October 18, 2018

Requiring a Price Tag in Drug Commercials: Furthering Consumer Transparency or Government Overreach?

The Trump Administration released a draft regulation published in the Federal Register on October 18, 2018, which proposes to require drug manufacturers to include a drug’s list price in its direct-to-consumer (DTC) television advertising. Medicare and Medicaid Programs: Regulation to Require Drug Pricing Transparency is the latest and perhaps most controversial move to date in the Administration’s drive to implement its broad blueprint, American Patients First, to rein in drug prices.

The Centers for Medicare and Medicaid Services (CMS), which issued the draft regulation, proposes that CMS will annually publish a compendium of drugs that must have their list price – in this case the wholesale acquisition cost or WAC – included in television advertising via a standard statement provided by CMS. A drug’s inclusion on the compendium would be triggered when its list price is $35 or more for a typical course of treatment or 30 days. Nearly all drugs would therefore trigger the disclosure requirement.

The draft regulation does not yet provide guidance on certain important details, and CMS is requesting comment on a number of topics. This includes applicability of the proposal to media besides television as well as if the government should issue explicit requirements for font size and length of on-screen time for the pricing information. CMS also asks for comment on whether Medicare should develop a billing code to compensate providers for counseling Medicare patients on drug prices and drug alternatives.

Among the most unusual elements of the draft regulation is its reliance on private lawsuits as the primary mechanism for enforcing the disclosure requirement. Commonly, CMS (and most federal agencies) are empowered to enforce regulations through a variety of administrative oversight tools including audits, corrective actions plans, fines and suspension from federal programs. None of these tools are available to CMS to assure that drug manufacturers comply with the requirement. Further, the draft regulation proposes to block states from taking enforcement actions based on state law claims for violations of the federal disclosure requirement, thus prohibiting a state that may be inclined to take more aggressive actions from doing so.

Likely in anticipation of the threatened legal action, much of the regulatory text is devoted to the government arguing that it has the authority under existing law to impose the disclosure requirement on drug manufacturers. The government’s argument is premised upon the Social Security Act giving the Department of Health and Human Services (HHS) Secretary authority to run the Medicare and Medicaid programs in a cost-efficient manner. Noting this, CMS argues that DTC advertising “without price transparency has a direct nexus to these trends of increasing price and utilization.” This gives HHS prerogative to take action that increases price transparency even without explicit authorization from Congress.

In the proposal, CMS argues that television commercials already must include information on a given drug’s potential side effects, and pricing information is an extension of this established requirement. CMS also offers numerous case law citations in the draft regulation – unusual in a CMS regulation.

The decision of CMS to use WAC rather than other arguably more relevant drug prices (e.g., cash price, after-insurance price) may also draw criticism –though criticisms could be leveled against any drug price list that the government might have selected. In the last two years, a number of states have passed drug price transparency laws structured around publicly posting information on particular drugs when price increases exceed a state’s criteria. But no state has passed a law to limit DTC advertising or require such a public posting of prices in DTC advertising.

Seeking to blunt the regulation’s impact presumably, PhRMA announced on the same day the proposal was released a countermeasure that commits member companies to a set of principles, including incorporating within ads information that direct consumers to websites with pricing and other information.

Commenters have until December 17, 2018, to submit comments from the date of publication.

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