Proposed Rule Aims to Make Drug Pricing More Transparent

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A proposed requirement to display drug list prices in advertisements draws controversy.

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$939.71.That is the list price for a one-month prescription for Abilify, a brand-name drug primarily used to treat schizophrenia and bipolar disorder.

Under a proposed rule recently published by the U.S. Department of Health and Human Services (HHS), $939.71 is also the price that would appear on the television screen during an Abilify advertisement.

Seeking to enhance pricing transparency, the proposed rule would require television commercials for any Medicare- or Medicaid-covered drug selling for more than $35 to display the list price of a thirty-day supply.

HHS Secretary Alex Azar touts this proposed measure as a step toward lower medical costs. By requiring manufacturers to display drugs’ list prices during television advertisements, consumers will be better equipped to make choices about their health care, which in turn will put pressure on manufacturers to lower prices or at least prevent them from rising.

In fact, Azar compares the measure to the Automobile Information Disclosure Act (AIDA), a law passed by the U.S. Congress in 1958 that requires car manufacturers to apply stickers displaying, among other items, a vehicle’s list price. The ultimate goals of AIDA were to explain and justify the cost of a vehicle to the consumer as well as promote healthy competition in the auto retail market. Secretary Azar contends that the proposed rule would do for drug pricing what AIDA has done for auto sales. On the other hand, critics of the proposed rule, including pharmaceutical manufacturers, dispute the analogy to AIDA.

Secretary Azar insists otherwise. He notes that Medicare enrollees are required to pay a percentage of drugs’ list prices. And other patients who are enrolled in high-deductible health plans—reportedly over 40 percent of the United States’ population—must pay the full list price during the deduction period.

Azar has curried some support for his proposal. The American Association of Retired Persons states that “providing this information will help make patients and prescribers more aware of prescription drug prices.” The American Medical Association, although opposed to television advertising of prescription drugs in general, nevertheless finds that “as long as the practice is allowed, the ads should come with at least a small dose of transparency.”

The pharmaceutical industry, however, counters that the proposed rule would lead to confusion, as the list price is often not what consumers pay at the pharmacy counter. Instead, the prices paid by consumers are often the result of negotiations between manufacturers, health insurers, and pharmacy benefit managers. The price of the same drug may vary from person to person based on each individual’s health care network.

As an alternative to the proposed HHS rule, the Pharmaceutical Research and Manufacturers of America (PhRMA) has published industry-defined guiding principles that recommend that drug manufacturers direct consumers to websites that contain more detailed information about the drug, including prices consumers may be expected to pay. PhRMA CEO Stephen Ubl worries that displaying list prices within television advertisements could “deter patients from seeking needed care.”

Some legal experts contend, however, that HHS may not even have the authority to regulate drug advertisements in this manner, suggesting that the proposed rule could eventually be struck down in court.

Secretary Azar likens the proposed rule to AIDA, but, importantly, that statute was passed by both houses of Congress. Critics of the proposed rule highlight the fact that Congress has not given any express support to HHS’s proposed regulation of television advertisements.

The proposed rule gives the Centers for Medicare and Medicaid Services (CMS) regulatory authority over list prices in television advertisements—authority that would typically fall under the ambit of the U.S. Food and Drug Administration (FDA). Legal experts contend that Congress has not even authorized FDA to regulate drug advertisements in this way.

Earlier this year, the Senate approved an amendment to a House spending bill to provide funding for HHS to require and enforce list price displays in advertisements. But the House of Representatives rejected the amendment.

Critics also charge that the proposed rule lacks a formal enforcement mechanism. Although AIDA is enforced by the U.S. Department of Justice’s Consumer Protection Branch through enforcement litigation, the proposed rule reportedly “depends on shaming, noting that federal regulators would post a list of companies violating the rule.”

At a time when reportedly 63 percent of Americans favor the display of pricing information in advertisements, the proposed rule may seem to be a simple response to popular demand. But the nuances of drug pricing schemes mean that finding a solution to drug pricing transparency may be anything but simple.

HHS will accept comments on the proposed rule until December 17, 2018.