On October 15, 2018, in a continued effort to address rising drug costs, Health and Human Services (HHS) Secretary Alex Azar proposed that pharmaceutical companies be required to include the list price of medicines in television advertisements to consumers.
In a first-of-its-kind proposal through a new proposed rule published in the Federal Register, drug manufacturers could be required to disclose the list price of a 30-day supply of any drug that is covered by Medicare or Medicaid and costs more than $35. Secretary Azar argues that this added transparency will "not only... promote a more competitive environment, but data indicate that it will likely motivate manufacturers to be less willing to raise prices, which have dramatically increased over the past decade."
To be sure, this measure is not without controversy.
PhRMA, the national trade association for pharmaceutical manufacturers, argued that the measure would be "very confusing, misleading, lacks appropriate context and isn't what patients want or need." PhRMA's president predicted that the list price might even deter patients from seeking medical care.
However, the largest trade association for the country's health insurers, America's Health Insurance Plans, commended the administration for taking bold action to address "out-of-control" drug prices. The measure is even seeing bipartisan support, which has become rare these days. Both Senators Richard J. Durbin (D-Illinois) and Charles E. Grassley (R-Iowa) praised the proposed rule as the two senators had jointly sponsored a similar bipartisan measure earlier this year.
The current drug pricing system has numerous incentives that reward higher list prices. For example, pharmacy benefit managers receive high rebates from drug manufactures for listing drugs on their formularies, which obscure list price discounts and shift cost to consumers. According to the Centers for Medicare and Medicaid, these rebates represented 20 percent of gross Medicare Part D drug costs in 2016. HHS's proposal comes amid a continuing effort by the Trump administration to diminish the increased costs to patients and public payors, such as Medicare and Medicaid, which ultimately is borne by the American taxpayers.
While there are a substantial number of factors that go into the pricing of drugs and the list price of medications is rarely what the consumer actually pays, particularly consumers with health insurance, Azar argues that "nearly all research indicates advertising prices is associated with lower prices."
The measure is clearly unprecedented, and some groups opposed to this proposal have already indicated that it may even be unconstitutional. Under the federal Administrative Procedures Act, HHS is required to solicit comments over a 60-day period.
Duane Morris attorneys will continue to monitor developments in this area and other related issues, and report on the key details for our clients and others in the industry.
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