In early May, the Trump administration announced that it will require pharmaceutical companies to disclose the “list price” of their prescription drugs in direct-to-consumer television advertisements— a mandate which could potentially have a massive effect on both consumers and big pharma. The requirement, spearheaded by U.S. Health and Human Services Secretary Alex Azar, is set to take effect as early as this summer and will apply to all prescription drugs where the list price is more than $35 for a month’s supply.
The apparent notions behind this requirement are that promoting transparency in pricing will encourage more competition between pharmaceutical companies and, perhaps more pointedly, the mandate will shame the industry into reducing inflated prices. The Trump Administration argues that this will lead to cost savings for consumers as a result. But it’s still to be determined whether this approach will work and whether, in medical terms, it will “do no harm.”
Since Boots Pharmaceuticals aired the first direct-to-consumer (DTC) prescription drug ad in the United States in the early 1980s, direct-to-consumer (DTC) advertising has become fairly commonplace in America. However, for much of the world, direct-to-consumer advertising of prescription drugs is a bit of a head-scratcher and for some, completely counterintuitive. But the U.S. pharmaceutical industry spends billions of dollars each year on DTC ads. Here’s an example of a commercial for AbbVie’s Humira, which is used to treat conditions such as Crohn’s disease, arthritis, and psoriasis.
Why do consumers care about price? In the U.S., under most health plans including Medicare, consumers must pay something out-of-pocket for each prescription. Depending on the drug, the insurance plan and the disease being treated, the co-pay can run from as little as $5 a month to thousands of dollars. So, we are “price sensitive.” Further, the pricing system is opaque, complex and confusing to everyone.
In terms of terminology around drug pricing, there are a couple of pricing terms to know. The “list price” of a drug is the price a manufacturer establishes for a product. Think of the list price of a drug as its “sticker price,” similar to that of a car or mattress— it’s simply the price that’s advertised. Pharma companies are resistant to advertise the list prices of drugs since this price is usually far more than what consumers will actually pay once their insurance, rebates, and other potential discounts kick in.
Pharma companies argue that requiring companies to disclose a drug’s list price may have an impact on whether consumers engage with their doctors when it comes to obtaining prescription drugs that they may need. In other words, including the list price of a drug may cause a consumer to hesitate on seeing their doctor and asking about a treatable condition, particularly if it carries an expensive list price, one that may have no connection to the price the consumer will ultimately pay.
As an alternative to disclosing list prices, pharma companies have proposed including a website link in their ads for consumers to find more meaningful information about drug prices, based on their respective health insurance coverage.
The pharmaceutical industry has signaled its unhappiness with this rule. In fact, the Pharmaceutical Research and Manufacturers of America (PhRMA), the pharmaceutical industry’s leading lobbying group, has said that it sees the requirement to disclose list prices as a violation of their First Amendment rights to free speech, guaranteed in the U.S. Constitution.
In Congress, the notion of taking legislative action to lower drug prices has bipartisan support. In the U.S. Senate, senior senators – Republican Chuck Grassley and Democrat Dick Durbin – have introduced legislation to codify the list price disclosure requirement for DTC ads. As the temperature goes up in Washington, pharma companies are getting a cold reception on Capitol Hill. Pharma’s concerns about this new transparency requirement may well be justified, but politics – not policy – are driving this discussion.