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May 14, 2019

CMS Issues Final Rule Requiring the Disclosure of Drug List Prices in Direct-to-Consumer Television Ads

The Final Rule Requires Manufacturers to Disclose List Prices of Prescription Drugs and Biological Products in Television Advertisements

On May 8, 2019, the U.S. Department of Health and Human Services (HHS or the Department) released a Final Rule from the Centers for Medicare & Medicaid Services (CMS or the Centers) requiring television advertisements for prescription drugs or biological products to include a statement indicating the list price (defined as the wholesale acquisition cost (WAC)) for the product, unless the list price is less than $35 for a typical 30-day regimen or for a typical course of treatment.  The Final Rule makes only small changes to the proposed rule CMS released in October 2018.  CMS appears to expect the Final Rule to be challenged as it dedicated a significant portion of the preamble defending its authority to issue the Final Rule and explaining its view that the Final Rule does not create First Amendment concerns.

The Final Rule was published in the Federal Register on May 10 and will become effective July 9, 2019. 

The requirements are part of President Trump’s larger “American Patients First” blueprint for lowering prescription drug prices and out-of-pocket costs.  Seema Verma, CMS Administrator, commented that the Final Rule “is an important step toward achieving President Trump’s vision for lowering prescription drug prices by bringing much-needed pricing transparency to the convoluted market for prescription drugs.  Equipped with information on prescription drug prices, patients will be better able to make informed decisions and demand value from pharmaceutical companies.”  U.S. Department of Health and Human Services, Press Release, HHS Finalizes Rule Requiring Manufacturers Disclose Drug Prices in TV Ads to Increase Drug Pricing Transparency, May 8, 2019.

The preamble to the Final Rule adds that the rule is designed to address rising prices and costs and their effect on the Medicare and Medicaid programs and on program beneficiaries.  The preamble also addresses direct-to-consumer advertising and suggests that such advertising has contributed to increasing drug costs, fails to provide drug pricing information, and is potentially misleading.

Required Disclosures in Direct-to-Consumer Advertisements

The Final Rule requires any television (including broadcast, cable, streaming, or satellite) advertisement for a prescription drug or biological product for which payment is available, directly or indirectly, under Medicare or Medicaid to contain a textual statement indicating the current list price for a typical 30-day regimen or for a typical course of treatment, whichever is most appropriate.  If the list price of a product is less than $35 for a typical 30-day regimen or for a typical course of treatment, the advertisement is exempted from the disclosure requirement.  CMS selected the $35 threshold because it is a common monthly co-payment for patients.  The Final Rule defines “list price” as WAC and states that the price disclosed in the advertisement should reflect the list price as determined on the first day of the quarter during which the advertisement is being aired.  The requirements apply only to television advertisements and CMS does not currently intend to extend the requirements to other mediums (e.g., social media).

CMS addressed comments regarding the concept of a “typical course of treatment” and how it can vary based on numerous factors.  The Final Rule states that since the list price required to be included in the television advertisements is related to the “typical course of treatment,” if that typical course of treatment varies depending on the indication for which a prescription drug or biological product is prescribed, then the advertisement should include the list price for the primary indication addressed in the advertisement.  The agency did not explain how to address general brand awareness advertisements that do not discuss specific indications; however, CMS noted in the preamble that it will not impose requirements regarding how to determine the typical course of treatment because manufacturers are in the best position to make such determinations.

The Final Rule also prescribes the language that must be included in the advertisement: “The list price for a [30-day supply of] [typical course of treatment with] [name of prescription drug or biological product] is [insert list price]. If you have health insurance that covers drugs, your cost may be different.”  This statement must be included at the end of the advertisement, in writing, in a “legible manner” – meaning that it must be placed appropriately and presented against a contrasting background for sufficient duration and in a size and style of font that allows the information to be read easily.

CMS also noted that companies are permitted to include, to the extent permissible under current laws, an up-to-date list price of a competitor’s product, so long as they do so in a truthful, non-misleading way.  CMS further noted that “nothing in the rule would prevent the manufacturer from presenting additional contextual information, should the manufacturer wish to do so.”  The only limitation CMS identified was compliance with FDA’s advertising and promotion rules.

Penalties for Non-Compliance

The Final Rule does not provide for any monetary fines or penalties, or other enforcement, against manufacturers that are deemed non-compliant with the new requirements.  Instead, CMS will maintain a public list of prescription drugs and biological products that it believes fail to comply with the rule.  CMS expects the list will be published no less than annually.  Despite the lack of prescribed governmental enforcement, CMS believes that the primary enforcement mechanism will be the threat of private actions under the Lanham Act for unfair competition in the form of false or misleading advertising (including the failure to accurately provide required list prices).

Practical Implications

As a practical matter, the Final Rule will impact nearly all (if not all) prescription drugs and biologics that are currently advertised on television.  CMS stated in the Final Rule that it anticipates that 25 pharmaceutical companies will run an estimated 300 distinct pharmaceutical advertisements that appear on television each quarter.  These are the companies that will be most impacted by the rule (and bear the estimated $5.2 million in administrative costs in 2020 and $2.4 million in subsequent years for making changes to their ads).

There are several important issues to consider with the Final Rule.  First, the Final Rule fails to address whether patients, or would-be patients, may be confused by the publication of WAC prices, potentially for an indication inconsistent with the patient’s own needs, when the patient’s actual costs will vary significantly (and often dramatically).  CMS does not acknowledge whether this confusion might create Lanham Act or other unfair advertising liabilities for manufacturers. 

Second, while CMS recognizes that certain products may have different courses of treatment, and allows manufacturers to identify the course of treatment that is the focus of the advertisement, the Final Rule does not clearly address situations in which products are advertised generally for brand awareness and have multiple NDC-9 product codes (and therefore multiple WACs/list prices).  The list prices associated with each course of treatment can vary significantly and manufacturers could face challenges in determining the proper list price to include in the advertisement.  These decisions are critical, as they could not only confuse consumers, but also create potential Lanham Act exposure for misleading advertisements.

Third, the Final Rule compels certain speech, while also leaving open the door for additional “contextual information.”  The Final Rule does not, however, provide guidance on this contextual information and whether the manufacturer can make statements about the disclosed list price and its meaning.  Manufacturers will have to determine what additional information they want to, and are permitted to, include in their advertisements.  Similarly, manufacturers will have to determine if they want to and can provide additional information about out-of-pocket costs and factors that might impact a patient’s out-of-pocket costs.

Finally, absent a formal challenge to the Final Rule, manufacturers currently running television advertisements will have to quickly make changes. Because the requirements go into effect in 60 days, by July 9, 2019, all advertisements will need to conform.

Noted Concerns with the Final Rule

As noted above, CMS received a considerable number of comments raising concerns with the Final Rule.  These challenges tended to focus on two primary areas: whether CMS has the authority to impose the requirements and whether the Final Rule violates the First Amendment.  Comments on these issues were so prevalent that CMS dedicated a quarter of the rule’s preamble to defending its position.

Several commenters suggested that CMS overstepped its authority and that the Final Rule was improper.  CMS asserted that it has authority under sections 1102 and 1871 of the Social Security Act to promulgate regulations to ensure the efficient administration of Medicare and Medicaid (which in this case means rules to require manufacturers to disclose their list prices in direct-to-consumer television advertisements).  CMS further defended its authority to promulgate the rule by stating “that the rule uses means that Congress has generally endorsed – disclosures about drug prices – to advance an end that Congress endorsed – minimizing unreasonable expenditures” – and thus there is a clear nexus between HHS’s proposed actions and the Act.”  CMS also stated that FDA authority is not impacted because the compelled language does not impact the safety or efficacy of the product and therefore a manufacturer updating its advertisement to include the required language would not require additional FDA review or approval.

The Proposed Rule received sharp criticism from commenters who felt that the rule is overly broad and mandates speech that will not directly affect the government’s stated goals.  CMS responded by stating, “As an initial matter, the speech here at issue does not implicate core First Amendment interests. Manufacturers already disclose the very same information at issue, their products’ WACs, to purchasers as well as publishers of various pricing databases and other compendia.”  CMS went on to cite several Supreme Court holdings and the manner in which lower courts applied these holdings to defend its position.

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There remain a number of open issues left unaddressed by the Final Rule. King & Spalding’s drug pricing and reimbursement team members are ready to assist in helping clients implement the requirements of the Final Rule. Our team, including several appellate attorneys, also has significant experience in challenging such rules in court.  For more information, please contact any of the team members.