U.S. health officials have taken the first concrete step toward implementing the vision set out in the “American Patients First” blueprint published by President Trump and Health and Human Services (HHS) Secretary Alex Azar by finalizing a rule that will compel pharmaceutical manufacturers to disclose the list prices of their products in television advertisements. The rule is not without controversy, and finalization of the rule likely sets up a conflict with manufacturers that see the move as overstepping the authority of the Centers for Medicare & Medicaid Services (CMS) and infringing on First Amendment rights to free speech.

On May 8, HHS Secretary Azar announced finalization of a rule requiring direct-to-consumer (DTC) television advertisements for prescription pharmaceuticals covered by Medicare or Medicaid to include the list price — the Wholesale Acquisition Cost (WAC) — if the price is equal to or greater than $35 for a month’s supply or the usual course of therapy. The rule will go into effect on July 9, 2019, which is 60 days from its planned publication in the Federal Register on May 10, 2019.

This is the first major step in furtherance of the “American Patients First” blueprint, which, among other goals, aims to increase patient transparency and bring down prescription drug costs. The blueprint laid out four strategies to achieve its goals: (1) increasing competition, (2) enhancing negotiation, (3) creating incentives for lower list prices, and (4) bringing down out-of-pocket costs. The inclusion of list prices in DTC television advertising is one effort to incentivize manufacturers to lower list prices according to HHS Secretary Azar. Azar said, “If we want to have a real market for drugs, why not have [companies] disclose their prices in the ads, too? Consumers would have much more balanced information, and companies would have a very different set of incentives for setting their prices.”¹

According to HHS, the rule highlights the importance of patients’ understanding of drug prices, as many patients either pay the list price or pay a discounted price that is based on the list price. For example, list prices are what patients pay if a drug is not on their insurance formulary, and many Americans with high-deductible health insurance plans (including some Medicare Part D plans) will pay the price they will see in television ads until they meet their deductible. Secretary Azar believes that, “Putting prices in TV ads may be the most significant single step any administration has ever taken toward this very clear commitment: Patients have a right to know the price of the healthcare they receive, before they receive it.”²

This rule is not without controversy. Multiple manufacturers have objected to the rule, raising the following issues and concerns:

• The required disclosure risks harming patients and increasing medical costs. Leading industry trade association PhRMA and others have argued that including list prices in television ads has the potential to discourage patients from seeking needed medical care and/or adhering to their prescribed medication regimen, even though list prices are not a good indicator of what a patient will actually pay at the pharmacy counter and do not reflect the substantial discounts and rebates negotiated by insurers and pharmacy benefit managers. Therefore, instead of decreasing costs, implementation of the rule may actually lead to higher medical costs resulting from nonadherence and failure to seek appropriate medical care.

• CMS lacks statutory authority to compel the required disclosure. While CMS relies on two general rulemaking provisions in the Social Security Act as the statutory basis for the rule,³ it also acknowledges that “Congress has not explicitly provided HHS with authority to compel the disclosure of list prices to the public.”⁴ Generally speaking, an agency only has authority to promulgate regulations on matters delegated to it by statute, and regulations that exceed this authority are subject to challenge.⁵ The Supreme Court’s  Chevron decision provides that, when the statute is silent or ambiguous, the agency’s interpretation will be upheld if it is reasonable. But when Congress has spoken on the question at issue, the agency’s action is given little or no deference. Because Congress has not granted CMS authority to regulate either prescription pricing or prescription advertising, a strong argument can be made that CMS’s actions exceed its authority and are not due any deference.

• The required disclosure violates the First Amendment. Many pharmaceutical manufacturers have raised First Amendment concerns with the rule, contending that it not only compels speech, but that it regulates the content of that speech. They assert that the rule therefore will be subject to heightened scrutiny and upheld only if it is deemed to be narrowly tailored to advance compelling government interests.⁶ On the other side, CMS contends that the rule merely regulates commercial speech and requires the disclosure of factual information, and it therefore will only need to establish that the disclosure is justified by a government interest and does not unduly burden protected speech.⁷ CMS further contends that the rule complies with the First Amendment under either test.⁸

• CMS lacks enforcement authority. The rule states that HHS will publicize manufacturers that create false or misleading ads, but primary enforcement will be left to the industry itself.⁹ Therefore, one possible outcome could be that a manufacturer that fails to include the required pricing information may find itself subject to competitor lawsuits under the deceptive and unfair trade practice provisions of the Lanham Act.

Notably, PhRMA has previously announced enhancements to its voluntary DTC principles, which were expanded in October 2018 to recommend that “All DTC television advertising that identifies a medicine by name should include direction as to where patients can find information about the cost of the medicine, such as a company-developed website, including the list price and average, estimated, or typical patient out-of-pocket costs, or other context about the potential cost of the medicine.”¹⁰

Following publication of these voluntary principles, many pharmaceutical manufacturers began including links in their TV advertisements directing consumers to detailed pricing information. Recently, at least one large drug manufacturer announced an effort to build on the support for the PhRMA-revised advertising principles to include list prices and potential out-of-pocket costs in its DTC TV advertisements.  

It will be interesting to see whether other drug manufacturers choose to publicize their list prices and comply with the rule or decide to challenge the constitutionality and enforcement of the rule.

Endnotes

¹ CMS Drug Pricing Transparency Fact Sheet (May 8, 2019), https://www.hhs.gov/about/news/2019/05/08/cms-drug-pricing-transparency-fact-sheet.html.