AWP vs. WAC: What’s the Difference?

Prescription drug access and pricing in the US has reached a tipping point. Pharmaceutical prices in the US are 2.78x higher on average compared to 33 other countries (4.22x higher for brand-name drugs). Employers are struggling to lock down healthcare coverage that doesn’t cost their bottom line, while still providing employees access to the treatments they need.

A major factor driving up the cost of prescription drugs is how PBMs negotiate prices and their level of transparency.

What Does Average Wholesale Price (AWP) Mean?

Often referred to as the “sticker price” of prescription drugs, the Average Wholesale Price (or AWP) is a benchmark figure that represents the average price at which wholesalers sell drugs to pharmacies and other providers. But it’s not a true reflection of what anyone actually pays for medications; instead, it serves as a starting line for negotiations.

AWP was originally intended to act as a standard for drug pricing, making it easier for buyers to compare costs. Over time, however, AWP has become more of a reference point than an actual price ledge. Because it can be easily manipulated by manufacturers and PBMs, AWP is often criticized for being an inflated and inaccurate benchmark—PBMs might negotiate discounts off the AWP, for example, but these discounts are often based on artificially high prices, leading to higher overall costs. 

It’s an ongoing cycle. When PBMs focus on reimbursement rates tied to the AWP, manufacturers sometimes have to respond accordingly to meet the contract demands, and will sometimes inflate or mark up the AWP further to ensure they can cover costs. In the end, it’s the legacy PBMs who come out on top, enjoying the extra profit that comes their way, while driving up drug costs for employers and patients alike.

What Does Wholesale Acquisition Cost (WAC) Mean? 

The Wholesale Acquisition Cost (WAC) is the list price set by pharmaceutical manufacturers for wholesalers and direct purchasers. Unlike AWP, WAC is the price before any discounts, rebates, or other markups are applied. It serves as a true baseline price from which further negotiations can take place.

WAC is considered the most common benchmark for wholesalers. It’s generally considered a more reliable benchmark than AWP because it reflects the manufacturer's initial pricing. While WAC provides a clearer picture of initial drug costs, it’s still not the final price paid by employers or patients, because of various factors that will alter the final cost, like rebates and discounts.

What’s the Difference Between AWP and WAC? 

As described, AWP and WAC are two different sets of drug prices used by different roles in the pharmaceutical process. WAC is the baseline price manufacturers provide to wholesalers, and AWP is the published drug price that wholesalers provide to retail pharmacies and other providers. 

While it’s useful to have an industry standard for pricing, AWP comes under particular scrutiny because of how inaccurate it is as a universal benchmark, and how easy it is to manipulate the numbers. 

In the event that you need to convert WAC to AWP—a common practice in the industry to estimate costs—the formula typically used is:

AWP = WAC x 1.2 (or a 20% markup)

This formula is not fixed and can vary, but it gives a general idea of how AWP is derived from WAC.

Looking at National Average Drug Acquisition Cost (NADAC)

Drug pricing can be convoluted and confusing, especially if PBMs have the power to influence and inflate AWP. As a result, other pricing models have been developed, such as the national average drug acquisition cost (NADAC). This pricing benchmark uses the average price pharmacies pay for medications — it’s based on surveys of actual invoice prices that retail pharmacies have voluntarily submitted to the Centers for Medicare and Medicaid Services (CMS).

NADAC is also publicly available information and is calculated and updated every week by CMS. While NADAC helps to answer the question of what the pharmacy paid for the drug and increases transparency, as with any pricing benchmark, there are some limitations as it is a self-report survey that retail pharmacies can submit to CMS. Large major retail pharmacy chains (i.e., CVS) rarely report, which can lead to an artificially “inflated” price since the large retail chains have the purchasing power to negotiate lower drug acquisition costs compared to small independent pharmacies. Since mail order and specialty drugs are not included in the NADAC calculation, the published data set does not include all drugs available on the market.  

Save More on Prescription Drug Costs

Pricing benchmarks are confusing, even though the concepts themselves seem simple. The reality is that uncovering how much a pharmacy really paid for a drug is complicated. Even the limited standardization in prescription drug pricing can’t guarantee costs are consistent, accurate, or authentic.

At SmithRx, we focus on finding the lowest drug price possible. We use a transparent per member, per month (PMPM) model that avoids sketchy practices like spread pricing in favor of pass-through PBM savings. We’ve also partnered with Mark Cuban’s Cost Plus Drugs to make drug pricing easy to understand and more affordable. 

If you want to start saving big on prescription drug costs, learn more about how SmithRx can help reduce drug spending.