Manufacturer ALERT: Transparency in Drug Pricing Can Be Tricky

Historically, prescription drug manufacturers were not required to disclose drug costs in direct-to-consumer (DTC) advertisements, but in May 2019, the rule changed. At that time, the Department of Health and Human Services (HHS), Centers for Medicare and Medicaid Services (CMS) began requiring pharmaceutical companies to disclose list prices in all television advertisements for any prescription drugs or biological products where payment is available under Medicare or Medicaid. The goal of this Disclosure Rule was to improve drug price transparency and inform consumer decision-making to increase price competition and slow the growth of federal spending on prescription drugs.

In June 2019, Merck & Co., Inc., Eli Lilly and Company, Amgen Inc., and the Association of National Advertisers (collectively, “Manufacturers”) challenged the legality of this action (on statutory and constitutional grounds) and in June 2020, the U.S. Court of Appeals for the District of Columbia vacated the rule. In affirming the district court decision in favor of the Manufacturers, the appellate court found that the Disclosure Rule is invalid and beyond the authority and power of HHS to administer Medicare and Medicaid programs and that a pharmaceutical drug’s list price “bears little meaningful relationship to the price that either the federal government or Medicare and Medicaid beneficiaries pay for drugs.”

Moving Forward on Pricing

Despite the ruling, the appeals court did not “categorically” foreclose HHS from regulating pharmaceutical advertisements. It did, however, find that no reasonable reading of the Department’s general administrative authority for Medicare and Medicaid allow HHS to demand the disclosure of pricing information in DTC ads.

Contrary to this drug maker victory, U.S. hospitals recently lost an argument against a CMS rule requiring hospitals to disclose their negotiated rates and standard charges for items and services, including the prices charged to health insurance companies. The U.S. District Court for the District of Columbia held in June 2020 that the regulation was reasonably related to the government’s interest in reducing healthcare costs and giving consumers more pricing data to determine treatment plans.

How Manufacturers Can Prepare for Pricing Changes

Drug makers may need to ultimately list drug prices in DTC ads to allow consumers to make informed decisions on their healthcare spending. After all, CMS already releases several information products on what Medicare and Medicaid pay for prescription drugs, which puts manufacturers on notice that the public is watching what they are charging patients. In addition, a growing number of states have enacted drug price transparency laws, including Connecticut, Louisiana, Maine, Nevada, Oregon, and Vermont which generally require drug makers to report (usually on an annual basis) the reasons behind dramatic price increases, among other required information.

How Frier Levitt Can Help

Frier Levitt will continue to monitor developments and changes in the law relating to promoting and advertising prescription drugs as well as best practices. Frier Levitt life sciences attorneys have extensive knowledge of and experience with navigating the HHS, CMS, and FDA administrative process related to advertising and promotion of prescription drugs. Contact Frier Levitt if you have questions about these court rulings and administrative.