Trump Administration Bans Pharmacy Gag Clauses and Proposes Requiring List Prices in Ads to Combat High Drug Costs

| Brittany McCullough
pharmacist talking with patient

If you thought that an announcement from the pharmaceutical manufacturers lobby that they would voluntarily start disclosing where consumers could get more information about a drug’s price was going to deter the Trump Administration’s plan to require actual list prices in ads – you thought wrong.

The Trump Administration issued a proposed rule on October 18 that requires drug manufacturers to disclose the wholesale acquisition cost (WAC), commonly referred to as the list price, in direct-to-consumer television ads for prescription drugs and biologicals that are reimbursed under Medicare or Medicaid. The WAC is “an estimate of the manufacturer’s list price for a drug to wholesalers or other direct purchasers, not including discounts or rebates [and is] defined by federal law.” This move is not surprising considering this was a proposal in the Trump Administration’s May 2018 Drug Pricing Blueprint.

Another provision in the blueprint – banning pharmacy gag clauses – was also recently put into effect when the President signed S.2553 and S.2554 into law. S.2553, officially known as “Know the Lowest Price Act of 2018”, bans Medicare Part D plans from “restricting pharmacies from informing individuals regarding the prices for certain drugs and biologicals.” S.2554, or “Patient Right to Know Drug Prices Act”, prohibits group health plans, health insurance issuers and pharmacy benefit managers (PBMs) from restricting pharmacists from informing enrollees about instances in which paying for a drug out of pocket would be cheaper than using one’s health insurance coverage.

Banning pharmacy gag clauses and requiring the disclosure of list prices in ads targeting consumers are both proposals aimed at increasing transparency in healthcare.

The Pharmaceutical Research and Manufacturers of America (PhRMA), the association representing drug manufacturers, has criticized the disclosure of list prices in advertisements citing concerns that consumers would be misled because “list prices are not a good indication of what patients pay since consumers’ various insurance benefits will determine their out-of-pocket costs.”

Admittedly, PhRMA does have a point. List prices do not include insurance discounts or rebates negotiated by PBMs. But, the Trump Administration argues that disclosing the list price is important because it helps “determine what percentage of a drug’s cost a consumer will pay.” If you look at list prices in the context of one’s out of pocket expenses, it’s common for insurers to require a higher co-pay amount for more expensive drugs. For example, having a $5 copay on a $40 antibiotic may be appropriate but an insurer applying that same $5 copay to a $2000 oncology medication is unlikely. It’s pure economics. In that regard, list prices do matter even if they don’t provide a complete picture.

If PhRMA can’t win the argument that disclosing list prices without proper context is misleading, what else can they point to? You guessed it – the First Amendment.

PhRMA appears poised to mount a legal effort to undermine the Trump Administration’s efforts, as  their general counsel stated, “the concern is that if the government is compelling companies to speak then that violates the First Amendment.” In response, U.S. Department of Health and Human Services (HHS) Secretary Alex Azar noted that this disclosure is consistent with past Supreme Court rulings because of its restriction to television advertisements. Azar also referenced the car industry in which list prices are included in television advertisements despite consumers’ out-of-pocket costs often being below this number.

Despite pushback from PhRMA, the Trump Administration’s effort to increase transparency is in line with their efforts to empower consumers with more information. However, it’s unclear what effect the proposed rule will have because HHS has limited statutory authority to require drug companies to disclose their list prices. With that in mind, it remains to be seen if this effort will in fact decrease drug prices in the long run.

Nonetheless, the drug pricing debate is expected to continue with HHS Secretary Azar hinting there is more regulatory action to come.

Brittany McCullough

Brittany McCullough, Health Policy Associate.

Brittany McCullough, URAC's health policy associate, focuses on tracking and analyzing legislation and regulations of importance to URAC stakeholders. Brittany considers herself an early careerist but most of her policy and research work has been centered on the ACA, Medicaid, CHIP, and mental health. She holds a B.S. in Neuroscience and a Master of Health Administration.

Views, thoughts and opinions expressed in my articles belong solely to me, and not necessarily to my employer.

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