Nominal prices come under scrutiny

June 20, 2005

State and federal regulators are beginning to question discounts greater than 90% on drugs used in hospitals. The practice, called nominal pricing, could affect drug prices paid by Medicaid.

State and federal regulators are beginning to question discounts greater than 90% on drugs used in hospitals. The practice, called nominal pricing, could affect drug prices paid by Medicaid.

"Nominal pricing is a real can of worms," said David Chen, R.Ph., who directs ASHP's section of home, ambulatory, and chronic care practitioners. "A healthy percentage of facilities make use of nominal pricing. It can have a significant impact on the hospital drug spend for certain products. But the real goal is to drive market share for a specific product, including market share outside the hospital itself."

Only seven or eight manufacturers offer nominal prices, usually on just one or two products each, said Larry McComber, VP of contract and program services for hospital buying group Novation.

When Celebrex (celecoxib, Pfizer) topped 25% of the in-house market, KUMC lost the nominal pricing for rofecoxib. The result, noted a pharmacy and therapeutics committee report, was a jump in pharmacy cost for rofecoxib from 17 cents per dose to $2.25 per dose.

At the Medical University of South Carolina (MUSC), nominal pricing on seven products saved pharmacy an estimated $116,800 for fiscal year 2004. That was just over one-half of 1% of $2 million in savings from all manufacturer rebate and discount programs. "Manufacturers use [nominal pricing] very selectively," said Paul Bush, MUSC director of pharmaceutical services. "The goal is to get a patient on a particular product before he or she moves back into the community."

McComber agreed. "Most of the drugs involved are oral solids that are more suited to the ambulatory setting than to the hospital inpatient setting," he said. "It is logical to believe that patients might continue on a particular drug once they leave the hospital."

At least two states, Nevada and Louisiana, have sued Merck over nominal pricing for that very reason. Both states contend that nominal pricing violates a 1990 federal law requiring manufacturers to give Medicaid the lowest price, usually called the "best price," offered to other buyers, including hospitals and managed care organizations.

Nevada cites a 92% discount Merck gave to hospitals around the country on purchases of Zocor (simvastatin) and rofecoxib. The simvastatin discount was based on a 70% market share of statin orders, which would come largely at the expense of Lipitor (atorvastatin, Pfizer). Rofecoxib discounts were based on an 80% share of COX-2 orders.

The Louisiana attorney general's office made similar charges over nominal pricing for Pepcid (famotidine, Merck) from the mid-1990s through 2001. The state claims that nominal prices induced hospitals to switch patients from lower-cost Zantac (ranitidine, GlaxoSmithKline) to famotidine. Merck reportedly sold famotidine to hospitals for 10 cents per tablet but charged Medicaid $1.65 per pill. Both states claim that not including nominal prices offered to hospitals in computing their best price allowed the drugmaker to overcharge Medicaid by millions of dollars.

Defenders counter that nominal pricing is excluded by statute from best-price calculations. States say the nominal pricing exclusion applies only to sales for charity or research use, not to unrestricted or market share-based sales.

The plaintiffs, the two states, and Merck would not discuss the cases.

The federal Department of Justice is considering whether to join the Louisiana case.

The Government Accountability Office is also stepping into the pricing fray. A February report slammed the Centers for Medicare & Medicaid Services for failing to properly oversee best prices quoted by drugmakers.