AWP, WAC & NADAC
Three pricing benchmarks form the foundation of pharmacy reimbursement in the United States. Each measures something different, and the gaps between them create the margin opportunities that drive PBM economics.
Average Wholesale Price (AWP)
AWP is the most commonly used benchmark in pharmacy contracts, despite being widely acknowledged as a fictional number. Often called "Ain't What's Paid," AWP is a published list price that does not correspond to any actual transaction. Manufacturers set AWP by reporting it to pricing compendia like Medi-Span and First Databank. There is no regulatory requirement that AWP reflect actual wholesale prices.
Pharmacy contracts are typically expressed as discounts off AWP. A contract guaranteeing "AWP minus 18%" for brand drugs means the plan pays 82% of the published AWP. Because AWP is inflated, the actual discount relative to true acquisition cost may be quite different from what the contract percentage implies.
Wholesale Acquisition Cost (WAC)
WAC represents the manufacturer's list price to wholesalers before any discounts, rebates, or other price concessions. It is closer to actual transaction prices than AWP but still does not reflect the negotiated prices that wholesalers actually pay. WAC is increasingly used as a reference point in specialty drug pricing and manufacturer rebate calculations.
National Average Drug Acquisition Cost (NADAC)
NADAC is published by the Centers for Medicare and Medicaid Services (CMS) based on a monthly survey of actual pharmacy acquisition costs. Because it reflects what pharmacies actually pay for drugs, NADAC provides the most accurate benchmark for true drug costs. Medicaid programs use NADAC as their primary reimbursement benchmark, and some commercial plans are beginning to adopt NADAC-based pricing.
Why the Gaps Matter
| Benchmark | Reflects | Set By | Accuracy |
|---|---|---|---|
| AWP | Published list price | Manufacturer | Low — does not reflect any real transaction |
| WAC | Manufacturer list to wholesalers | Manufacturer | Medium — pre-discount list price |
| NADAC | Actual pharmacy acquisition cost | CMS survey | High — based on real purchase data |
The difference between what a plan pays (based on AWP discounts) and what the pharmacy actually paid for the drug (approximated by NADAC) is the effective margin in the transaction. PBMs can profit from this gap through spread pricing.