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New Rule Requires Drug Companies to State Prices in Ads

June 28, 2019

America’s $450 billion-a-year drug industry is about to get a new wrinkle as a rule finalized in May by the U.S. Department of Health and Human Services (HHS) requires all pharmaceutical companies to include the list prices of their drugs and biological p

The rule, which takes effect on July 9, covers all such products for which payment is available through or under Medicare or Medicaid. Complying with the rule will require pharmaceutical companies to disclose the list price for a standard monthly dose of a given drug in any direct-to-customer advertising.

In a May 10 announcement in the Federal Register, HHS stated the final rule is designed to “address rising list prices by introducing price transparency that will help improve the efficiency of Medicare and Medicaid programs by reducing wasteful and abusive increases in drug and biological products list prices—spiraling drug costs that are then passed on to federal healthcare program beneficiaries and American taxpayers more broadly.”

Public Scrutiny of Prices

The DHS rule is intended to promote transparency in drug prices in two ways, the announcement states.

“First, it will provide manufacturers with an incentive to reduce their list prices by exposing overly costly drugs to public scrutiny,” the announcement states. “Second, it will provide some consumers with more information to better position them as active and well-informed participants in their health care decision-making.”

Price disclosure will give consumers better information than they have now in deciding the course of treatment says Ge Bai, an associate professor of accounting and health policy and management at Johns Hopkins University.

“The fear that consumers may be scared off is precisely why we don’t see outrageous prices in other markets,” Bai wrote in an opinion piece published in TheWall Street Journal. “One may argue that disclosed list prices don’t reflect what most patients pay out-of-pocket for prescription medications after insurance coverage, coupons and patient-assistance programs. But the disclosure of list prices still communicates useful information, because insured patients’ cost-sharing is tied to list prices, and uninsured patients pay them.”

Pharma Concerns 

When the new rule was still in the proposal stage in 2018, the pharmaceutical industry expressed concerns the policy requires them to present numbers that don’t apply to the consumer.

“List prices are not a good indicator of what a patient will pay at the pharmacy counter and do not reflect the substantial discounts and rebates negotiated by insurers and pharmacy benefit managers,” said PhRMA, a pharmaceutical trade group, in a press statement.

Challenges of Drug Pricing

Transparency is a popular concept today, says David Hyman, coauthor of Overcharged: Why Americans Pay Too Much for Health Care.

“Some of it is a shaming approach; some of it is, ‘We are spending a lot of money on drugs, and we ought to know more about it,’” said Hyman.

 “It is very hard to set market prices in a market where there is so much third-party payment,” said Hyman. “There are real fixed costs that need to be paid by someone. You want to think about what the value of the drug and the cost of production is, including the research and development costs.”

In a win for the drug industry, the proposed rule was revised to allow pharmaceutical companies to supply additional information in TV ads about what a monthly dose of a drug would cost once such things as customer rebates, insurance coverage, and the size of the dose are applied.

Bai says a study she cowrote showed that could be a source of concern. “Our study showed that the rule’s attempt to bring down drug prices will work only under the ‘price, the whole price, nothing but the price’ scenario,” said Bai. “In other words, if consumers are informed their out-of-pocket cost in addition to the list price, they will be less concerned about the high list price, and thus drug companies will have little incentive to moderate their prices.

Bai says a more effective rule would be to eliminate the price foot notes. “This additional disclosure from drug companies might give patients more relevant information but will ultimately blunt the rule’s initial objective, which is to curb the list price.

Bonner R. Cohen,  Ph.D.,(bcohen@nationalcenter.org)is a senior fellow at the National Center for Public Policy Research and a senior policy analyst with the Committee for a Constructive Tomorrow (CFACT).

Internet Info:

Medicare and Medicaid Programs; Regulation to Require Drug Pricing Transparency, May 10, 2019

https://www.federalregister.gov/documents/2019/05/10/2019-09655/medicare-and-medicaid-programs-regulation-to-require-drug-pricing-transparency

Author
Bonner R. Cohen is a senior fellow with the National Center for Public Policy Research, a position he has held since 2002.
bcohen@nationalcenter.org