CMS Proposes to Require WAC Disclosure in TV Ads for Rx Drugs

October 16, 2018By Alan M. Kirschenbaum

The rubber has finally hit the road on an idea that earlier this year was considered (and rejected) by Congress, supported in a presidential tweet, and promoted by FDA Commissioner Gottlieb and HHS Secretary Azar. A proposed rule released today by CMS would require pharmaceutical companies to disclose wholesale acquisition cost (WAC) in TV advertisements for prescription drugs.

The rule is relatively straightforward. Any advertisement on TV (including broadcast, cable, streaming, or satellite) for a prescription drug or biological would have to contain the following statement:

The list price for a [30-day supply of] [typical course of treatment with] [name of prescription drug or biological product] is [insert price]. If you have health insurance that covers drugs, your cost may be different.

The “list price” to be inserted is the WAC, which is defined consistent with the current Medicare Part B definition relating to average sales price reporting. For a drug with multiple indications, the list price to be used is the one for the course of treatment associated with the indication advertised. The statement would have to appear at the end of the advertisement in legible text with a style, font, and duration that allows it to be read easily. The preamble (though not the proposed rule itself) states that manufacturers would also be permitted to include truthful and non-misleading information about a competing product’s WAC.

The proposed rule applies to prescription drugs for which payment is available, directly or indirectly, under Medicare or Medicaid, with the exception of products with a WAC of less than $35 per month for a 30-day supply or typical course of treatment. The only penalty for a failure to provide the statement would be inclusion of the manufacturer on a “shame” list on CMS’s web site. However, CMS anticipates that the primary enforcement mechanism will be the threat of private actions under the Lanham Act for false or misleading advertising, asserting optimistically that the threat of meritless lawsuits is “acceptably low.”

The preamble explains that the purpose of this regulation is to reduce the price to consumers of prescription drug and biological products by providing “relevant information” to Medicare and Medicaid beneficiaries so they can make informed decisions to minimize their own out-of-pocket costs and costs to Medicare and Medicaid.

The critical question is whether the WAC is “relevant information.” WAC is defined as the manufacturer’s list price to wholesalers or direct purchasers. Consumers virtually never pay the WAC for a drug. Will the WAC mean anything to consumers or just confuse them? CMS has a three-fold response to the question of relevance. First, according to the preamble, WAC is relevant to patients in the deductible period who have to pay cash. CMS explains that over 40% of beneficiaries in the commercial market are in high deductible plans, under which they may have to pay thousands of dollars in drug costs. However, this fact is of little relevance to Medicare or Medicaid, under which drug deductibles are relatively low or absent. Moreover, while patients in a Medicare or Medicaid deductible period must pay cash, that payment is rarely based on WAC. For example, Medicare Part D enrollees in the deductible period pay the “negotiated price,” which is essentially the amount the Part D plan reimburses the pharmacy for the drug, and which may be quite different from the WAC.

The second reason why WAC is purportedly relevant is that “plan designs are built off of list price, because the negotiated rebate is not paid until months after the product was dispensed.” This statement is incorrect because drug costs taken into account in the design of plan formularies are not list prices, but the plan’s costs for a drug net of manufacturer rebates. Moreover, even if the statement were correct, the WAC would not inform the beneficiary what his or her own expense will be for the advertised drug.

Thirdly, CMS asserts that WAC is relevant to patients who pay a percentage of the list price as co-insurance. That is partially true in some cases. For drugs on specialty or non-preferred tiers, patients may pay a percentage of the allowed amount, though that             amount will not necessarily be the WAC. More importantly, CMS neglects to say that in the overwhelming majority of cases, the copay is a fixed dollar amount, to which the WAC has no relevance.

In short, CMS is correct that there are categories of patients who pay cash or have percentage-based copays, to whom WAC would be at least an indicator of out-of-pocket cost. However, for the large majority of Medicare and Medicaid beneficiaries – those who are insured and have fixed-dollar copays – WAC is irrelevant at best. CMS should consider the possibility that, for this majority, no information in a TV ad is better than confusing information. An insured individual who sees a high WAC in a TV ad may be discouraged from even discussing the drug with his or her physician, not understanding that his or her out-of-pocket expense is a small fraction of that amount. A patient who sees a TV ad comparing the WAC prices of two competing drugs might explore only the one with the lower WAC, though the co-pay for that drug may be the same as, or even greater than, that of the other product. On the other hand, in the absence of any price information in TV ads, an interested patient seeks out accurate and truly relevant information. The patient checks with his or her physician to determine the best treatment, with the insurance plan to find out the actual out-of-pocket cost, and then makes an informed decision.

The preamble addresses a First Amendment objection that will undoubtedly by raised by commenters, and possibly litigants. Freedom of speech encompasses a right not to speak. CMS explains that “courts have upheld required disclosures in the realm of commercial speech where the disclosure reasonably relates to a government interest and is not unjustified or unduly burdensome such that it would chill protected speech.” While few would disagree that CMS has a substantial interest in reducing drug costs for government programs and beneficiaries, it is questionable whether requiring disclosure of information that is of modest relevance to some patients, is of no relevance to most patients, and is potentially confusing is an approach that is reasonably related to that interest.

The proposed rule will be published in the Federal Register on October 18 and CMS will accept comments until December 17.