates from the payor each time they are updated. Alternatively, the quarterly updates to ASP are free and easily downloaded from the CMS website. A subscription to one of the common data bases like Micromedix can easily exceed $10,000 annually for just ‘J’ codes. Add another several thousand dollars if you want ‘90xxx’ codes in addition. Another benefit of the ASP data is that it includes more HCPC codes than the AWP data bases. This helps to reduce pricing ambiguity.

There are notable exceptions to drug pricing methods used by payors. For instance BCBS of TX posts quarterly updates to its drug fee schedule. These are ‘off the shelf’ rates based on a proprietary method but are easily obtained. Additionally, their drug fee schedule is more comprehensive than even CMS’s ASP file.

According to the March 2006 issue of SPECIALTY PHARMACY NEWS, commercial payors have certainly taken notice of the price advantage of using ASP vs. AWP. No doubt providers will need to have a strategy to manage arbitrage to a lower ‘authoritative’ price point in the market.

In summary, we believe fee schedule maintenance for drug pricing is best done using Medicare’s ASP fee schedule as a base for negotiation. The advantage of is ease of access, availability prior to effective date, range of HCPC codes covered, and best of all the cost. Determining the appropriate multiple of the ASP rate to make it equivalent to your current plan fee schedule should be a fairly straightforward affair.

There is no such thing as RBRVS…

Yes, the title is an incomplete sentence. The rest of this discussion will complete the thought. Chances are that if you're a physician or work on behalf of a physician's revenue cycle, one of your managed care contracts has language in it that references RBRVS. The most common use of 'RBRVS' in contracting language is for the payor and physician to agree on a % of RBRVS as a fee schedule. Additionally, the parties probably understand this % of RBRVS to mean the payment method used by Medicare. Well, there is no such thing as an 'RBRVS' fee schedule in the Medicare program.

Sure, we all know the history of the Resource Based Relative Value Scale (RBRVS). Passed into law by Congress in 1989 it has been the payment method for professional services. But it is NOT the payment method used for all services paid to physicians under the Medicare program.

If you search the CMS website you won't find 'RBRVS' associated to any fee schedule used to pay physician services. What you will find are terms like:

MPFS - Medicare Physician Fee Schedule
PFS - Physician Fee Schedule
PFS Relative Value Files
PFS National Payment Amount File
National Physician Fee Schedule Relative Value File

All of these descriptions are for payment information that has its basis in the RBRVS methodology. But RBRVS should not be used as a contracting term.

The source that is probably understood to mean RBRVS is really the 'National Physician Fee Schedule Relative Value File'. So, out of the 5 letters in the RBRVS acronym, only 2 really match the actual payment file used to calculate the fee schedule. In fact, most physician practices will bill for services from the four (4) main Medicare fee schedules used to pay physician groups. They are:

• National Physician Fee Schedule Relative Value File


• ASP Drug Pricing


• Clinical Laboratory Fee Schedule


• Durable Medical Equipment, Prosthetics/Orthotics, and Supplies Fee Schedule

Why does this semantic discussion matter? Well here are some reasons based on our implementation of contract language.

One of the most common codes billed for in office lab work is 36415 (Routine venipuncture). The MPFS fee schedule has 0 RVU's for this service and using the MPFS fee schedule you will get $0 as the fee. However, the Medicare Clinical Laboratory Fee Schedule does have a flat dollar payment amount for 36415 (@ $3.00).

So, if you have a rate of 150% of RBRVS, what is the payment amount for 36415? Ask the payor, the person who negotiated the contract for the physician, and the reimbursement analyst for the physician and you're likely to get as many answers. Taken literally, the only RBRVS fee schedule that I know of is 'Ingenix Essential RBRVS'. Interestingly, the Ingenix Essential RBRVS file shows 0.7 work RVU's and using the Ingenix file you can calculate a rate greater than $0. (but Medicare does not follow Ingenix). Now we all understand that Ingenix Essential RBRVS is almost never the RBRVS that the payor and the physician had in mind. Add to this the fact that RBRVS is commonly mis-understood to mean ANY Medicare payment amount found in one of the four Medicare fee sources I mentioned above and you understand quickly why you should avoid the use of RBRVS.

The bottom line is that when it comes to negotiating a fee schedule, ambiguity is expensive. Don't use % of RBRVS in any fee schedule agreement. Be specific. We are fans of using the four Medicare fee schedules as a basis. (Public access to the 13,000 plus codes, easy to compare notes between payor and physician, physician's tend to know their primary Medicare rates well, etc.) Pick the year (preferably within one or two years of current to insure a current HCPC code set), and the locality (Medicare Drug schedules are not locality specific).

The language would look like this:

150% of Medicare National Physician Fee Schedule Relative Value File for 2007 California, Locality 99 effective 12/31/2007.
150% of Medicare ASP Drug Pricing effective 12/31/2007.
150% of Medicare Clinical Laboratory Fee Schedule for California effective 12/31/2007.
150% of Medicare Durable Medical Equipment, Prosthetics/Orthotics, and Supplies Fee Schedule for California effective 12/31/2007.

If a rate is found in more than one of the above schedules, the highest rate shall apply.
For any valid HCPC code billed that is not found in one of the above schedules, or does not have a rate > $0 in any of the above schedules, the fee shall be 80% of the billed charges.