February 01,2007

Baucus, Grassley Offer Findings on Medicaid Drug Pricing As CMS Prepares To Implement New Rule

Senators’ three-year investigation found misuse of “nominal pricing” provision

Washington, DC – U.S. Senators Max Baucus (D-Mont.) and Chuck Grassley (R-Iowa) today released the findings of a nearly three-year inquiry into the pricing practices used by a number of major U.S. drug companies in the Medicaid Drug Rebate Program. The Senators have determined that some drug companies inappropriately used a “nominal price exception” in the rebate program, thereby manipulating the “best price” of drugs as reported to the government and used to calculate the amount of rebates drug companies must offer. The loophole allowing companies’ too-broad use of nominal pricing was closed by a provision in the Deficit Reduction Act (DRA) of 2005. CMS proposed a regulation last month to implement the DRA provision. The Senators are sharing their findings with Acting CMS Administrator Leslie Norwalk to assist CMS in rulemaking.

“We’re working together to get health care and medicines to Americans in need, and drug companies need to play by the rules,” Baucus said. “The law that closes the nominal pricing loophole must be implemented fully, to make sure Medicaid works as well as it can for beneficiaries and for every American taxpayer.”

"Our findings underscore the importance of the action taken last year by Congress to limit nominal pricing to federally-defined safety net providers. With the new limits on the exception, there's no more opportunity for the kind of 'interpretation' that was going on by drug companies who were using this loophole as a marketing ploy," Grassley said. "Going forward, Congress and the executive branch need to continue working to safeguard the integrity of drug programs on behalf of both beneficiaries and taxpayers."

To participate in the Medicaid Drug Rebate Program, a drug company must report to the government its best price, which is the lowest price its drug was sold to any purchaser in the United States. Congress created an exception to best-price reporting to encourage drug companies to continue making drugs available to charitable organizations at cheaper than market rates. This exception for charitable purposes is called the “nominal price exception.” Grassley and Baucus investigated to determine whether pharmaceutical companies used the exception more broadly than Congress intended.

The Senators began their inquiry in April 2004 by requesting information from 19 drug manufacturers on their use of the nominal price exception to the best price reporting requirements of the Medicaid Drug Rebate Program. The companies were Pfizer, Inc., GlaxoSmithKline, Johnson & Johnson, Merck & Co., Inc., AstraZeneca Pharmaceuticals LP, Bristol-Myers Squibb Company, Novartis Pharmaceuticals Corporation, Amgen, Inc., Wyeth Pharmaceuticals, Eli Lilly & Company, Aventis Pharmaceuticals Inc., Abbott Laboratories, Hoffmann-La Roche Inc., TAP Pharmaceutical Products, Inc., Forest Pharmaceuticals, Inc., Sanofi-Synthelabo and Eisai, Inc. All 19 companies provided the Committee with information about their pricing practices during the inquiry, which continued through 2005.

The Senators have requested that Acting Administrator Norwalk contact them by February 15, 2007, to further discuss implementation of the DRA provision. Baucus and Grassley are Chairman and Ranking Member, respectively, of the Senate Finance Committee, which has jurisdiction over the Medicaid program. The text of their January 31 letter and findings is attached and can be found on the Finance Committee website at http://finance.senate.gov/sitepages/baucus.html.

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