May 24, 2018

Rx drug ads may soon have to disclose their prices. Will that actually lower prices?

Daily Briefing

    Read Advisory Board's take on this story.

    President Trump's recent call to require pharmaceutical companies to include drug prices in their advertisements has received support from federal lawmakers, but experts are unsure whether such a measure will have the intended effect of reducing prescription drug prices.

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    Proposal details

    Trump earlier this month unveiled a policy "blueprint" on prescription drug prices. HHS Secretary Alex Azar said the blueprint contains "more than 50 proposals" that seek to encourage competition, negotiation, and transparency to lower both list prices and out-of-pocket costs for drugs. For instance, Azar said under the blueprint FDA "immediately" will look into potentially requiring drugmakers to disclose prices for their products in advertisements. Azar later clarified that both FDA and CMS would evaluate "how to require drug companies to post their list prices in direct-to-consumer advertising," the Times reports.

    According to the Times, direct-to-consumer drug advertisements are designed in part to encourage patients to talk with their physicians about treatment options. Trump administration officials have argued that consumers will be more likely to bring up drug prices in those conversations if such information is made available in advertisements. Ultimately, administration officials hope that price transparency will result in the pharmaceutical industry competing more aggressively on prices.

    U.S. consumers under Trump's proposal could see advertisements with a treatment's annual, monthly, or list price, the New York Times reports. For example, a television advertisement might state that Merck's Keytruda, an immunotherapy for lung cancer, is priced at $13,500 a month or $162,000 a year, or that Amgen's Neulasta, which lessens the risk of infections after chemotherapy, is priced at $6,200 per injection.

    Lawmakers 'pleased' with Trump's proposal

    Federal lawmakers have indicated their support for Trump's proposal, The Hill reports.

    For instance, a group of senators in a letter sent Friday to eight drugmakers wrote, "We are pleased that [Trump] recently acknowledged the importance of requiring price disclosure on direct-to-consumer ads—it is our hope that he will actually follow through." The senators urged the drugmakers "to immediately and voluntarily commit to transparency and disclose the price of your prescription drugs in direct-to-consumer advertisements." Sens. Sherrod Brown (D-Ohio), Dick Durbin (D-Ill.), Kirsten Gillibrand (D-N.Y.), Maggie Hassan (D-N.H.), and Angus King (I-Maine) signed the letter, which was sent to:

    The American Medical Association also has expressed support for disclosing drug prices in pharmaceutical companies' advertisements—though the group ultimately would like to see direct-to-consumer advertisements for prescription drugs banned completely.

    Experts question whether proposal would lower Rx prices

    However, several experts have raised questions about how the federal government would implement requirements that pharmaceutical companies disclose drug prices in their advertisements, as well as whether doing so would have the intended effect of lowering prices for prescription drugs.

    For instance, experts have wondered what prices pharmaceutical companies would be required to disclose, noting that consumers typically pay different prices for the same drugs depending on their insurance status. While the Trump administration has indicated that drugmakers would be required to disclose their products' list prices in advertisements, experts have said that approach could confuse consumers, because consumers often do not pay drug's full list prices.

    Clifford Hudis, CEO of the American Society of Clinical Oncology, said, "What an individual pays for a given drug is driven by lots of hidden and some obvious factors," adding, "So it could be a challenge to disclose prices in a uniform and consistent fashion."

    Others questioned whether requirement drugmakers to disclose list prices would drive consumers to choose lower-priced drugs.

    David Mitchell, founder of Patients for Affordable Drugs, said, "It's good to make information available to patients and consumers, but a disclosure requirement is not going to lower the prices of prescription drugs. The numbers could be so big—$10,000 a month—that at some point people could become inured to it."

    Similarly, Blase Polite, a cancer specialist at the University of Chicago Medical Center, said, "To the individual consumer, the list price is often a fantasy number. When a doctor tells a cancer patient that this therapy potentially has a cure rate of 10% or 15%, people don't care that the drug costs $120,000 because the costs are usually covered by third parties."

    Further, Wendy Blackburn, executive vice president of the advertising agency Intouch Solutions, said Trump's proposal could have the unintended effect of driving up health care spending. "If a consumer has a choice of five drugs and one is more expensive, the consumer may think the more expensive drug is the better drug. That's often how people make decisions," she said, adding, "Trump's intentions may actually backfire on him."

    Other experts have questioned whether the federal government has the authority to require drugmakers to disclose drug prices in their advertisements.

    John Kamp, an expert on medical marketing, said such a requirement "as a form of compelled speech could violate the First Amendment" of the Constitution.

    However, David Vladeck, a law professor at Georgetown University, said, "The government has broad leeway to require disclosure of factual information that would be material to consumers." As such, he said, "A requirement that you simply tell people what the price is would be constitutional."

    Lori Reilly, an executive vice president of the Pharmaceutical Research and Manufacturers of America, did not seem so sure. "It's an open question about whether or not it's constitutional," she said (Pear, New York Times, 5/19; Roubein, The Hill, 5/18).

    Advisory Board's take

    Lindsay Conway

    Lindsay Conway, Managing Director

    As I expressed last week in my commentary about President Trump’s Blueprint to Lower Drug Prices, requiring drug manufacturers to include their price in advertisements would spotlight high and rising drug prices. Arguably, though, the general public is already well aware of the high cost of drugs. According to a 2018 Kaiser Family Foundation survey, 80% of Americans say the price of drugs is unreasonable.

    Additionally, as the experts in this story note, the Blueprint leaves open a big question about price transparency: Which price would be disclosed? Very few patients pay the sticker price of the drug and, according to the same 2018 Kaiser Family Foundation survey, despite widespread concern over drug prices, 74% of patients currently taking a prescription drug say affording them is "easy." Most patients have prescription drug plans which negotiate a discounted rate on their behalf, and patients pay either a percentage of the negotiated rate or a fixed copay. Patients' out-of-pocket expenses vary widely depending on their prescription plan and medications.

    If the policy were somehow enacted, then the most likely outcome would be confusion among the public. In addition, because medication adherence is inversely correlated with price, there is a danger that advertising sticker prices might actually discourage patients from taking prescription drugs.

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