May 17, 2019
Last week, the Trump administration finalized a requirement for drug companies to put the list price of most drugs in TV ads. Since then, there has been some debate about how much it will matter to the larger drug pricing challenge American patients face.
One thing is indisputable: Patients want this information. Surveys have found that huge majorities of Americans support this new requirement. But these surveys also show patients wonder how much the requirement can affect actual drug costs.
So we thought it would be useful to lay out some of the reasons why this new requirement matters, and how it fits into broader efforts to bring down drug costs.
1. List prices matter.
Patients deserve to know the list price of the drugs they need because many of them will pay the list price or a share of it. For the 47 percent of Americans with high-deductible health plans, the price they’ll see in ads essentially is the price, until they hit their deductible. Every single Medicare Part D plan requires coinsurance for particularly expensive drugs, which can range up to 30 percent of a drug’s list price.
Drug companies even sometimes advertise drugs that insurance rarely covers, knowing patients may go ask their doctor about a drug without knowing its unaffordable list price. One of the most commonly advertised drugs, which treats plaque psoriasis, carries a list price of $3,400 a month but is only covered by one of the 25 standalone Medicare Part D plans in the Washington, D.C. area. For the vast majority of Part D beneficiaries around D.C., the list price is the price for that drug.
The vast majority of Americans struggling to afford their drugs are put in that position because they’re paying based on high list prices. It’s not an exaggeration to say that suggesting list prices don’t matter is essentially suggesting there is no problem with high drug costs at all. You don’t need a poll to know that very few American seniors or patients with serious illnesses would agree with that sentiment.
2. Convenient access to cost information matters.
The new rule around TV ads works in tandem with other work we are doing toward this overarching commitment: You deserve to know the cost of the treatment or medicine you’re receiving before you receive it.
After the President released his American Patients First blueprint, a year ago last week, one of the very first actions we took was tackling pharmacy gag clauses, which limited patients’ access to information surrounding prices. In a lot of cases, if a patient pays cash for a drug, it would be cheaper. In fact, one study suggested this could be true in almost a quarter of pharmacy transactions. But because of gag clauses put in place by pharmacy benefit managers, pharmacists sometimes couldn’t direct patients to options that could save them money.
The week we released the blueprint, CMS issued a letter to Medicare Part D plans making it clear that these practices are unacceptable. Then, last fall, President Trump signed two pieces of legislation that banned pharmacy gag clauses throughout our healthcare system for good.
Patients need access to information before they get to the pharmacy, too. That’s why, this week, we finalized a new requirement that Medicare Part D plans offer a real-time pharmacy benefit tool, which provides physicians and patients with information about coverage and cost-sharing—before they make a decision together about the right drug, and before the patient heads to the pharmacy to pick it up.
Information about cost-sharing can also be included right in TV ads—but rarely was until we proposed our requirement. We’ve already seen how that works in a new Johnson and Johnson ad, which began including the list price but also information about the cost-sharing most patients face.
What connects all of these proposals and efforts is ease of use: Just having pricing information somewhere out in the ether isn’t good enough for patients. We want to make it as easy to find as possible.
3. Transparency matters to making our whole drug pricing system more competitive.
Today, drug manufacturers sometimes argue that list prices don’t provide the full picture is because these prices are reduced, in many cases, by substantial rebates. In total, these rebates, part of an opaque system of kickbacks, amount to more than $150 billion each year.
But today, these rebates are not only unknown to patients—they also don’t help reduce the out-of-pocket costs patients pay. Patients pay coinsurance and pay through their deductible based on the list price, not the post-rebate price. In some cases, patients even pay more in their co-pays than the actual post-rebate price of their drug.
That’s why we have proposed having the rebates in Part D, which in 2017 totaled more than $29 billion, turned into discounts that are provided to patients, right at the pharmacy counter. Ultimately, upfront discounts will create a fundamentally fairer, more predictable, and more transparent experience for any American who goes to the pharmacy for a prescription drug.
But replacing rebates with discounts will go further than that: It will remove the incentive to have a substantial gap between a drug’s list price and its negotiated, net price. Drug manufacturers will have no reason not to bring their list prices lower, and much closer to the post-rebate price today—making the prices included in ads that much more meaningful.
All of us who follow drug pricing closely can certainly agree on one thing: There is no silver bullet. But each step taken by the Trump Administration, including the new ad requirement, is a meaningful step toward a simple goal: a drug-pricing market where there is more competition, better negotiation, real incentives for lower prices, and lower out-of-pocket costs for American patients.