Ever since the FDA approved advertisements for prescription drugs on television, pharmaceutical companies have been heavily relying on them and collectively represent the third highest spender of any industry in national TV advertising. Despite the rapidly developing alternative media platforms, TV drug marketing is still thriving, as pharma companies generally target the 65-plus population that still watches live television.

Early last week, HHS Secretary Alex Azar announced a proposed rule that will require pharmaceutical manufacturers to reveal the list prices of their medicines in television advertisements to consumers. The rule will  obligate drug companies to include the price in an ad for any medicine covered through Medicare and Medicaid that costs more than $35 a month and will contain the following statement: “The list price for a [30-day supply of] [typical course of treatment with][name of prescription drug or biological product] is [insert price]. If you have health insurance that covers drugs, your cost may be different.”  As a penalty for the failure to provide the statement, a pharmaceutical company will be included on a “shame” list on CMS’s web site, but without fines. The Department believes that the main enforcement mechanism will be implemented by the drug companies themselves. It is anticipated that pharmaceutical manufacturers will refrain from violations out of the threat of private litigation under the Lanham Act for unfair competition and false advertising.

The purpose of the rule, as stated in the preamble to this regulation, is to reduce the cost of prescriptions by providing relevant information.  According to Azar, it is “common-sense to lower prices.” However, the critics, seem to have no good reason to believe that such transparency will ease drug prices. They claim that such a policy could confuse patients, as consumers practically never pay the listing price for a drug. As a result of price disclosures, patients can be intimidated by a high price and refrain from discussing the medication with their physician as an option for treatment. Further, this price transparency seems to be irrelevant to Medicare and Medicaid beneficiaries, whose copays are minimal or virtually non-existent. In response to these concerns, CMS explained that over 40% of people are enrolled in high-deductible plans and have to pay cash for their prescriptions in the deductible period. CMS also declared that transparency of prices is relevant to patients who pay a percentage of a list price as co-insurance, and for this category of patients it could be an indicator of out-of-pocket costs and could help to make an informed decision. Although the legal justification for the rule is based on the responsibility of CMS to operate in a manner that “minimizes reasonable expenditures,” the justification of lowering costs may be weak because most drugs are marketed to a wider population than Medicare and Medicaid recipients.

The rule must also withstand constitutional challenges. Commentators and potential litigants question whether the rule violates the First Amendment’s free speech guarantee, which encompasses a right not to speak. CMS responded to the objection in the preamble and explained that “courts have upheld required disclosures in the realm of commercial speech where the disclosure reasonably relates to a government interest and is not unjustified or unduly burdensome such that it would chill protected speech.”

The proposed rule was published in the Federal Register on October 18 and CMS will accepts comments until December 17.

The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.