May 9, 2019 — The Centers for Medicare & Medicaid Services (CMS) has announced its final rule requiring that drug companies include list prices in direct-to-consumer (DTC) television ads – “the single most significant step any administration has taken toward a simple commitment: American patients deserve to know about the prices of the healthcare they receive,” according to Alex Azar, Secretary of the Department of Health and Human Services, in an accompanying press release.

“It’s disappointing that CMS did not significantly modify or drop their proposal, in light of the many practical and legal flaws in the proposal that were identified in the 147 comments we and other organizations posted when the idea was first floated,” said Jon Bigelow, executive director of the Coalition for Healthcare Communication. “To call this a step toward transparency in drug pricing is misleading, just as is the choice of list price as the metric for price comparisons.”

The final proposal, released May 8 and slated for publication in the Federal Register on May 10, has only minor modifications from the initial proposal. It still covers only television advertising – not DTC in other media – and requires that television advertisements for any prescription pharmaceutical covered by Medicare or Medicaid include the wholesale acquisition cost (WAC). New elements of the proposal include:

• The rule will take effect within 60 days of its publication in the Federal Register—meaning that advertisers must work quickly to alter their advertisements.
• The rule does not specify how the list price will be included in the ad, and says that sponsors are permitted to add a statement that a consumer with insurance may have a different cost out of pocket (OOP).
• The rule will be enforced not by CMS, nor by the Food and Drug Administration Office of Prescription Drug Promotion, but instead by relying on competing biopharma companies to take legal action under the Lanham Act against an advertisement that does not comply. To facilitate this modification, the rule also will now only apply to pharmaceuticals with a WAC of $35 or more for a month’s supply or a usual course of therapy.
• The rule also now specifies that no state or local entity may establish a disclosure requirement that differs from or exceeds the authority of the CMS requirement.

Many commenters on the proposed version of the rule – including the Coalition for Healthcare Communication – stated that the list price, or wholesale acquisition cost (WAC), of drugs can be very misleading and rarely represents the actual cost to patients.

Steven J. Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), said in a May 8 press release that the CMS final rule “could be confusing for patients and may discourage them from seeking needed medical care.” PhRMA, the Coalition and many others submitting comments on the proposal stated that including a drug’s WAC in a TV ad actually does not aid transparency because as a single metric, the WAC is highly misleading. PhRMA member companies recently began directing patients to links to comprehensive cost information in their DTC ads and announced on May 8 a new platform – the Medication Assistance Tool (MAT) – to help patients connect with financial assistance programs.

But CMS apparently was unmoved by the many comments that suggested different metrics or called into question HHS’ authority to require list prices in DTC TV ads for drugs. Speaking to comments that recommended using additional information or a different metric than the WAC, such as what a patient might expect to pay OOP based on rebate or formulary information, CMS states in the final rule that “the rule is targeted to require disclosure of the most essential price information, but manufacturers may include additional information if they so choose….”

CMS also refutes PhRMA and other commenter concerns that using the WAC may confuse patients because it does not present relevant or accurate cost information to patients. “WAC is a highly relevant data point with significance in both federal and commercial health care,” CMS states. “It is our view that the absence of a drug’s WAC would make a DTV television advertisement potentially misleading because consumers appear to dramatically underestimate their OOP costs for expensive drugs, but once they learn the WAC they become far better able to approximate their OOP costs.” CMS also cites a 2019 JAMA study in support of consumers underestimating costs.

Regarding the concerns that patients might be discouraged from seeking treatment based on high and perhaps inaccurate cost information – a point that was raised by multiple commenters who cited a 2018 New England Journal of Medicine “Perspectives” article on price disclosures in ads – CMS pointed out that the article authors used terms such as “potential” and “may” and provided opinion that “is not based on any data” and that CMS does not find “persuasive.”

On the authority question, the rule states it is HHS’ position that CMS has the authority to issue regulations “as necessary for the efficient administration of Medicare and Medicaid,” that HHS has “broad discretion” to determine which regulations are necessary, and that the rule does pass the two-part Chevron test cited by commenters.

In tackling the First Amendment concerns raised by commenters, CMS states that “the speech here at issue does not implicate core First Amendment interests,” and that the rule meets the test under Zauderer v. Office of Disciplinary Counsel and “also satisfies the elements of the Central Hudson Gas & Elec. Corp. V. Pub Serv. Comm’n test.

CMS further states that it is not extending the rule to other forms of DTC advertising, as some patients and physicians had suggested, “because we want to apply this rule as narrowly as possible to achieve our goal of promoting price transparency and reducing drug costs, with minimal burden on those providing the information.”