CMS introduced a rule in May 2019 that will require pharma to provide list prices of drugs featured in TV commercials.
If you are watching television in the United States, you are more than likely to see at least one drug commercial. These direct-to-consumer ads, as the industry knows them, offer brief testimonials of a drug’s effectiveness and safety, but typically leave out the drug’s price. As a bold first step toward achieving price transparency, the Centers for Medicare & Medicaid Services introduced a rule in May 2019 that will require pharma to provide list prices of drugs featured in TV commercials. The policy, which is limited to drugs that cost more than $35 per month and are covered under Medicare and Medicaid, stems from the government’s initiative to detangle the complicated mosaic of drug pricing, and is aimed at making drug manufacturers more conscious of drug list prices. CMS intends to implement the rule on July 10, 2019. With the industry moving further toward price transparency, it is becoming harder for drug manufacturers to bypass efforts like the latest CMS rule.
In June 2019, Amgen, Merck, and Eli Lilly filed a lawsuit against the U.S. Department of Health and Human Services to overturn the rule, arguing that the rule violates the companies’ First Amendment rights.
The story so far.
Ballooning healthcare costs in the United States have been worrying healthcare stakeholders. In response, the Trump administration released the “American Patients First” blueprint in May 2018. The proposal aimed to lower drug costs and cost-sharing for consumers by creating incentives for lowering list prices and boosting competition. Within a year, the Department of Health and Human Services produced the final rule targeting drug transparency through direct-to-consumer advertising. With drug prices expected to appear in the closing portion of drug commercials, CMS is relying on drug companies to effectively regulate one another. Eli Lilly has been trying to up their game by steering television viewers to an online website with drug price information. Well before CMS released the final rule, Eli Lily began running ads for its diabetic drug, Trulicity, with on-screen link referrals. Meanwhile, J&J added list price and average cost-sharing information in advertisements for the blood thinner Xarelto, while Pfizer revealed pricing information through digital hubs. Xarelto’s advertisement, which discloses the drug’s price, has contributed to a dip in sales. The hope is that a significant and long-lasting impact on sales stemming from transparent price information will twist pharma’s arm and encourage manufacturers to reduce drug prices.
Why mix list price with television ads?
HHS Secretary Alex Azar, who is in support of revealing list prices, was quoted saying that the move would provide consumers with much more balanced information, and companies would have a very different set of incentives for setting their prices.
Though list price does not necessarily reflect the amount every patient pays, out-of-pocket costs for Medicare Part D beneficiaries are calculated based on list price. The wholesale acquisition cost price also affects members in high-deductible plans, as members must pay this price directly until they reach their deductible. If a drug is not covered on a plan’s formulary, patients pay the drug’s list price. Listing price details in television ads will help consumers make informed decisions and demand value from pharma. In addition, greater transparency will drive competition among drug makers.
Who bears the cost, and who reaps the reward?
Forcing pharma to open up about drug pricing could be seen as a tough measure that restricts non-competitive pricing by pharma. HHS estimates the new rule could impact 25 drug makers, and will cost around $5.2M in its first year and $2.4 M in later years. While the rule comes down hard on pharma, it may backfire by confusing consumers. For example, loosely worded jargons could confuse patients, as pharma could tweak advertisement messaging by projecting discounts or rebates and highlighting out-of-pocket expense reduction.
With hardly any norms on how to and what to mention, there can be confusion as to what price to mention (average wholesale or average sale price) and for which dosage. Nevertheless, drug prices have a direct impact on patient out-of-pocket costs, and the end user deserves to be able to discuss drug options and price with their healthcare provider.
While not the be-all and end-all of drug price control and transparency, the HHS ruling could still be a step in the right direction toward a more equitable, transparent drug marketplace. Having said that, shaming pharma into lowering prices will not be the sole ingredient to lowering high drug costs.