Drug Pricing: The Next Turns in the US Policy Debate

By Patricia Van Arnum - DCAT Editorial Director

October 24, 2018

Drug pricing took center stage once again with a proposal by US Department of Health and Human Services Secretary Alex Azar to require drug companies in the US, for the first time ever, to include in their TV advertising the list price of any drug paid for by Medicare or Medicaid. But is drug-price transparency really a solution for affordability? Pharma companies and industry experts weigh in.

Drug-pricing transparency in direct-to-consumer advertising

Earlier this year (May 2018), President Donald Trump and US Department of Health and Human Services (HHS) Secretary Alex Azar introduced their plan for addressing ways in which to improve the affordability and reduce the costs of prescriptions drugs. That plan called the American Patients First: The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs laid out four strategies for: increasing drug competition, enhancing negotiation, creating incentives for lower list prices, and bringing down out-of-pocket costs. To create better incentives for list prices, the blueprint called for HHS to consider requiring the inclusion of list prices in direct-to-consumer advertising. Currently, drug companies are required to disclose the major side effects of a drug but are not now required to disclose pricing. HHS is now proposing to require that television ads for prescription drugs include their list price.

The proposal will require direct-to-consumer television advertisements for prescription drug and biological products paid for by Medicare or Medicaid to include the list price if the list price—the wholesale acquisition cost—is greater than $35 for a month’s supply or the usual course of therapy, with the prices updated quarterly. An HHS analysis says that the 10 most commonly advertised drugs have list prices ranging from $535 to $11,000 per month or usual course of therapy. Many patients either pay list price or pay prices calculated based on list price.

Industry response

In response to the HHS proposal, the Pharmaceutical Research and Manufacturers of America (PhRMA), the US-based trade association representing innovator, research-based pharmaceutical companies proposed voluntary measures by PhRMA member companies to increase member companies’ transparency about medicine costs. PhRMA’s plan is to direct patients in direct-to-consumer television advertisements to information about medicine costs, including the list price of the medicine, out-of-pocket costs, or other context about the potential cost of the medicine and available financial assistance. PhRMA said that the biopharmaceutical industry will also launch a new platform that will provide patients, caregivers and providers with cost and financial assistance information for brand-name medicines as well as other patient support resources.

“Our member companies are taking a new approach to how they communicate about medicines in DTC [direct-to-consumer] television advertisements to make it easier for patients to access information about medicine costs,” said Stephen J. Ubl, president and chief executive officer of PhRMA, in an October 15, 2018 statement. “The Administration and Congress have called on our industry to provide cost information in DTC advertisements, and our members are voluntarily stepping up to the plate.”

Earlier this month (October 2018), the PhRMA Board of Directors adopted enhancements to PhRMA’s voluntary DTC principles, Guiding Principles on Direct-to-Consumer Advertisements About Prescription Medicines (originally adopted in 2006). The DTC Principles have been expanded to include a new guiding principle stating: “All DTC television advertising that identifies a medicine by name should include direction as to where patients can find information about the cost of the medicine, such as a company-developed website, including the list price and average, estimated, or typical patient out-of-pocket costs, or other context about the potential cost of the medicine.”

PhRMA says all current PhRMA members have voluntarily and independently committed to being signatories to the updated DTC Principles. The revised Principles become effective on April 15, 2019, but changes to PhRMA members’ DTC television advertisements will begin in the coming months, noted PhRMA. Signatory companies’ CEOs and chief compliance officers will certify on an annual basis that they have policies and procedures in place to foster compliance with the updated principles.

“Today’s [October 15, 2018] announcement represents a big change for our companies, and it will require significant operational changes for individual companies to implement,” said Ubl in PhRMA’s statement. “But we believe this is the right thing to do and is an important step toward providing patients with the information they want.”

PhRMA also pointed out other assistance and tools that member companies provide or will provide to assist patients in prescription drug costs. Over the last decade, PhRMA member companies have participated in the existing Partnership for Prescription Assistance (PPA) program that has served 10 million patients to provide access to their medications for free or nearly free. In a new development, PhRMA said it is also announcing that is it is partnering with consumer, patient, pharmacist, provider and consumer groups, including CancerCare, the National Alliance on Mental Illness, the National Consumers League, the National Community Pharmacists Association, the National Hispanic Council on Aging, and the National Medical Association to develop a new patient affordability platform that will launch in early 2019.

The new platform will include resources, such as: an enhanced search tool that will include medicine-specific public cost and affordability information, including the new information companies will direct patients to via their direct-to-consumer television advertisements; information on how to access company-specific patient assistance and other forms of cost-sharing support, which is not currently available on the PPA site; and resources to help patients navigate their insurance coverage. “These efforts will provide information patients want to make more informed healthcare decisions”, according to PhRMA.

PhRMA raised concerns that the HHS proposal to include list prices in television advertisements would deter patients for seeking medical care and do not reflect the rebates and discounts that may eventually factor into the cost of a drug. “One proposal the Administration included in their drug pricing blueprint and members of Congress have advocated for is a requirement that companies include medicine list prices in DTC television advertisements,” said PhRMA in its statement. “PhRMA remains concerned that just including list prices in these advertisements is not sufficient and could discourage patients from seeking needed medical care. List prices are not a good indicator of what a patient will pay at the pharmacy counter and do not reflect the substantial discounts and rebates negotiated by insurers and pharmacy benefit managers. In addition, any such requirement would raise significant legal issues, including First Amendment concerns.

HHS addresses industry’s response for voluntary drug-price transparency

HHS Secretary Azar addressed the proposal by PhRMA for voluntary measures in direct-to-consumer advertising, calling it a “small step.”

”Patient empowerment and transparency are at the core of the President’s drug-pricing blueprint that was released five months ago,” said HHS Secretary Azar in commenting on the proposal in an October 15, 2018 HHS press statement. “Our vision for a new, more transparent drug-pricing system does not rely on voluntary action. The drug industry remains resistant to providing real transparency around their prices, including the sky-high list prices that many patients pay. So while the pharmaceutical industry’s action today is a small step in the right direction, we will go further and continue to implement the President’s blueprint to deliver new transparency and put American patients first. “

In advocating for its proposal for increased drug-pricing transparency, the HHS highlighted certain issues. It noted that 47% of US consumers have high-deductible health plans, under which they often pay the list price of a drug until their insurance takes effect. All seniors on Medicare Part D have coinsurance for certain types of drugs, which means their out-of-pocket expenses are calculated as a share of list price. List prices are also what patients pay if a drug is not on their insurance formulary, and list prices help determine the insurance plans’ placement of drugs on their formulary. HHS said it is exploring additional ways to improve drug-price transparency and inform consumer decision-making.

Rebates and discounts and drug-price transparency

Another area cited by the HHS in need of more transparency and as laid out in the Administration’s blueprint, is the system of rebates, which HHS says drive list prices up and do not fully benefit patients, an issue also addressed earlier this year by PhRMA.

“Over time, how we pay for medicines in the United States has evolved into a complex system of list prices and rebates that move through an opaque supply chain,” said PhRMA in a July 16, 2018 statement. “A medicine’s rebate—rather than its actual price—often determines if it is covered or where it sits on a formulary. This creates an unfair system in which patients are often paying higher list prices regardless of the discount their insurer receives. Reforms to prevent PBMs [pharmacy benefit managers] and others in the supply chain from being paid off the list price of a medicine can fix broken incentives and make the system work better for patients,” said PhRMA.

PhRMA points out that although discounts and rebates created savings of $150 billion in 2017, “insurers are increasingly asking patients who rely on medicines to pay more out of pocket due to the complex system of list prices, net prices, and rebates,” according to the July 16, 2018 statement. “Furthermore, patients with high-deductible health plans or coinsurance do not realize the benefit of negotiated savings because their out-of-pocket costs are often based on the medicine’s undiscounted list price.” PhRMA said that the industry supports that patients should receive access to negotiated rebates at the pharmacy, rebates should not be allocated solely to premiums, and payers should have tools and information to ensure PBM incentives are well-aligned with plan interests.

“Our industry agrees with the Administration that the status quo is not working in the best interest of patients and our health care system needs to change,” said Stephen J. Ubl, President and Chief Executive Officer of PhRMA, in the July 16, 2018 statement. “Delinking supply-chain payments from the list price will be disruptive and requires our companies and others to adapt, but it is necessary to improve patient affordability. We hope realigning these incentives will result in a greater shift toward value and lower costs for patients.”

Specifically, PhRMA is recommending three main actions: (1) delinking supply-chain payments from the list price of a drug; (2) increasing the position of payers; and (3) ensuring patients benefit from rebates. With regard to delinking supply-chain payments from the list price of a drug, PhRMA says that the current system should shift to one where PBMs and other entities in the supply chain no longer have their fees calculated based on a percent of the list price of a medicine. It also says that payers should have greater visibility into PBM compensation arrangements. It also says that patients should receive the benefits of rebates so that rebates and price concessions that payers receive from biopharmaceutical/pharmaceutical companies should be used to lower the cost-sharing for medicines.

In testimony earlier this year (June 2018) before the US Senate Committee on Health, Education, Labor and Pensions, Azar highlighted measures in the Administration’s blueprint to address high list pricing by removing rebates. "We may need to move toward a system without rebates, where PBMs and drug companies just negotiate fixed-price contracts," Azar said during the June 12 hearing. "Such a system's incentives, detached from these artificial list prices, would likely serve patients far better, as would a system where PBMs receive no compensation from the very pharma companies they're supposed to be negotiating against," Azar said.