Proposed Rule Aimed at Drug Price Transparency Could Lead to Inadvertent Member Confusion

By November 22, 2018CMS, Medicare, Part C, Part D, PBM

On October 18, 2018, the Centers for Medicare & Medicaid Services (“CMS”) published a proposed rule which, if finalized, will amend the Medicaid and Medicare Parts A, B, C, and D programs to change the requirements around television advertisements of certain prescription drugs.  Specifically, the rule proposes to require direct-to-consumer television advertisements of prescription drugs and biological products payable, directly or indirectly, by Medicare or Medicaid (collectively, “drugs”) to include the Wholesale Acquisition Cost, otherwise known as the “list price”, of such drug or product.  Drugs with a list price less than $35 for a 30-day supply or typical course of treatment would be exempt from this rule.

CMS explained that it is proposing the rule to ensure beneficiaries are provided with relevant information about the costs of drugs so they can make informed decisions that minimize their out-of-pocket costs.  In its justification of the proposal to require the addition of the list price of drugs to television advertisements, CMS argued that “[t]o facilitate price shopping, sellers invariably provide potential buyers with the prices of their products; consumers gauge the reasonableness of these prices against alternatives.  Even automobile dealerships, as [a] result of federal law, post the retail or ‘sticker’ price on the side window of each new car offered for sale.”

However, there is some concern that the implementation of this new rule could, rather than increasing consumer awareness, increase consumer confusion instead.  This is because payors hire Pharmacy Benefit Managers (PBMs) to manage the payor’s prescription drug benefit and negotiate improved drug pricing.  For many payors, PBMs negotiate a lower price than the list price for the drugs.  So, the question is whether seeing the list price of a drug in a television advertisement will lead beneficiaries to think that is the price they will be charged for the drug, when in reality those insured by such payors’ plans may be charged a substantially lower price based on their benefit design or the lower PBM-negotiated price.

To that end, the proposed rule will require television advertisements of drugs to contain, along with the list for a 30-day supply of the drug, a statement that if health insurances covers the cost of the drug, the cost charged to the beneficiary may be different from the list price.  However, CMS argues that the list price of drugs is still relevant even to beneficiaries enrolled in these payors’ plans.  First, CMS says, in the commercial insurance market where over 40% of beneficiaries are in high deductible plans, beneficiaries will pay the list price of the drugs until they meet their deductible (and the PBM-negotiated lower drug prices kick in).  Second, CMS states that payors’ benefit designs are built off list price, because the PBM-negotiated rate is not paid until months after the drug is dispensed in the form of a rebate.  CMS also argues that co-insurance has become a standard payor mechanism for higher cost drugs, requiring the beneficiary to pay a percentage of the list price.  Finally, CMS argues that if a payor does not cover a drug needed by the beneficiary, then the beneficiary may have to pay the full list price of the drug.

CMS is the largest drug payor in the nation.  In 2016, CMS and its beneficiaries spent $174 billion on drugs covered under Medicare Parts B and D, and $64 billion on drugs covered under Medicaid.  In the proposed rule, CMS stated that the per beneficiary cost of drugs through Part D has increased nearly 40% over the past decade, whereas the consumer price index increased only 19% during this same time.

CMS expressed hope that, by exposing the list price of drugs to public scrutiny, this proposed rule will provide manufacturers with an incentive to reduce drug list prices.

Comments on the proposed rule are due on or before 5 p.m. on December 17, 2018.  Please see 83 FR 52789 for details on how to submit comments.