Direct-to-Consumer Drug Pricing Disclosures Effective July 2019 — 3 Things to Know

May 22, 2019

U.S. Department of Health and Human Services Secretary Alex Azar announced this month the publication of a Final Rule from the Centers for Medicare & Medicaid Services (CMS) that will require television advertisements for prescription pharmaceuticals which are reimbursable directly or indirectly by Medicare or Medicaid to include the list price for the drug (provided the price is equal to or greater than $35 for a month’s supply or the usual course of therapy). For purposes of the Final Rule, television advertisements include any direct-to-consumer broadcast, cable, streaming or satellite. This Final Rule will go into effect July 9, 2019.

The Final Rule stems from the Trump administration’s Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, released in May 2018. The Final Rule grows out of the blueprint’s four stated strategies of boosting competition, enhancing negotiation, creating incentives for lower list prices and bringing down out-of-pocket costs. The Final Rule is intended to drive down drug list prices by increasing transparency and “exposing overly costly drugs to public scrutiny.” Azar sharply admonished drug manufacturers in a press release announcing the Final Rule, stating, “If you’re ashamed of your drug prices, change your drug prices. … [I]t’s that simple.”      

Despite industry concerns and objections to the Blueprint’s proposed incentive to lower list prices by increasing transparency, some manufacturers have already begun including list prices in their ads. Below is a summary of three key points to consider before the Final Rule goes into effect.

1. The Rule Applies to Drugs With a List Price Equal to or Greater Than $35 per Month.

The Final Rule specifies that this requirement applies to prescription drugs or biological products distributed in the United States that have a list price (wholesale acquisition cost or WAC) of more than $35 per month for a 30-day supply or typical course of treatment. CMS indicated it chose the $35 WAC threshold because it approximates the average co-payment for a preferred-brand drug. Despite objections from industry members, CMS further chose the WAC as the price to be disclosed due to the fact that it specifically excludes rebates or discounts offered by manufacturers.

The Final Rule requires that the list price stated in the advertisement be “current”, as determined on the first day of the quarter during which the advertisement is broadcast. Moreover, the rule allows manufacturers to include an up-to-date list price of a competitor’s product, so long as they do so in a truthful, non-misleading way.

Finally, the Final Rule provides that, while the “typical course of treatment” can vary, the list price must represent the typical course of treatment associated with the “primary indication addressed in the advertisement.”

2. Price Disclosures Must Comply With Certain Formatting Requirements.

The Final Rule requires that the list price disclosure:

  • be conveyed in a legible text statement at the end of the advertisement,
  • be “placed appropriately,”
  • be presented against a contrasting background,
  • be presented for a “sufficient duration” and
  • be presented in a size and style of font that allows the information to be read easily.

The following statement also must be included: ‘‘The list price for a [30-day supply of] [typical course of treatment with] [name of prescription drug or biological product] is [insert list price]. If you have health insurance that covers drugs, your cost may be different.’’

3. Enforcement of Lanham Act Claims Will Likely Rise.

The Final Rule specifies that the Department of Health and Human Services will maintain a public list of the prescription drugs and biological products advertised in violation of these requirements, which will be published no less than annually. No other specific enforcement mechanisms are included; however, CMS has stated that it anticipates the primary enforcement mechanism for this Final Rule to be the threat of private actions under the Lanham Act for unfair competition in the form of false or misleading advertising. The Final Rule explicitly preempts any state law based on a claim that depends on any pricing statement required by the Final Rule and encourages Lanham Act lawsuits among competitors. A Lanham Act claim may accuse a drug manufacturer of false advertising if it does not include list price information in its ads because such omission could implicitly suggest that the product costs less than $35 a month.

Industry members should take immediate steps to review the Final Rule and begin modifying their ads accordingly. For more information or to discuss potential implications of this Final Rule, please consult the authors or another member of the McGuireWoods Life Sciences Team.