DTC Advertising

Trade Groups Say CMS Lacks Authority to Mandate Drug Prices in DTC TV Ads

Jan. 15, 2019 – In comments to the Centers for Medicare and Medicaid Services (CMS) regarding its proposal to require that drug companies include the wholesale acquisition cost (WAC) of a drug in direct-to-consumer (DTC) television ads, industry trade groups and pharmaceutical companies largely are in agreement that doing so would confuse consumers, that CMS does not have the statutory authority to issue such a mandate, and that the current proposal raises significant First Amendment concerns.

Consumer Confusion

Industry trade organizations contend that including the WAC, or list price, of a drug without providing context of what individuals would be likely to pay under Medicare, Medicaid or private insurance or under prescription assistance programs would be misleading and confuse consumers.

According to a recent survey conducted by the Pharmaceutical Research and Manufacturers of America (PhRMA), “Americans are concerned that including only the list price in DTC advertisements could cause confusion or delay in seeking treatment,” PhRMA’s comment states. PhRMA recently adopted a revised voluntary “Guiding Principles on DTC Advertisements” – which take effect in April – under which companies signing on to the principles will refer patients to additional information about the costs of the medicine, “including the list price and average, estimated or typical out-of-pocket costs, or other context about the potential cost of the medicine.”

In its comment, Eli Lilly and Co. states that “CMS efforts to pressure manufacturers into lowering list prices through public scrutiny is coming at the expense [of] providing patients with the total picture of meaningful cost information for their specific situation.” Sanofi U.S. advises CMS that “because the proposed rule focuses only on the WAC – an inherently misleading metric on its own – and does not provide information on other, potentially more important variables, it does not truly inform patients about the cost of obtaining the advertised treatment.”

The Biotechnology Innovation Organization (BIO) asserts in its comment that it believes that CMS’ approach – publishing a medicine’s WAC with very little contextual information during a brief televised drug ad – is likely to confuse consumers.

“The fact of the matter is that many patients in the U.S. have access to some form of health insurance,” BIO’s comment states. “The CMS proposal seems to gloss over the role each individual’s insurance plays in any given patient’s ultimate financial liability.”

Indeed, the Medical Information Working Group (MIWG) states in its comment that as of 2016, “82% of national expenditures on retail prescription drugs were covered by insurance.” MIWG also asserts that the Federal Trade Commission (FTC) has issued guidance explaining that if a list price is “significantly in excess of the highest price at which substantial sales in the trade area are made, there is a clear and serious danger of the consumer being misled.”

Johnson & Johnson shared in its comment findings from research it conducted on consumers and pricing information, which included:

  • List price alone does not provide meaningful or relevant information to consumers.
  • Patients want additional information beyond list price, such as a greater understanding of their out-of-pocket costs.
  • Patients want to know what support options may be available to them in order to afford the medication.

Consumer confusion resulting from a lack of context also could lead to increased spending in other areas of healthcare, according to PhRMA. “List-price information that leads Medicare and Medicaid beneficiaries to overestimate their cost-sharing payments for drugs could thus reduce adherence and increase Medicare and Medicaid spending on other healthcare services, and potentially increase the programs’ overall spending,” PhRMA’s comment stated.

Lack of CMS Authority?

Industry commenters overwhelmingly state that CMS does not have the statutory authority to compel the disclosure of list prices in DTC television ads. Although CMS claims authority under sections of the Social Security Act (SSA) (1102(a) and 1871(a)), “the Agency seemingly ignores the far more specific grants provided by Congress to the Secretary and Food and Drug Administration to regulate [DTC} advertising,” BIO’s comment states, calling out Section 352 of the Food, Drug and Cosmetic Act (FDCA) that establishes jurisdiction for the regulation of DTC ads.

“Congress unambiguously outlined for the Secretary the parameters of rulemaking permitted for disclosures in DTC advertisements,” according to BIO. “Conspicuously absent from this specific rulemaking grant was any mention of price. … The Secretary cannot ignore these specific regulatory permissions by relying on separate, unrelated rulemaking authority.”

PhRMA states in its comment that CMS is mixing and matching parts of the SSA, “combining ‘ends’ from one provision with ‘means’ from others – essentially creating a new statute – and then proposes to issue regulations ‘implementing’ the new statute.” PhRMA also contends that CMS fails to make its legal case for authority by citing case law that preceded legal precedent under Chevron USA v. Nat. Res. Def. Council Inc., an argument echoed in several other comments.

“It is unreasonable to conclude that the Secretary’s rulemaking authority to administer the [SSA] includes the power to regulate prescription drug advertising and … does not include the power to mandate the disclosure of drug prices,” MIWG’s comment states. “The Secretary’s rulemaking under the [SSA] cannot reasonably be read to exceed the limits of his authority under the FDCA.”

First Amendment Concerns

Under the Central Hudson line of cases, industry members and associations contend that the burden of proof that a regulation meets the requirements of the First Amendment rests with the government. PhRMA argues that CMS’ proposed rule “is a content- and speaker-based regulation of speech,” subject to “intermediate scrutiny under the Central Hudson test for regulating truthful, non-misleading commercial speech.”

It would not survive that test, PhRMA states, “because the mandatory disclosure of a drug’s list price does not directly advance the government’s asserted interest in reducing prescription drug costs for the Medicare and Medicaid programs and is more extensive than necessary to achieve those goals.” MIWG and others call into question CMS’ assertion in the proposed rule’s preamble that that it can compel the disclosure of prices under Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, and argue that the proposed rule is subject to – and does not satisfy intermediate scrutiny under Central Hudson.

The Advertising Coalition makes numerous points in its comment about how the proposed rule violates the First Amendment. It states that the proposed rule “is a form of compelled speech prohibited by the First Amendment, and exceeds HHS’ statutory authority.” Further, The Advertising Coalition believes that the proposal “fails under any level of scrutiny that the Supreme Court has established for regulations concerning commercial speech.”

Several industry commenters requested that CMS withdraw the proposed rule and reconsider its approach.