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Troubles With Drug Pricing Transparency

Experts discuss the complications of drug pricing transparency, focusing on the rule requiring drug manufacturers to disclose list prices in TV advertisements, which has since been blocked by a federal judge.

The final rule from the Centers for Medicare & Medicaid Services (CMS) is part of a larger effort by the Trump Administration to address the high cost of prescription drugs first detailed in the Drug Pricing Blueprint released by the administration in May 2018. The aim of the blueprint, “American Patients First: The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs” is reflected in its subtitle.

Whether or not disclosing drug list prices on advertisements will fulfill the blueprint’s goal in lowering prices and reducing out-of-pocket costs is under considerable debate. Some argue that disclosing the list price will only confuse consumers given that the list price rarely reflects the out-of-pocket costs. Drug companies also argue that patients may be deterred from purchasing drugs they need due to the cost and therefore treatment adherence will decrease. Further, they challenge the rule’s legality on several fronts.

Those in favor of the rule note that the added transparency and ability to hold drug companies responsible for full disclosure of cost will help consumers make more informed decisions about their health care. Another effect of the change would be the new forces that market will bear on drug pricing for consumers, who will be able to better incorporate cost in their purchasing behavior, as well as drug companies, who will face stronger competition to meet consumer demand.


The final rule stipulates that all televised drug advertisements must contain the current list price for a 30-day supply of a drug or for a typical course of treatment (whichever is more appropriate). The exceptions are for drugs that cost less than $35 and for those not provided to Medicare and Medicaid beneficiaries (ie, this is because the rule is under CMS and therefore drugs not provided to these beneficiaries do not fall under the final rule).

“If there’s one thing I want you to remember about the action we took today, it’s that requiring drug companies to level with American patients about their price is about working toward a system where the patient—not the insurer, not the drug company, but the patient—is the one in control of your health care,” said Alex M Azar, II, US Secretary of Health and Human Services, in official remarks made on May 8, 2019 when the final rule was announced.

Patients seem to agree. A February 2019 Kaiser Family Foundation Health Tracking Poll found that 88% of Americans favored the requirement for drug companies to list drug prices in their advertisements. This support was across political party lines.

“Patients should know what they are buying and part of knowing what you are buying is knowing what price you’re paying,” said Gerard A Vitti, president & CEO, Healthcare Financial Inc, Quincy, MA, a firm specializing in enrolling uninsured people into health programs, focusing on the populations for which more price transparency may be most important as they bear the highest out-of-pocket costs.

“The folks most at risk are those who have high deductible plans because those first dollars are paid in full, and people who are uninsured whose cost of care is borne by the member,” Mr Vitti said. Given the prolific growth of high deductible plans, he emphasized how urgent it is to address the problem of high drug costs.

Susan A Cantrell, RPh, CAE, chief executive officer, Academy of Managed Care Pharmacy, however, cautioned that transparency in itself does not necessarily help patients make decisions that will reduce what they pay for drugs.

“We caution CMS that the proposal as written won’t be useful for consumers and could potentially be misleading,” Ms Cantrell said, referring to the fact that the list price does not reflect what most patients actually pay for a drug.

In the final rule, the list price represents the wholesale acquisition cost or the price that manufacturers report as the amount they sell drugs to wholesalers. For most patients, this is substantially higher than the out-of-pocket costs after insurance and copays.

“Simply disclosing the list price could cause confusion, as the patient won’t know how that figure relates to what they will pay at the pharmacy counter,” said Ms Cantrell. “Furthermore, this requirement doesn’t take into account potential generic or alternative brand options that would allow a patient to compare costs of alternatives.”

Wendy Netter Epstein, professor of law and faculty director, The Mary and Michael Jaharis Health Law Institute, DePaul University College of Law, Chicago, IL, said that predicting consumer behavior to price transparency is complicated. “Some patients, particularly those who actually pay list prices, might chose a different drug or a different approach after hearing a high list price,” she said. “But some will tune out the information entirely or list price simply won’t be relevant because the patient will owe a copay.”

What all three experts seem to agree on is that price transparency is a good thing, but simply disclosing the list price of a drug in advertising is, at best, a first step, in making a difference in the wallets of consumers.

Mr Vitti emphasized that patients not only want to know the list price of a drug but additional in-formation that can help make a decision. “Pharma is not restricted from providing more information and can provide more information around general copay amounts for insured people and other information that would help make them make a more informed decision.”

“Health plans make this information available,” Ms Cantrell agreed. She went on to explain that a better approach would be to list what consumers would pay out-of-pocket through copays, co-insurance, or deductibles for different drugs. Patients are encouraged to use this knowledge to have productive conversations with their providers on the best options for their care.”

While Ms Epstein agreed on the importance of consumers knowing the cost of drugs, she pointed out the role of providers in providing this information to their patients. “I think that we need providers who are prescribing these medications to have a better idea of what they are costing their patients. There are too many limitations to advertisements conveying information directly to patients, both in terms of medical literacy and cognitive bias and ultimately providers do the prescribing and we cannot ignore the crucial role they have to play.”


One assumption surrounding more transparency is that giving patients more information about the cost of a drug will make them better informed about purchasing which drugs they choose to buy. The belief is that this will create new market forces effecting drug companies potentially resulting in lower drug prices—based on the competition generated in other service industries when consumers have stronger purchasing power.

However, a number of experts question this premise emphasizing that health care is different from other service industries. An article in The New York Times titled “Why Transparency on Medical Prices Could Actually Make Them Go Higher,” cites a Danish study where cement manufacturers disclosed pricing on their products to customers and prices actually increased 15% to 20%. This was because competitors now knew what the other was charging and could raise prices at the same time, forcing the entire market to become more expensive.

One difference is the complexity of the health care system, including pricing, that can be difficult for consumers to navigate—particularly given the nature of ill health in which consumers, better identified as patients, need guidance in choosing the best course of treatment rather than simply being given a choice of which drugs to take based on cost.

“The best an advertisement can really do is prompt a patient to ask his or her doctor about a possible medication,” said Ms Epstein. “Passed that, I don’t think advertisements are the best way to communicate information necessary for informed choice—to the extent that good information even exists to guide informed choice, which is often not the case.”

Mr Vitti highlighted that health care is not like other industries. “This is not like buying a car, this is about peoples’ health care and about life and death decisions.” He said that the more information consumers/patients have, the better informed they are and the fairer the market in which drugs can be negotiated, referring to the ability of health plans to negotiate drug prices with pharmaceutical companies. “I think the idea of allowing more folks to negotiate through a free market works.”

Whether or not price transparency will result in better negotiating consumer power and lower prices in health care is unknown, a survey conducted by Kaiser Family Foundation in May 2019 on cost-conscious health care shopping behaviors found that only 9% of those surveyed tried to negotiate a lower price for a medical service with a provider and of these who did only 43% were successful.

Regardless of the effects on price, disclosing the list price could result in lowering treatment adherence—or so say the drug companies who cite the fact as a major argument against the final rule.

Mr Vitti does not see pharma’s argument is that if they disclose the list price, patients won’t take their medications, as a valid argument, explaining that their concern is about sales.

“Patients are not adhering to medication protocols because the meds are too expensive,” said Ms Epstein, concurring that the adherence argument misses the point. “If we hide prices, it doesn’t make the meds any less expensive.” She added that hiding prices will not fix the real problem. “Almost a quarter of Americans have trouble paying for drugs they need. Ultimately, the goal has to be to make medications affordable to those who need them.




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