Seema Verma, the CMS administrator Seema Verma (Photo: Centers for Medicare and Medicaid Services)

Drug makers may soon have to include the list prices of drugs in television ads aimed at U.S. consumers.

The Centers for Medicaid and Medicaid Services (CMS) today posted a draft of regulations that would add price disclosure requirements for TV ads promoting prescription drugs and biological products.

The disclosure requirement would apply to any product covered, either directly or indirectly, by either Medicare or Medicaid.

(Related: Measure That Would Put Prices in Drug Ads Moves Forward)

CMS — an arm of the U.S. Department of Health and Human Services — is preparing to publish a draft of the regulations in the Federal Register on Thursday.

A preliminary version of the text is available here.

What’s in the TV drug ad price disclosure proposal?

The proposed regulation would affect an organization that advertises a prescription drug or biological product covered by either Medicare or Medicaid on TV.

The proposed regulation would not affect organizations advertising over-the-counter drugs covered by Medicaid.

The proposed regulation would require an affected organization that advertises a prescription drug or biological product to include “the product’s current list price, defined as the wholesale acquisition cost.”

Medicare or Medicaid plans pay most of the cost of expensive drugs for consumers with Medicare or Medicaid coverage, but officials say in the introduction to the draft regulations that they want consumers to hear what the full list price of drug advertised on TV.

“List price plays a role in negotiations between payors, pharmacy benefit managers (PBMs), and manufacturers, which all impact beneficiary cost sharing,” CMS officials write in the introduction to the proposed regulation. “A PBM could have ten different clients with 10 different benefit designs and it would be possible that an employee from each client could get the exact same product and all 10 could pay a different price.”

Even though typical beneficiaries get drugs for discounted prices, some do end up having to pay the full price, and the current system gives drug makers no incentive to disclose a drug’s full list price, to compete based on list price, or to hold down the list price, officials say.

What are CMS saying about the regulations?

CMS officials say they believe they have legal authority to impose the price disclosure requirements through statutory provisions that require them to operate the Medicare and Medicaid programs efficiently.

Drug makers spent $4.2 billion on direct-to-consumer TV advertising in 2017, and $1.3 billion on other types of direct-to-consumer advertising, officials say, citing figures from Kantar Media Advertising Intelligence.

Direct-to-consumer “advertising appears to directly affect drug utilization,” officials write. “Studies show how consumers exposed to drug advertisements can exert sufficient pressure on their physicians to prescribe the advertised product. In one recent survey, one in eight adults (12%) said they were prescribed a specific drug after asking a doctor about it as a result of seeing or hearing an advertisement.”

Today, many practical barriers keep consumers from getting drug pricing information, officials say.

Officials estimate their proposed regulation would affect about 25 pharmaceutical companies, and about 300 TV ads every three months. They predict the rule would result in the expenditure of more than $150 by private-sector organizations in at least one year.

What are the drug makers saying?

The drug makers’ trade group, the Pharmaceutical Research and Manufacturers of America (PhRMA), today tried to ward off the proposed regulations by announcing that PhRMA members had agreed to put more information about drug costs in their direct-to-consumer TV ads.

PhRMA said the members’ ads “will soon direct patients to information about medicine costs, including the list price of the medicine, out-of-pocket costs or other context about the potential cost of  the medicine and available financial assistance.”

Steve Ubl, the chief executive officer of PhRMA, said in a conference call that PhRMA does “have concerns about the approach of just putting list prices in ads in isolation,” according to Bloomberg.

“We believe there are substantial statutory and constitutional concerns,” Ubl said, according to Bloomberg.

PhRMA has argued that the list price disclosure requirement could violate members’ First Amendment rights to free expression.

Why not let drug makers start a voluntary price disclosure effort?

CMS officials say in the introduction to the proposed regulations that they considered maintaining the status quo and not pursuing regulatory action.

“However, we believe that the price transparency is fundamental to ensuring that prescription drug and biological product markets function properly,” officials say. “This rule may improve price transparency in order for consumers to make better decisions. As a result, we have determined that the benefits of the rule justify the costs imposed on industry, and as a result we chose to pursue this regulatory action.”

Bloomberg is reporting that Alex Azar II, the HHS secretary, told its reporters that he does not believe letting drug makers implement the PhRMA proposal is enough.

“Our vision for a new, more transparent drug-pricing system does not rely on voluntary action,” Azar said in a statement, according to Bloomberg. “The drug industry remains resistant to providing real transparency around their prices, including the sky-high list prices that many patients pay.”

Seema Verma, the CMS administrator, said in a statement that the new proposed regulation is an example of how CMS is implementing President Donald Trump’s drug cost control blueprint.

(Related: Trump Signs Two Drug Cost Information Bills)

“We are committed to price transparency across-the-board, and prescription drugs are no different,” Verma said. “Patients often pay their cost-sharing or deductible off of a drug’s list price. Today’s proposed rule would ensure that those list prices are included in television advertisements, so patients have the information they need to make informed decisions.”

What are health insurers saying?

Matt Eyles, the president of America’s Health Insurance Plans, a major health insurer trade group, put out a statement praising the proposed regulations.

“Drug prices are out-of-control, and we commend the administration for taking such bold action to lower prices for patients, proposing that manufacturers would be required to disclose their prices in most direct-to-consumer advertisements,” Eyles said in the statement.

“Giving consumers pricing information in drug advertising will empower them to have more informed conversations with their doctor about the best approach to improve their health and manage their medical conditions,” Eyles said.

Eyles himself has roots in the pharmaceutical industry: He worked in the public policy operation at Eli Lilly from 1999 through 2001, and in the public policy operation at Wyeth from 2001 through 2009.

— Read 7 Key Points From Trump’s Drug Cost Fight Blueprint, for Agentson ThinkAdvisor.

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