On October 15, CMS released a proposed rule titled “Medicare and Medicaid Programs: Drug Pricing Transparency,” which would require direct-to-consumer (DTC) advertisements for prescription drugs covered by Medicare or Medicaid to include the Wholesale Acquisition Cost (WAC).  This proposed rule resembles a rejected Senate amendment to the FY-2019 Labor-HHS-Education appropriations bill (analyzed here) that would have provided HHS $1 million to implement rules requiring manufacturers to disclose drug list prices in DTC advertising; however, House Republicans declined to adopt that amendment.

Specifically, the proposed rule would require DTC advertisements to include a text statement disclosing the WAC for a typical 30-day regimen or for a typical course of treatment, whichever is most appropriate.  No voiceover would be required.  The proposed rule includes an exception for drugs with a WAC of less than $35 per month.

Enforcement by private right of action

This proposed rule is the Administration’s latest step in response to ongoing scrutiny on drug pricing and transparency as highlighted in President Trump’s May 2018 Blueprint to lower drug prices.  However, it is notable that the Blueprint charged FDA with evaluating whether and how to require manufacturers to include list prices in advertising; yet, the proposed rule was released by CMS and not FDA, and is based on CMS’ authority to regulate the Medicare and Medicaid programs.

This proposed enforcement mechanism relies primarily on a private right of action under existing competition laws and, secondarily, public admonition by CMS.  Under the proposed rule, HHS would maintain a public list of drugs advertised in violation of the rule, but the rule anticipates that the primary enforcement mechanism would be the potential of private suits under the Lanham Act for unfair competition in the form of false or misleading advertising.

PhRMA to voluntarily direct consumers to price info

Shortly before HHS Secretary Alex Azar announced the proposed rule, Pharmaceutical Research and Manufacturers of America (PhRMA) President Stephen Ubl announced the group’s members each agreed to voluntarily include in TV ads directions for consumers to find drug pricing information on the manufacturers’ websites.  Under this initiative, which starts April 15, 2019, information available online will include the drug’s WAC as well as a range of potential out-of-pocket costs patients might pay.  Primarily, PhRMA’s initiative differs from CMS’ proposal in that it is entirely voluntarily, and it involves drug makers directing consumers to pricing information rather than directly stating costs in DTC ads.

In response, Azar criticized PhRMA’s initiative as inadequate, saying, “Our vision for a new, more transparent drug-pricing system does not rely on voluntary action.”  PhRMA asserted that including the WAC in commercials may discourage patients from seeking needed medical care.  Similarly, J&J CFO Joseph Wolk said listing WACs on TV ads “could be somewhat confusing and actually act as a deterrent to good, responsible health care and we just want to make sure that that doesn’t play out that way,” Bloomberg reported.

Rule subject to legal attack

As we previously discussed here, this measure may raise First Amendment concerns as a form of compelled speech.  Second, there is question over whether CMS has authority to implement this regulation.  Neither the Food Drug and Cosmetic Act (FDCA) nor FDA’s implementing regulations contemplate mandatory disclosure of drug prices in promotional materials, and it is difficult to see how the failure to include pricing information is thus misleading to consumers.  Meanwhile, CMS’ authority is tied specifically to Medicare and Medicaid.

Solicitation of comments

CMS said it is soliciting specific comment on a number of issues, including:

• Whether the proposed regulations should apply to advertisements in other media, such as print ads or radio.
• Whether compliance with the rule should be a condition of payment from federal health programs.
• Whether WAC is the best measure for the stated purposes of price transparency and comparison shopping.
• How to treat an advertised drug that must be used in combination with another non-advertised drug or device.
• The potential effects of the proposed rule, including how manufacturers set the WAC for advertised products, and how patient behavior may change in response to this pricing information.

CMS will accept public comments on the Proposed Rule until December 17, and HHS expects the new requirement would take effect 30 days after publication of a final rule. 

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