Dear __________ :
The U.S. Senate Committee on Finance (Committee) has jurisdiction over the Medicare and Medicaid programs, and accordingly, a responsibility to oversee the proper administration of those programs which provide health care coverage to more than 80 million Americans. During this legislative session, the Committee intends to study issues relating to these programs’ coverage of prescription drug benefits, including pricing practices that could have an impact onthe cost to taxpayers of purchasing prescription drugs. As Chairman and Ranking Member of the Committee, we ask that ____________ cooperate with the Committee and provide it with information regarding these matters as requested.
In recent years, the cost to Medicaid of purchasing prescription drugs is growing faster than anyother single area of the program. As a result of this and tight fiscal constraints, states have beenreducing prescription drug benefits; between 2001 and 2004, 45 states reduced drug benefitsunder Medicaid. Considering that prescription drugs are now an integral part of quality healthcare, such reductions in benefits may be detrimental to the health of Medicaid beneficiaries.Congress has revisited payment for prescription drugs under Medicaid several times to ensurethat federal and state taxpayers are not generally paying more for drugs than hospital buyinggroups, health maintenance organizations, pharmaceutical benefit managers, or other purchasers.
In 1990, Congress created the Medicaid drug rebate program, which requires any drugmanufacturers seeking reimbursement for prescription drugs from state Medicaid programs toenter into a rebate agreement (Medicaid Rebate Agreement) with the Secretary of Health andHuman Services (HHS) under which the manufacturer promises to pay a rebate for each coveredoutpatient drug paid for by Medicaid. The rebate formula is established in section 1927 of theSocial Security Act (the Act) and, for single source drugs and innovator multiple source drugs,generally is either the difference between the average manufacturer’s price (AMP) for that drugand the best price at which the drug was sold to a purchaser (Best Price), or a minimumpercentage of AMP, whichever is greater. In determining and reporting the statutory Best Price,drug manufacturers must take into account all cash discounts, free goods contingent on apurchase requirement, volume discounts, and rebates provided to covered purchasers.
When the rebate requirement was enacted, Congress created an exception to determining the BestPrice for drug sales involving prices that were merely nominal in amount (Nominal PriceException/NPE). Congress was trying to address a particular concern in establishing the NominalPrice Exception; namely, to ensure that manufacturers did not have an incentive to terminatesteep discounting practices designed with charitable intent to promote access to medication forlow-income or other populations for which access might be limited. The Centers for Medicareand Medicaid Services (CMS) has defined the Nominal Price Exception to include prices that are10 percent or less of AMP for the drug in the same quarter for which AMP was computed, as isincluded in your company’s Medicaid Rebate Agreement. However, notwithstanding thisCongressional intent, we understand that some drug manufacturers may be using the NominalPrice Exception as part of their commercial pricing practices. These practices could underminethe purposes of the Medicaid Best Price policy and may be costing taxpayers hundreds ofmillions of dollars through reduced Medicaid rebates.1
The Committee wants to assess how frequently the Nominal Price Exception to Best Pricereporting is used, in what contexts, and for what purposes. This will assist us in determiningwhether and to what extent the exception has been used to promote access to prescription drugsas intended by Congress and whether refinements should be made to the existing statutorylanguage to ensure that the Nominal Price Exception is not used for purposes other than thoseintended. In order to ensure that the Committee has sufficient information on which to base itsdeterminations, we are inquiring about drugs in the eight most popular classes to thosemanufacturers that ranked among the top twenty according to sales in 2003. Therefore, asChairman and Ranking Member of the Committee, we request that your company provide thefollowing information and data to the Committee:
1. Provide an executed copy of your company’s most recent Medicaid RebateAgreement with the Secretary of Health and Human Services.
2. Provide a copy of the assumptions used by your company in determining BestPrice, in accordance with the terms of manufacturer’s responsibilities under section IIof your Medicaid Rebate Agreement.
3. Identify the person(s) and/or agent(s) (including, name, title and contactinformation) within or affiliated with your company who is/are currently responsiblefor calculating, determining, generating, reporting and maintaining the quarterlyMedicaid rebate program data for your company, including but not limited to AMPand Best Price.
4. Identify the person(s) and/or agent(s) (including, name, title and contactinformation) within or affiliated with your company who is/are currently responsiblefor ensuring compliance of reported quarterly data for the Medicaid rebate programwith appropriate laws and program directives.
5. Identify the person(s) and/or agent(s) (including, name, title and contactinformation) within or affiliated with your company who is/are currently responsiblefor authorizing, developing, implementing, and/or monitoring any marketing or salesprograms in which sales of covered outpatient pharmaceuticals are made at pricesconsidered to be "merely nominal" under section 1927 of the Act.
6. State whether your company has a formal, written policy with respect to sales ofcovered outpatient drugs at prices considered to qualify for the Nominal PriceException, or if your company relies on an unwritten policy. To the extent a writtenpolicy exists, attach copies, including all versions and revisions of the policy since itsinception. To the extent an unwritten policy exists, describe it in detail, including butnot limited to describing any criteria used in authorizing, developing, implementingand/or monitoring any marketing or sales programs in which sales of coveredoutpatient drugs are made at prices considered to qualify for NPE.
7. In accordance with your company’s response to #6 above, describe the factors andcircumstances your company takes into account when determining whether sales ofcovered outpatient drugs should be made at prices that are considered to fall withinNPE. For example, what factors does your company take into account whendetermining who may purchase covered outpatient drugs at a "merely nominal" price?What type(s) of entities purchase drugs at prices that are "merely nominal?" Are notfor-profit entities the exclusive recipients of a "merely nominal" price? Under whatcircumstances may for-profit entities purchase covered outpatient drugs for a "merelynominal" price?
8. What types of contractual arrangements govern your company’s drug sales that fallunder NPE? For example, what contractual terms or conditions does your companytypically and/or commonly include in transactions for drugs sold under NPE? Must apurchaser meet a certain market share percentage requirement for a drug or class ofdrug as a condition to obtaining a "merely nominal" price? Does your company evermake drug prices under NPE transactions available for only one quarter or do theytypically have longer duration? Does your company ever condition the sale of anydrug at a "merely nominal" price on an agreement to purchase more of that drug orother drugs? If so, explain the details and circumstances.
9. For each of the drugs listed below, provide the number of units sold at prices withinNPE. For each single source and innovator multiple source drug, provide therequested information broken down by quarter, and by applicable 11-digit NationalDrug Code (NDC), for the 12 most recently completed quarters as of the date of thisrequest. In addition, provide the percentage of each drug that was sold under NPE foreach of the same 12 quarters. For those drugs that are no longer single source as of thedate of this request, also provide the requested information (both the number of unitsand the percentage) broken down by quarter, and by applicable NDC, for at least eightquarters prior to the drug status change from single source.
10. For each drug listed in #9 above, and for the same quarters, provide the totalnumber of units sold at prices that were included in the determination of Best Price,i.e., at prices that were above "merely nominal" prices. In addition, provide thepercentage of the drugs that were sold at prices that were included in thedetermination of Best Price for each of the quarters.
11. For each drug listed in #9 above, and for the same quarters, calculate the averageunit price for all sales that were considered within NPE. Then calculate and report thepercentage below Best Price that average unit price is.
12. For each drug listed in #9 above, and for the same quarters, identify each nonexcludedpurchaser that bought a drug at a price within NPE in one of the quartersand paid above NPE price for the same drug in another quarter(s) during the timeperiod for which your company provided responses for that drug.
13. Identify any drug not previously identified in this request, that your company soldat a price within NPE, i.e., at a price that was "merely nominal," during the 12 mostrecently completed quarters as of the date of this request.
Please provide the information and documents requested in questions 1 through 8 by May 17,2004. For questions 9 through 12, provide the requested information for the most recent fourquarters by May 17th, and the remaining quarters by June 7, 2004, unless it is availablesooner. In complying with this request, respond by repeating the enumerated request,followed by the accompanying response; attach and identify all relevant documents or data bytitle and the number(s) of the enumerated request(s) to which they are responsive. Finally, incomplying with this request, _____________ means its corporation, or one or more of itsdivisions, subsidiaries or affiliates, or related entities, including any other companies orcorporations with which _____________ entered into a partnership, joint venture or any otherbusiness agreement or arrangement.
1. The HHS Office of Inspector General has warned that drug pricing practices in the privatesector may nonetheless have significant effects on federal programs:
Discounting arrangements are prevalent in the pharmaceutical industry and deservecareful scrutiny particularly because of their potential to implicate the Best Pricerequirements of the Medicaid Rebate Program. Because the Medicaid Rebate Programin many instances requires that states receive rebates based on the Best Price offeredby a pharmaceutical manufacturer to other purchasers, manufacturers have a strongfinancial incentive to hide de facto pricing concessions to other purchasers to avoidpassing on the same discounts to the states. Because of the potential direct andsubstantial effect of such practices on federal health care program expenditures andthe interest of some manufacturers in avoiding price concessions that would triggerrebates to the states, any remuneration from a manufacturer to a purchaser, howevercharacterized, should be carefully scrutinized.
OIG Compliance Program Guidance for Pharmaceutical Manufacturers, 68 Fed. Reg. 23,731,23,735 (2003).
Sincerely,
Charles E. Grassley Chairman
Max Baucus Ranking Member
Source: Ranking Member’s News
