November 9, 2011—It remains to be seen whether 340B providers will share in the potentially record-breaking $3 billion that drug manufacturer GlaxoSmithKline (GSK) agreed in principle last week to pay to settle multiple federal investigations of its pharmaceutical marketing and pricing methods, including a years-old inquiry into its nominal pricing practices.
In a Nov. 3 statement to the media, the company said it expects to finalize the agreement and make payments under it in 2012. The company gave no details about the settlement and the U.S. Justice Department (DOJ) did not issue a statement about GSK’s announcement. It is unclear which of the manufacturer’s drugs are involved in the alleged nominal pricing violations.
Federal law allows drug manufacturers to exclude from their Medicaid best price calculations the prices of drugs sold for less than 10 percent of average manufacturer price (AMP) to 340B covered entities and other nonprofit health care providers. Manufacturers use Medicaid best price to calculate both Medicaid rebates and 340B ceiling prices.
Congress created the nominal price exception to encourage drug companies to continue making their products available to safety net institutions at deep discounts without fear of setting a new, lower best price. The Deficit Reduction Act of 2005 included language that its sponsors said was intended to stop companies from using the exception as a marketing tool.
In 2004, Justice Department officials notified GSK that they were looking into whether the company’s nominal pricing and bundled sales arrangements qualified under the best price exception. The Senate Finance Committee began a similar investigation of GSK and 18 other drug companies that same year and concluded in 2007 that some were improperly using nominal pricing to encourage the use of their products over others. In 2008, DOJ sought documents relating to all of GSK’s nominal pricing arrangements and any possible bundled sales dating back to 1994.
GSK’s settlement will also address its alleged illegal promotion of the lung medication Advair and eight other drugs as well as a separate investigation of its marketing of its diabetes drug Avandia.
In February 2007, drug manufacturer Merck agreed to pay $671 million to resolve charges that it extended nominal prices to hospitals on its cholesterol-lowering drug Zocor and painkiller Vioxx if the hospitals used large quantities of those drugs in place of competitors’ brands. 340B covered entities received more than $9 million in the settlement.
In May 2009, the federal government and 16 states joined in two whistleblower suits against drug manufacturer Wyeth (now owned by Pfizer) alleging that it offered hospitals nominal pricing on the antacid Protonix Oral and reduced pricing on Protonix IV if they bought both products together under a bundled arrangement and attained certain market share requirements. On Nov. 4, attorneys for Wyeth filed motions for summary judgment in its favor on all claims against it in the suit. Earlier this year, federal prosecutors asked the federal district judge in Massachusetts who is hearing the case to set a date for a trial during the first half of 2012.