This afternoon, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule related to drug pricing transparency as part of the administration’s continuing effort to combat high drug prices. Comments on the proposed regulation are due on December 17, 2018. While the rule cites elements of the Social Security Act as the source of the Department of Health and Human Services’ (HHS), the legal authority for this rule remains unclear. It is expected that the Pharmaceutical Research and Manufacturers of America (PhRMA) will file a lawsuit challenging the proposal.

This proposed rule would require that direct-to-consumer (DTC) television advertisements for prescription drugs and biologicals covered by Medicare or Medicaid must include the wholesale acquisition cost (WAC) of the product, which the agency refers to as the product’s “list price.” Any product with a list price less than $35 per month for a 30-day supply or typical course of treatment would be exempt.

The goal of the requirement is to give beneficiaries relevant information about drug costs so that they may make informed decisions about their out-of-pocket costs. However, the rule also notes that prescribers generally make final decisions about drug therapies and that many patients do not even know what drug they are prescribed. CMS was also unable to estimate how much the requirement would reduce drug spending.

Noting that pharmacy benefit managers (PBMs) may negotiate a net cost lower than the list price, the agency highlights the following situations when the list price can be relevant:

• Over 40 percent of individuals in the commercial market are in high deductible health plans where individuals may pay the full list price until meeting the deductible (presumably individuals covered under commercial plans and not Medicare or Medicaid would still have access to the DTC ads);
• Premiums can be based off of list price since rebates are not paid until after the product has been dispensed;
• High cost drugs are often subject to co-insurance, meaning beneficiaries may be required to pay a percentage of the list price;
• Few drugs are covered on every formulary in the country, meaning a patient may have to pay full list price in order to access a medication that is not otherwise covered by their health plan.

The agency is also proposing that the HHS Secretary maintain a public list of the drugs and biologicals that are identified as violating this rule. No other enforcement mechanism specific to HHS was proposed in the rule. Instead, HHS believes that the threat of private legal action related to false or misleading advertisement will be the primary enforcement mechanism.

Of note, on the same day as the release of this proposed rule, PhRMA announced its own initiative on direct-to-consumer advertisements. Beginning April 15^th, manufacturer advertisements will direct consumers to company websites containing information intended to provide context for drug prices. This information may include list prices, estimated out-of-pocket costs, or available financial information.

Specifics for the initiative have not yet laid out and companies can interpret it in their own way. However, the overarching idea behind the initiative has been adopted by the PhRMA Board of Directors in an update to the group’s “Guiding Principles on Direct-to-Consumer Advertisements About Prescription Medicines.” All 33 members of PhRMA have agreed to the voluntary initiative and while it will take effect on April 15^th, PhRMA has indicated that companies could start including the links before then.

In responding to PhRMA’s announcement, HHS Secretary Alex Azar said it was “a small step in the right direction” but noted that the federal agency will “go further” and continue implementing the drug pricing blueprint. PhRMA executives have said that requiring companies to include their list prices in advertising violates the First Amendment and a lawsuit over this requirement is expected.