Pharma’s Latest Headache: Including Drug Prices in TV Ads

Drug companies, which have learned to live with advertisements calling out a litany of possible side effects for their drugs, may want to take a couple of aspirin.

By Sheldon Bradshaw, partner, King & Spalding

Drug companies, which have learned to live with advertisements calling out a litany of possible side effects for their drugs, may want to take a couple of aspirin. That’s because the Department of Health and Human Services recently announced a new proposed rule by the Centers for Medicare and Medicaid Services that would require them to disclose the list price — more precisely, the wholesale acquisition cost — of medications they sell in direct-to-consumer television ads.

While making drug prices more transparent is a laudable goal, posting the wholesale list price in an ad will not provide consumers any insight into how much they will actually pay for the drug. Instead, it will only serve to mislead and harm patients. And, for those who still care about such things, compelling drug companies to engage in government-required speech violates the First Amendment.

drugprices3As CMS should know, a drug’s wholesale acquisition cost has little bearing on what price consumers actually pay out-of-pocket for medication. List prices are subject to a full range of potential rebates and discounts. After those adjustments have been applied, actual costs depend on consumers’ insurance plan, including copay and deductible requirements, as well as their eligibility to participate in third-party copay and assistance programs, such as those operated by pharmaceutical companies. Disclosure of the list price will no more help consumers understand what they will ultimately pay for a medication than had CMS required drug makers to use a randomly generated three-digit number as the advertised price.

By mandating pharmaceutical companies to post irrelevant and misleading pricing information in their TV advertising, there is a serious risk that patients will be confused and dissuaded from filling prescriptions for therapeutically important medications. Indeed, patients may be deterred from using essential drugs with high list prices in favor of less effective products or taking none at all, even though the patients themselves would face little to no actual out-of-pocket costs for the drugs.

In addition to revealing a shocking naiveté about drug pricing, CMS’s proposed rule violates the First Amendment, which prohibits the government from compelling companies to engage in speech to convey a particular message favored by the government. The Supreme Court has long held that the Constitution limits the government’s ability to regulate the content of speech by forcing companies to communicate particular pricing information to consumers and others.

As a result, laws that compel speech — including those that regulate how sellers may communicate their prices — are subject to heightened judicial scrutiny. Those laws are permissible under our Constitution only if they are narrowly tailored to serve an especially compelling governmental interest. It should go without saying that the government never has a compelling interest in misleading the public. For this reason alone there is no compelling government interest in requiring pharma companies to disclose the list price of drugs they advertise.

In attempting to explain why compelled speech isn’t burdensome, it appears that CMS is blissfully unaware that its sister agency, the Food & Drug Administration, imposes requirements on drug advertising to ensure it includes a fair balance of risk and benefit information.

For example, CMS blithely asserts that, aside from disclosure of the list price at the end of a drug ad, pharma companies have the rest of the ad to convey other information of its choosing about the drug. FDA, however, requires that certain, detailed risk information (referred to as the Major Statement) be included in advertising. It is not uncommon for the Major Statement to take up to 30 seconds – thus, if the CMS-mandated disclosure takes another five to 10 seconds (as it must appear on the screen long enough to be read), then in reality there is very little time for the company to “convey other information of its choosing,” including the actual benefits of the product.

CMS’ apparent unfamiliarity with FDA’s regulation of drug advertising is illustrated by its paternalistic suggestion that pharma companies should welcome the opportunity to include list pricing because it can use the occasion to also include the (presumably higher) price of competitor’s products. The FDA position is that including a competitor’s prices in an ad is almost always misleading for reasons noted above – i.e., it’s impossible to include all the factors that will accurately determine how much a person will ultimately pay for a particular drug.

In any event, the government’s proposed rule is not narrowly tailored. Under the HHS umbrella sit a number of federal agencies. Tellingly, it was CMS, not FDA, that proposed the rule, so the government interest is not related to drug safety, but instead is focused on the communication of pricing information to Medicare Part D beneficiaries. CMS does not need to take over a pharmaceutical company’s advertising to disseminate pricing information to this group. Indeed, CMS has numerous other ways to disseminate such information.

Requiring disclosure of list prices in drug advertising is ill-conceived and unconstitutional. There are myriad better ways to inform patients about the cost of their drugs, such as having them contact their insurance provider or pharmacist. Thankfully, that goal can be achieved without misleading consumers and trampling the Constitution.

Sheldon Bradshaw served as a deputy assistant attorney general in the Department of Justice’s Office of Legal Counsel and as chief counsel of the Food and Drug Administration during the George W. Bush administration. He is currently a partner at King & Spalding.

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