Lawmakers on both sides of the aisle are applauding two recent developments in the ever-raging battle to contain the cost of American healthcare.
On May 8, 2019, the Department of Health and Human Services (HHS) announced a final rule from the Centers for Medicare & Medicaid Services (CMS) that will soon begin requiring pharmaceutical manufacturers to disclose the list price of prescription drugs in television advertisements. The announcement comes less than a year after President Trump and HHS Secretary Alex Azar introduced the American Patients First blueprint to lower drug prices and reduce out-of-pocket costs.
In an unrelated move just a few days later, 43 states and Puerto Rico filed a lawsuit in federal court in Connecticut, alleging that at least 20 drug manufacturers conspired to artificially inflate and manipulate prices for more than 100 different generic medications.
Prescription drugs remain a hot-button issue because so many Americans rely on them. According to Kaiser Health News, America spends about $460 billion a year on prescription drugs. In a Fact Sheet on drug pricing transparency, HHS noted that the ten most commonly advertised drugs have list prices ranging from $488 to $16,938 per month or for a usual course of therapy.
The CMS rule is designed to increase pricing transparency in the intricate and confusing prescription drug market. As Senators Richard Durbin (D) of Illinois and Charles Grassley (R) of Iowa noted in a joint statement, “Direct-to-consumer prescription drug advertisements are everywhere, and they tell you just about everything imaginable about the drug, other than its price.”
Under the new rule, drug makers must include the list price (also known as the Wholesale Acquisition Cost) in “legible” text at the end of television advertisements for any prescription drug or biological product that costs more than $35 for a month’s supply or the usual course of therapy, beginning in July. They may also include a disclaimer that states, “If you have insurance that covers drugs, your cost may be different.” Prices must be updated every quarter.
Drug makers are expected to challenge the rule on the basis that it violates their First Amendment rights. They also insist that including the list price in drug advertisements will confuse consumers because most patients only pay a fraction of the list price. HHS counters that list prices matter because many patients either pay the list price for their medications or a price that is calculated based on the list price.
The hope is that the new rule will give patients a frame of reference so they can discuss affordability with their doctors at the point they prescribe the drugs. As Secretary Azar stated, “You ought to know how much a drug costs and how much it’s going to cost you, long before you get to the pharmacy counter or get the bill in the mail.”
The HHS announcement also asserted their belief that increased transparency will incite competition. Secretary Azar said that he expects enforcement of the rule to come from within the industry as drug companies bring lawsuits for deceptive trade practices against competitors who do not comply. The argument would be that not disclosing a drug’s price in a television advertisement is tantamount to declaring that it costs less than $35 a month.
While Secretary Azar and HHS focus their efforts on containing the price of brand-name prescription drugs, Connecticut Attorney General William Tong believes his investigation has uncovered a primary reason why the cost of generic prescription drugs has been so high. As reported in The Washington Post, Tong said, “We have hard evidence that shows the generic drug industry perpetrated a multi billion-dollar fraud on the American people. … a multi-year conspiracy to fix prices and divide market share for huge numbers of generic drugs.”
According to investigators, the drugs covered in the suit account for billions of dollars of sales in the United States. The states allege that the drug companies’ actions violated federal and state antitrust and consumer protection laws, and they are seeking a permanent injunction to prevent the conduct from continuing. They are also asking for reimbursement of profits from the actions and damages to be paid to the state agencies and harmed consumers.
These two new developments are an encouraging sign that strides are ongoing in the quest to make healthcare more affordable for the American people, but there is still much work to be done. As Kaiser Health News notes, “One of the reasons the prescription drug market poses a challenge to lawmakers is because it has many moving parts. On the payer side, there are patients, the government, and employers. On the receiving end are drug makers, wholesalers, health care plans, pharmacies, and pharmacy benefit managers…” Add to this the fact that the pharmaceutical industry spends more on lobbying by far than any other industry, shelling out over $280 million last year, and you can see what difficulty reformers are facing.
Finally, it’s important to bear in mind the point made recently in Forbes magazine that pricing opaqueness in healthcare is far from limited to the prescription drug sector. Hospital and physician services together account for almost six times as much spending on healthcare as prescription drugs, but they are currently receiving only a fraction of the government and media attention that prescription drugs are receiving.
While the current battle against high prescription drug prices is unlikely to make a major impact on overall U.S. healthcare spending in the near future, every revolution must begin somewhere. If the cost of prescription drugs is a battle that both Republicans and Democrats are willing to support, then its importance in finally bringing American healthcare costs under control should not be underestimated.
