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ADDRESSING THE IMPACT OF PRICING TRANSPARENCY LAWS IN THE U.S.

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Responding to a proposal released by Pharmaceutical Research and Manufacturers of America (PhRMA) on October 15, 2018, the Trump administration announced specific guidance to pharmaceutical drug manufacturers wherein they would be required to cite the wholesale acquisition costs (WAC) for pharmaceutical products and biologics within their consumer advertising. This was a response to a PhRMA proposal to provide more transparency in drug pricing to patients. Regardless of where this confrontation nets out, the manner in which drug companies advertise medications to consumers will undergo a radical shift in the coming months.

Background:

The issue of providing greater transparency into drug pricing has gained significant momentum over the past two years following the passage of Act 165 in Vermont. The Act requires a state oversight board (The Green Mountain Board) to identify drugs that the state spends significant healthcare dollars on and for which the wholesale acquisition price has increased by 50 percent or more over the past five years, or by 15 percent or more over the past 12 months. The Board reports its findings to the State Attorney General, who may require manufacturers to submit information and documentation justifying the price. Since then, we have seen numerous states follow suit with similar laws demanding greater transparency into drug pricing, leading to the passage of the Durbin-Grassley Amendment this past summer. With the Amendment, the Senate approved $1MM for the Department of Health & Human Services to implement rules for the pharmaceutical industry requiring them to list prices in their Direct-to-Consumer (DTC) advertisements.

On October 15, 2018, this issue reached a crescendo when PhRMA issued a statement outlining their proposal to ensure greater transparency into prescription drug costs and the factors that influence pricing. Under the PhRMA proposal, member companies’ DTC television advertisements would be required to direct patients to information about medicine costs, including the list price of the medicine, out-of-pocket costs, and other context about the potential cost of the medicine and available financial assistance.

PhRMA President and CEO Stephen Ubl reported that this is a direct response to pressure from Congress and the Trump Administration for the industry to provide cost information in DTC advertisements, and that member companies “are voluntarily stepping up to the plate.” Under the proposal, these new guidelines would take effect on April 15, 2019 and signatory companies would begin to roll-out updated advertisements directing users to a patient affordability resource, such as:

Almost immediately after this announcement was made, the White House pushed back by calling for the industry to cite the WAC directly within the advertisement. This rebuttal to the proposal is more in-line with the Durbin-Grassley Amendment and is viewed as an effort to accelerate pharmaceutical manufacturers’ efforts to provide more transparency around cost and ultimately drive down prices.

Health & Human Services Secretary Alex Azar intimated that the industry is taking a more bullish approach to accelerate pricing transparency, noting, “Sometimes markets evolve on their own, but sometimes, it takes government to make the first move, to disrupt a broken system, and lay down new rules of the road.” The administration’s proposal is subject to a 60-day comment period by industry. If enacted, it would require listing the WAC for a typical 30-day regimen of treatment at the end of a commercial and state that the costs consumers pay may be different, if they are covered by insurance.

Given that this has all occurred within the span of a day, it is unclear whether the administration had planned to outline their specific guidelines and PhRMA was pre-emptively trying to get ahead of them, or if this truly was a rapid response from the administration. Nevertheless, a lot of details need to be worked out and this proposal could ultimately face a First Amendment challenge in the courts. While Congress has historically been slow to move to implement any meaningful legislation mandating the industry to publish the WAC within their advertisements, it is likely that this effort will gain support given the stance the White House has taken. Regardless, when we consider the original proposal from PhRMA, it is inevitable that change is coming.

Considerations for Industry

The push to transparency around drug pricing was unavoidable. Improved visibility around drug pricing and the costs to the health system will ultimately serve to bring about more informed patients in the long run. However, the industry is now being tasked with literally incurring a significant investment to improve managed care literacy for the American consumer. Regardless of whether manufacturers will be required to put the WAC directly into their DTC promotions, it will be critical that the industry get ahead of this so that patients have better context in understanding the difference between WAC and their out-of-pocket costs at the pharmacy.

In the coming months, manufacturers would be best served to ensure that they leverage the power of digital to create a more informed patient in terms of the costs involved in manufacturing a prescription medication. Pfizer has already made a significant investment in this area with its “Before it Became a Medicine” campaign, though there is still much work to be done. The industry would be best served to establish better knowledge of the managed care dynamics, including CMS plans, by helping understand:

  1. Difference Between the WAC and What Your Health Plan Pays: This should be a high-level explanation of the cost that the manufacturer charges to wholesalers. It should introduce the numerous intermediaries that come in to play (e.g. Specialty Pharmacy, Pharmacy Benefit Managers, Retail Pharmacies, etc.) before a medication gets dispensed at the pharmacy.
  2. The Purpose of Co-payments and Co-insurance Payments: This should explain the concept and rationale behind “shared risk” so that consumers are aware that these payments are not penalties, as much as incentives to ensure they are appropriately assessing their treatment on a monthly basis. Moreover, this should also provide insight into how pharmaceutical manufacturers work to share these costs with consumers through co-pay cards and why some consumers are ineligible.
  3. How Industry and Managed Care Work to Drive Down Costs: This should explain how managed care and pharmaceutical manufacturers work together to discount drug prices in order to ensure the best possible price for the consumer. Additionally, patients must understand the contracting process in simplified terms so that patients have a better understanding of how this process drives down the cost of the drug from the published WAC.
  4. Be Prepared to Address Regional Nuances Depending on where we net our in terms of guidance, there is a real possibility that brands will have to rely on digital channels to deliver regional-specific messaging for different states and/or regions. For instance, in the event a brand chooses to communicate the average patient out-of-pocket price as a hedge against possible confusion around the meaning of WAC, they will need to account for the average price in a given region based on formulary penetration. This would require accounting for the patient’s IP and location, to serve up the most accurate pricing message.
  5. Complexities in Dosing & the Impact on Cost Given that WAC will frequently vary by dosage, it is important for patients to recognize the role of dose adjustments and the corresponding impact on care. This presents an opportunity to reinforce (for some patient types) the personal economic benefits of improved wellness to both them and the healthcare system as a whole. For instance, the health and economic benefit of weight loss and/or dietary adjustments would benefit not only the patient’s health but also their wallet.

Ultimately, the pharmaceutical industry wants the American healthcare consumer to recognize that there is a vast difference between the published rate and the actual cost incurred to purchase a drug, in the same manner a traveler understands how market factors dictate the differences between the published hotel room rate on the door of a hotel room and the actual cost paid by the consumer.

Questions

If you have any questions about these developments, please reach out to us for more information.

More About the Author

Mark McConaghy

Mark has over 20 years experience in building and supporting brands through data-driven insights that demonstrate sound business impact. With deep experience across a variety of therapeutic categories, supporting both professional and patient campaigns, Mark is passionate about ensuring Klick helps brands maximize their client opportunities in the most efficient manners possible.

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