A preemptive strike by the Pharmaceutical Research and Manufacturers of America (PhRMA) didn't come soon enough to forestall a proposed rule requiring drug companies to include list prices in their direct-to-consumer (DTC) TV ads.

Just hours after PhRMA unveiled its new advertising principles Monday, Health and Human Services Secretary Alex Azar announced to the National Academy of Medicine, "We are proposing to require American drug companies, for the first time ever, to include in their TV advertising the list price of any drug paid for by Medicare or Medicaid.

"Patients deserve to know what a given drug could cost when they're being told about the benefits and risks it may have. They deserve to know if the drug company has pushed their prices to abusive levels. And they deserve to know this every time they see a drug advertised to them on TV."

Under PhRMA's voluntary initiative, the group's 33 members, including many of the top drug advertisers, committed to including a link to pricing information in TV ads that mention a prescription drug by name. That link would lead to a website providing the list price, the range of expected out-of-pocket costs and information about patient-assistance programs for the drug.

"The administration and Congress have called on our industry to provide cost information in DTC advertisements, and our members are voluntarily stepping up to the plate," PhRMA President and CEO Stephen Ubl said on a news call.

But in announcing the proposed rule, Azar noted the irony of the timing of PhRMA's initiative and said it doesn't go far enough. "It is no coincidence that the industry announced a new initiative today that will help make price and cost information more accessible," he said. "We appreciate their effort. But placing information on a website is not the same as putting it right in an ad."

Azar added that PhRMA's initiative "is a helpful complement to, not a substitute for, what we've proposed today. We will not rely on voluntary action to accomplish our goals."

Significance of the list price

The purpose of requiring the list price in ads is so beneficiaries "can make informed decisions that minimize not only their out-of-pocket costs, but also unreasonable expenditures borne by Medicare and Medicaid, both of which are significant problems," according to a Centers for Medicare & Medicaid Services (CMS) notice set for publication in Thursday's Federal Register.

"Markets operate more efficiently when consumers have relevant information about a product, including its price, as well as alternative products and their prices, before making an informed decision whether to buy that product or, instead, a competing one," CMS said. "Consumers price shop when looking to purchase a new car, a new house, or even a new coffee maker. Price shopping is the mark of rational economic behavior. To facilitate price shopping, sellers invariably provide potential buyers with the prices of their products."

While Azar and CMS touted the rule as a way to bring much-needed transparency to drug prices, PhRMA said requiring list prices with no context would be misleading, as those prices don't reflect rebates or discounts, and they wouldn't shed light on how much an individual patient may have to pay out-of-pocket.

Providing a list price in an ad also could discourage patients from seeking necessary medical care, Ubl said, citing focus groups PhRMA has conducted with patients.

What patients want to know, he said, is how much they will have to pay. Since that amount varies based on insurance coverage, it makes more sense to direct patients to a website that can more accurately provide the answer.

But Azar countered, "List prices matter to American patients." In the commercial market, more than 40 percent of beneficiaries are in high deductible plans that require them to pay the full list price of a drug until they meet their deductible.

With co-insurance a standard payer mechanism for high-cost drugs, patients must pay a percentage of the list price – not the rebated price. In 2017, the top 10 Medicare Part D plans all used co-insurance for medications on nonpreferred drug tiers, charging 30 percent to 50 percent of each prescription's list price, according to CMS. And if a Part D plan doesn't cover a particular drug, the beneficiary may have to pay the full list price. In addition, disclosure of list prices may increase pressure on drug companies to lower those prices.

Regardless of the significance of the list price to patients, the rule, if finalized, likely will face a constitutional challenge, as requiring list prices in ads could be considered compelled speech. "If government is compelling companies to speak, that violates the First Amendment," said James Stansel, executive vice president and general counsel at PhRMA. He added that there's no way to get around the First Amendment with a mandate to include a list price in advertising.

While not directly addressing constitutional issues in his remarks, Azar noted a legal precedent that has stood since 1958 when car manufacturers were first required to post their sticker prices. "People still get discounts when they go to purchase a car, but sticker prices are considered an important piece of consumer information," Azar said. "There is no reason it should be any different for drugs."

Stakeholders will have 60 days to comment on the proposed rule.

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