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Breaking Down HHS Drug Advertisement, Price Transparency Proposal

The debate between pharmaceutical companies and HHS about price transparency in drug advertisements could lead to a long, drawn-out fight.

drug price transparency

Source: Thinkstock

By Sara Heath

- A storm is brewing between the Department of Health & Human Services and the pharmaceutical industry, as experts on both sides debate drug advertisements and requirements for consumer-centered price transparency.

Causing the debate is a newly proposed rule that would require all pharmaceutical companies advertising drugs paid for by Medicare or Medicaid to list the wholesale acquisition cost for their medications in any advertisements. Companies would not be required to disclose costs if the drug’s list price amounts to $35 or less.

This proposed rule comes in the context of soaring pharmaceutical costs. Patient out-of-pocket drug costs are at an all-time high, and patients are markedly concerned about paying for those medical bills.

The Administration is trying to address those concerns. Earlier this year, HHS released its drug pricing blue print, a document aimed at creating restrictions in the pharmaceutical industry that would ideally make it easier for patients to pay for their drugs.

This most recent proposal aims to build on the blue print and to show constituents that HHS and the rest of the Administration is trying to make progress, according to William Garvin, a healthcare attorney at Buchanan Ingersoll and Rooney.

READ MORE: CMS Proposes Drug Price Transparency in Ads Amidst Pharma Pushback

“President Trump has expressed a strong willingness to try and do things about pharmaceutical pricing,” Garvin explained to PatientEngagementHIT.com. “He's mentioned that several times he was going to take action against the pharmaceutical manufacturers on drug pricing. This is another one of the things he's trying to do to basically show that he's acting on this issue.”

Proposals to disclose list prices in direct-to-consumer ads is a patient-centric strategy to lowering drug costs, he explained.

“There's a belief that if you give consumers more power, if you give them more information, they will then price shop and that will result in lower overall healthcare spending,” Garvin said.

Building on the philosophy of high-deductible health plans and other forms of patient financial responsibility, the proposed rule could reduce healthcare spending if the patient choosing a treatment that will be less costly to her.

“That goes along with that overall philosophy that the way to lower all healthcare spending is to get patients involved in understanding the cost of health care and having them price compare,” Garvin explained.

READ MORE: Refining Price Transparency Tools to Increase Patient Use, Cut Costs

Ideally, pharmaceutical companies will compete on price, Garvin said. If patients flock to a lower-cost drug option, other companies may develop their treatments at a similar price point. This could have a ripple effect, lowering cost of care across different sectors.

But that’s not necessarily going to be the reality, pharmaceutical companies have responded.

“Pharma's general thoughts are: the wholesale acquisition cost is not really what the cost the consumer's going to see,” Garvin noted. “We live in a fractured healthcare environment where some people are getting paid by the federal plans under Medicare, by state and federal plans under Medicaid, by private insurance. Sometimes people are completely uninsured.”

Depending on where a patient fits within that structure, she will see a different cost associated with her therapy. Simply showing a patient a wholesale acquisition cost, which is not usually the cost the patient ends up seeing, could cause confusion, pharmaceutical companies have argued.

“It's a fair argument given the fractured healthcare environment we're in,” Garvin said. “And also given that there's probably going to be a lot of confusion if the product is advertised for certain wholesale acquisition costs, and that's not the final cost you see.”

READ MORE: Patient Advocates Call for Drug Price Transparency in HHS Blueprint

Additionally, pharmaceutical companies fear patients will be deterred from care if they see a beefy wholesale acquisition cost in a direct-to-consumer advertisement.

Instead, pharma has proposed creating a large resource that would give patients all of the different potential costs for treatment depending on their insurance coverage, Garvin said. This data would be stored on a manufacturer’s website and patients would need to take the action themselves to see the information.

HHS does have its understandable reasons for requiring list prices for price transparency, Garvin pointed out. All pharmaceutical companies are required to calculate their wholesale acquisition costs. This is a standard datapoint that would be easy to include in advertisements.

And even if the list price is not perfect, it could establish a culture of transparency.

“I believe HHS's position would be: [the list price] may not be perfect, but it'll give you a rough approximation about what the therapy's going to cost,” Garvin said.

“Even giving a rough approximation of the cost of therapy will be useful because we perceive that there's going to be this group of citizens that are going to look at that and make informed, good decisions on pricing and take that into consideration when they're choosing their healthcare.”

Additionally, HHS may believe disclosing the list price will create pressure to lower – or at least slow the growth of – drug costs. If a company has to advertise a $500 list price, even if the patient doesn’t see that cost, it could create pressure to slow cost growth.

These competing arguments came to a head on Monday just hours before HHS released its proposed rule.

In an attempt to preemptively address the HHS proposal, leading industry group Pharmaceutical Research and Manufacturers of America (PhRMA) released guidelines for its own version of advertisement price transparency. Building on the arguments Garvin recounted above, that guidance called on pharmaceutical companies to use direct-to-consumer advertisements to direct patients to online resources for price transparency.

“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,” PhRMA said of the HHS proposal. “In addition, any such requirement would raise significant legal issues, including First Amendment concerns.”

Those policies don’t go far enough, said HHS Secretary Alex Azar in a response to the PhRMA guidelines.

“Our vision for a new, more transparent drug-pricing system does not rely on voluntary action,” Azar said in a statement. “The drug industry remains resistant to providing real transparency around their prices, including the sky-high list prices that many patients pay. So while the pharmaceutical industry’s action today is a small step in the right direction, we will go further and continue to implement the President’s blueprint to deliver new transparency and put American patients first.”

Pushing this rule through is important to the Administration, Garvin added. It is a step for them to demonstrate patient-centered care and make good on a promise to act on high drug costs. But a fight awaits, he continued.

“I believe there'll probably be a First Amendment case on this proposed rule, based on the idea of compelled speech,” he explained. “Normally it's very difficult for the federal government - or any government in the United States - to force somebody to say something. For the government to actually compel you to speak, they have to have good reasons to do so. And the argument's going to be: is this a form of compelled speech that's inappropriate for the government to do?”

As a lawyer, Garvin can predict that HHS will argue that its proposal is appropriate because it simply asks pharmaceutical companies to disclose truthful information and that implementing the rule isn’t costly.

Furthermore, HHS may argue that DTC ad price transparency is pertinent to how CMS runs its agency. Pharmaceutical companies have opted to work within the federal systems, meaning they have agreed to play by the rules laid out by HHS and CMS, Garvin said predicting HHS’s arguments.

The looming debate over this rule may pose a threat to how the rule is eventually carried out, Garvin explained. The rule may become watered down to the point that HHS does not see worth in enacting it.

Additionally, there are questions about enforcing the proposal.

“There's no teeth to the enforcement mechanism. All that CMS has said is, ‘If you do not follow this rule, we're going to put your name on a list,’” Garvin pointed out.

HHS may be depending on private consumers to bring Lanham Act claims, stating that drug advertisements withholding cost information is false advertising, Garvin offered.

“But I'm not sure that analysis is correct,” he added. “I'm not sure that you'll actually be able to win a Lanham Act claim for failure to put this pricing information on.”

“There’s a certain assumption in this proposed rule, that there will be enforcement by private parties, but that may not occur,” Garvin added. “And if that doesn't occur, then you basically have a rule with no teeth to it. And which everybody could violate it, and there would be no repercussions.”

The future for this proposal is murky, Garvin concluded. However, it is clear that HHS and the pharmaceutical industry both have a fight ahead of them regarding price transparency for patients.

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