Some pharmaceutical companies have been improperly manipulating a feature of the Medicaid Drug Rebate Program (MDRP) which was designed to encourage them to make drugs available to charitable groups at cheaper than market rates, according to an inquiry conducted over nearly three years by leaders of the US Senate Finance Committee.

Drugmakers wanting to take part in the MDRP must report to the government their “best price” – the lowest price at which a drug is sold to any purchaser in the USA – but, in order to encourage charitable purchases, Congress also created a “nominal price exception” (NPE) to best-price reporting. However, Committee chairman Max Baucus (Democrat) and ranking member Chuck Grassley (Republican) say they had become concerned about the consequences of companies using the NPE as a marketing tool, which included driving up best prices and lowering the amount of rebates which manufacturers pay US states for Medicaid drugs. Therefore, in April 2004 they began an investigation to determine whether companies were using the exception “more broadly than Congress intended.”

They have now reported the findings of their study, for which they sought information from 19 pharmaceutical companies on their use of the exemption, and they say these show that:

- most manufacturers surveyed used the NPE “inconsistent with Congressional intent;”

- most manufacturers’ policies did not reflect use of the NPE for charitable purposes;

- most manufacturers used the NPE for products in the best-selling classes of drugs;

- hospitals appeared to be the primary recipients of nominal pricing;

- most manufacturers did not differentiate between for-profit and not-for-profit entities when offering nominal pricing;

- a charitable purpose was rarely a factor considered by manufacturers in deciding to offer nominal pricing;

- manufacturers’ nominal pricing agreements frequently included market share requirements; and

- manufacturers’ overall use of the NPE appears to have declined from 2003 on.

The senators have sent their findings to Leslie Norwalk, acting Administrator for the Centers for Medicare and Medicaid Services (CMS), asking him to respond by February 15. On December 16, 2006, the CMS proposed a rule to enact the measures included in the FY 2006 budget reconciliation law to stop drugmakers using the NPE improperly, but the senators tell Mr Norwalk that the proposed rule does not currently give the Health and Human Services Secretary the full authority which Congress intended.

“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,” said Sen Baucus. Sen Grassley added that this would ensure "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.”

“Congress most certainly did not intend for manufacturers to use the NPE as a marketing tool” but, based on their findings, the senators tell Mr Norwalk: “we share CMS’s concern that nominal pricing may continue to be used” in this way.

- The companies contacted by the senators – all of which provided information about their pricing practices – were Pfizer, GlaxoSmithKline, Johnson & Johnson, Merck &Co, AstraZeneca, Bristol-Myers Squibb, Novartis, Amgen, Wyeth, Eli Lilly, Abbott Laboratories, Roche, TAP, Forest Pharmaceuticals, Sanofi-Aventis and Eisai Lynne Taylor