Update on Drug Pricing Transparency: What’s Next?

Health Update

On July 9, Judge Amit P. Mehta of the U.S. District Court, District of Columbia vacated an administration final rule that would have required drug manufacturers to disclose wholesale acquisition prices in their television broadcast advertising. The debate around the rule has been raging since October, when the proposal was first published. The final rule, which had been scheduled to go into effect on July 9, could have had an impact on how life sciences companies promote to their customers. The plaintiffs’ primary arguments against the rule were that:

  • The Department of Health and Human Services (HHS) exceeded its authority, because Congress did not grant it the power to regulate drug marketing under the Social Security Act (SSA); and
  • The final rule violated the First Amendment.

These arguments were previewed in a Manatt webinar. To view the program free on demand or download the presentation, click here.

In his decision, Judge Mehta found that HHS lacked the statutory authority under SSA to adopt the final rule and did not reach the First Amendment challenge. The judge found that none of the SSA’s provisions “authorize HHS, in the name of attempting to reduce costs, to regulate the healthcare market itself or market actors that are not direct participants in the insurance programs.” He concluded that “the SSA unambiguously does not delegate to HHS the power to promulgate” the final rule.

The decision also discussed the Food, Drug and Cosmetic Act (FDCA), which vests certain powers in HHS to regulate drug advertising, which HHS has delegated to the Food and Drug Administration (FDA). The judge noted that the FDCA provisions contain specific advertising content-related requirements that do not include drug list price information.      

What’s Next?

Can pharmaceutical companies put the issue of drug pricing transparency behind them? It is too soon to tell whether the decision vacating the rule truly marks the end of the push for drug pricing transparency. Certainly, the government may decide to challenge the ruling. Pricing transparency continues to be an area of focus for the Trump administration, as evidenced by the President’s recent “Executive Order on Improving Price and Quality Transparency in American Healthcare to Put Patients First.” (For details on the Order and its impact on payers and providers, see our first article in this issue.) Members of Congress have also indicated an interest in passing legislation to authorize HHS to impose the requirement. While such a law would overcome the statutory issues that decided the case, it would not impact a court’s view of the possible constitutional weaknesses that we discuss in our webinar. 

In addition, the Pharmaceutical Manufacturers of America (PhRMA) has encouraged companies to share their pricing information voluntarily. Complying with that request could perhaps ward off future regulatory efforts to require price disclosure.

How Could Field Sales Representatives Be Impacted by Price Disclosures?

Even though the court stopped implementation of the price transparency requirement, companies may voluntarily disclose pricing information in line with the PhRMA recommendation. For example, Janssen, a Johnson & Johnson company, shares pricing information in its DTC advertising for Xarelto®, a prescription blood thinner. The Xarelto® ads provide both the list price and potential out-of-pocket costs to help patients better understand what they are likely to pay for the drug.

Any disclosure of pricing in advertising would require companies to provide substantial training to their sales representatives, medical science liaisons (MSLs), marketing staff, healthcare practitioners and others with customer-facing roles. If pricing information appears in ads, salespeople and other company representatives will be more likely to be asked pricing-related questions and be put in a position of having to defend a drug’s cost and/or discuss competitive costs. 

These additional questions around pricing increase the risks that sales reps will go beyond the bounds of approved materials. To be sure sales reps are prepared for the new questions they may face in the field, companies will need to provide very clear scripts detailing exactly what can and cannot be said both about their own pricing and competitive pricing.

“Marketing the spread” presents an area of particularly heightened risk. Marketing the spread violates the False Claims Act (FCA) because a physician or hospital seeks reimbursement from Medicaid or Medicare at the artificially high wholesale price that the manufacturer provided to the government rather than at the lower discounted price that the provider actually paid for the drug. There has been historical concern around marketing the spread, with violations leading to warning letters and, in some cases, substantial fines.

Over the years, companies have done a good job training their sales reps not to get into discussions around pricing, including marketing the spread. The inclusion of pricing information in advertising, however, opens up the risk that discussions will veer into marketing the spread territory. That danger reinforces the need for additional training, as well as for vigilant monitoring by legal and compliance departments to ensure that any discussions around pricing are limited to factual statements—and do not raise the possibility of False Claims Act and/or Anti-Kickback violations.