Pharmaceutical Companies' Nominal Pricing Practices Facing Growing Scrutiny

Main Category: Pharma Industry / Biotech Industry
Article Date: 29 Apr 2005 - 10:00 PDT


A practice in the pharmaceutical industry of providing steep discounts on medications to some hospitals without informing Medicaid of the price reduction is coming under increasing scrutiny by attorneys, lawmakers and regulators, the... Wall Street Journal reports. Under federal law, pharmaceutical companies are required to give Medicaid the best price on medications that they offer to any customer. An exception to the law stipulates that products sold at a discount of 90% or more need not be disclosed to the government or included in the best-price calculation. The exception is intended to allow pharmaceutical companies to provide charitable organizations with inexpensive medications. However, several recent legal actions and investigations are targeting a practice called nominal pricing, in which companies are discounting prices by 90% or more to hospitals in exchange for guaranteed market share levels. The discounts have not been offered to Medicaid.

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One lawsuit against Merck unsealed this week alleges that the company discounted prices by 92% for the cholesterol medication Zocor and the painkiller Vioxx to hospitals that increased usage of Zocor to 70% of cases and Vioxx to 80% of cases. In the lawsuit, filed in the Second Judicial District Court for Nevada, the plaintiffs said that Medicaid should have been offered the same discounted prices on Zocor and Vioxx because they were being given for commercial instead of charitable reasons. A second lawsuit against Merck, filed in the U.S. District Court for the Eastern District of Louisiana in New Orleans, alleges that from the mid-1990s through 2001, patients were routinely switched from the less-expensive acid-reflux medication Zantac to Merck's more expensive medication Pepcid because hospitals were offered discounts on Pepcid that Medicaid did not receive. The Department of Justice is considering whether to join the case. A spokesperson for Merck said the company "believes that all of its pricing practices are consistent with the law and that it can't comment on a lawsuit it hasn't seen." Meanwhile, GlaxoSmithKline disclosed in March that the DOJ had subpoenaed the company for information on its own nominal-pricing policies. A GSK spokesperson declined to comment. In addition, the Senate committee that oversees Medicaid recently stepped up an ongoing inquiry into the practice, according to the Journal (Martinez, Wall Street Journal, 4/28).

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