Medicare and Medicaid Programs; Regulation To Require Drug Pricing Transparency, 52789-52799 [2018-22698]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 83, Number 202 (Thursday, October 18, 2018)]
[Proposed Rules]
[Pages 52789-52799]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22698]



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DEPARTMENT OF HEALTH AND HUMAN SERVICES



Centers for Medicare & Medicaid Services



42 CFR Part 403



[CMS-4187-P]

RIN 0938-AT87




Medicare and Medicaid Programs; Regulation To Require Drug 

Pricing Transparency



AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.



ACTION: Proposed rule.



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SUMMARY: This proposed rule would revise the Federal Health Insurance 

Programs for the Aged and Disabled by amending the Medicare Parts A, B, 

C and D programs, as well as the Medicaid program, to require direct-

to-consumer (DTC) television advertisements of prescription drugs and 

biological products for which payment is available through or under 

Medicare or Medicaid to include the Wholesale Acquisition Cost (WAC, or 

``list price'') of that drug or biological product. We are proposing 

this regulation to improve the efficient administration of the Medicare 

and Medicaid programs by ensuring that beneficiaries are provided with 

relevant information about the costs of prescription drugs and 

biological products so they can make informed decisions that minimize 

not only their out-of-pocket costs, but also expenditures borne by 

Medicare and Medicaid, both of which are significant problems.



DATES: To be assured consideration, comments must be received at one of 

the addresses provided below, no later than 5 p.m. on December 17, 

2018.



ADDRESSES: In commenting, please refer to file code CMS-4187-P. Because 

of staff and resource limitations, we cannot accept comments by 

facsimile (FAX) transmission. Comments, including mass comment 

submissions, must be submitted in one of the following three ways 

(please choose only one of the ways listed):

    1. Electronically. You may submit electronic comments on this 

regulation to https://www.regulations.gov. Follow the ``Submit a 

comment'' instructions.

    2. By regular mail. You may mail written comments to the following 

address ONLY: Centers for Medicare & Medicaid Services, Department of 

Health and Human Services, Attention: CMS-4187-P, P.O. Box 8013, 

Baltimore, MD 21244-8013.

    Please allow sufficient time for mailed comments to be received 

before the close of the comment period.

    3. By express or overnight mail. You may send written comments to 

the following address ONLY: Centers for Medicare & Medicaid Services, 

Department of Health and Human Services, Attention: CMS-4187-P, Mail 

Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

    For information on viewing public comments, see the beginning of 

the SUPPLEMENTARY INFORMATION section.



FOR FURTHER INFORMATION CONTACT: Cheri Rice, (410) 786-6499.



SUPPLEMENTARY INFORMATION:  Inspection of Public Comments: All comments 

received before the close of the comment period are available for 

viewing by the public, including any personally identifiable or 

confidential business information that is included in a comment. We 

post all comments received before the close of the comment period on 

the following website as soon as possible after they have been 

received: https://www.regulations.gov. Follow the search instructions on 

that website to view public comments.



I. Background



A. Purpose



    The purpose of this proposed rule is to reduce the price to 

consumers of prescription drugs and biological products. This rule 

would require direct-to-consumer (DTC) television advertisements for 

prescription drug and biological products for which reimbursement is 

available, directly or indirectly, through or under Medicare or 

Medicaid to include the list price of that product. We are proposing 

this regulation to improve the efficient administration of the Medicare 

and Medicaid programs by ensuring that beneficiaries are provided with 

relevant information about the costs of prescription drugs and 

biological products so they can make informed decisions that minimize 

not only their out-of-pocket costs, but also unreasonable expenditures 

borne by Medicare and Medicaid, both of which are significant problems.

    Markets operate more efficiently when consumers have relevant 

information about a product, including its price, as well as 

alternative products and their prices, before making an informed 

decision whether to buy that product or, instead, a competing one. 

Consumers price shop when looking to purchase a new car, a new house, 

or even a new coffee maker. Price shopping is the mark of rational



[[Page 52790]]



economic behavior. To 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 result of federal law, post the retail or 

``sticker'' price on the side window of each new car offered for sale.

    That has not been the case with prescription drugs or biological 

products, where consumers often need to make decisions without 

information about a product's price. Price transparency is a necessary 

element of an efficient market that allows consumers to make informed 

decisions when presented with relevant information, but for consumers 

of prescription drugs, including those whose drugs are covered through 

Medicare or Medicaid, both the list price and actual price to the 

consumer remain hard to find. Third-party payment, a dominant feature 

of health care markets, is not a prominent feature of other markets and 

causes distortions, such as an absence of meaningful prices and the 

information and incentives that prices provide. In many cases 

prescription drug coverage is provided by an employer to its employees, 

or by the federal government to Medicare and Medicaid beneficiaries. 

These entities providing prescription drug coverage are known as 

payors.

    List price plays a role in negotiations between payors, Pharmacy 

Benefit Managers (PBMs), and manufacturers, which all impact 

beneficiary cost sharing. Payors hire third party providers such as 

PBMs to manage the payor's prescription drug benefit for the payor's 

employees and negotiate improved drug pricing for medications based on 

the level of utilization management a payor is willing to apply to the 

benefit. Prescription drug benefit designs are typically based on the 

manufacturer's list price, however, in many cases the PBM can negotiate 

a lower price than a manufacturer's list price if there is high 

deductible plans, copay or coinsurance, formulary either tiered or 

closed, utilization management including step therapy and prior 

authorizations. The willingness of a payor to apply varying degrees of 

utilization control impacts savings for each individual payor and 

beneficiary. A PBM could have ten different clients with ten different 

benefit designs and it would be possible that an employee from each 

client could get the exact same product and all ten could pay a 

different price.

    A number of factors make list price relevant across a variety of 

drug benefit designs, even though the PBM may have negotiated a lower 

price for the product dispensed to the beneficiary. First, in the 

commercial market, over 40% of beneficiaries are in high deductible 

plans. Under such plans, beneficiaries pay the full list price of the 

product until they meet their deductible, which can be thousands of 

dollars. Second, benefit designs are built off of list price, because 

the negotiated rebate rate is not paid until months after the product 

was dispensed. Third, co-insurance has become a standard payor 

mechanism applicable to high cost drugs, requiring the patient to pay a 

percentage of the list price. All of the top 10 PDPs use coinsurance 

rather than fixed dollar copayments for medications on nonpreferred 

drug tiers, charging 30 percent to 50 percent of each prescription's 

full price in 2017.\1\ Finally, very few drugs have coverage on all the 

formularies in the country. If a plan does not cover a particular drug 

requested by a patient, then the patient may have to pay the full list 

price to access the medication.

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    \1\ MEDPAC Report to the Congress: Medicare Payment Policy. 

March 2017. 383.

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    Due at least in part to the market-distorting effects of third-

party payors, pharmaceutical manufacturers tend not to compete based on 

list price, and hence there is little to no market pressure voluntarily 

to disclose a product's list price. Not only does transparency promote 

a more competitive environment, but data indicate that it will likely 

motivate manufacturers to be less willing to raise prices, which have 

dramatically increased over the past decade. See, e.g., John F. Cady, 

``An Estimate of the Price Effects of Restrictions on Drug 

Advertising,'' 44 Economic Inquiry, 493-510 (Dec. 1976) (finding that 

prescription drug prices were 4.3% higher on average in states 

restricting advertising of prices than in states allowing such 

advertising.). While study results vary depending on the design, the 

population studied, and product at issue, according to the 

Congressional Research Service



[m]ost research suggests that when better price information is 

available prices for goods sold to consumers fall. The largest and 

most straightforward body of evidence relates to the effect of 

advertising, where nearly all research indicates advertising prices 

is associated with lower prices. This reduction in prices suggests 

that advertising's increased information on prices and increases in 

competition outweigh any tendency to increase prices through 

increasing demand and brand identification.\2\

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    \2\ D. Andrew Austin and Jane G. Gravelle, ``Does Price 

Transparency Improve Market Efficiency? Implications of Empirical 

Evidence in Other Markets for the Health Sector, CRS Report 46 (July 

24, 2007).



    This proposed rule seeks to fill this informational gap by adding a 

new subpart L to part 403 to title 42 that would require that for 

prescription drug and biological products that can be reimbursed 

directly or indirectly through or under Medicare or Medicaid, DTC ads 

on television (including broadcast, cable, streaming, and satellite 

communication) for such products must include the product's current 

list price, defined as the Wholesale Acquisition Cost.\3\ CMS is 

proposing this rule in the context of broadcast advertisements, an area 

in which the Supreme Court historically has recognized that the 

government may take special steps to help ensure that viewers receive 

appropriate information. See Red Lion Broad. Co. v. FCC, 395 U.S. 367, 

390, 394 (1969) (``It is the right of the viewers and listeners, not 

the right of the broadcasters, which is paramount.'').

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    \3\ Over-the-counter drugs covered by Medicaid, to the extent 

that they cost more than $35 per month, are not within the scope of 

this rule.

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B. Legal Authority



    HHS recognizes that ``an administrative agency's power to regulate 

. . . must always be grounded in a valid grant of authority from 

Congress.'' Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 

U.S. 120, 161 (2000). Thus, in proposing new regulations HHS must pay 

close attention to the text and structure of the legislation granting 

an agency authority. ``Agencies are . . . `bound, not only by the 

ultimate purposes Congress has selected, but by the means it has deemed 

appropriate, and prescribed, for the pursuit of those purposes.''' 

Colorado River Indian Tribes v. Nat'l Indian Gaming Comm'n, 466 F.3d 

134, 139-40 (D.C. Cir. 2006) (quoting MCI Telecomms. Corp. v. AT&T, 512 

U.S. 218, 231 n.4, (1994)). This proposed rule is issued pursuant to 

sections 1102 and 1871 of the Social Security Act. Section 1102(a) of 

the Social Security Act authorizes the Secretary to issue ``such rules 

and regulations, not inconsistent with this Act, as may be necessary to 

the efficient administration of the functions . . . under this 

Act[,].'' The Secretary has ``broad rule-making authority'' under 

section 1102, for both Medicare and Medicaid. See, e.g., Thorpe v. 

Housing Authority of City of Durham, 393 U.S. 268, 277 n.28 (1969). 

Under Section 1871(a), which instructs ``[t]he Secretary [to] prescribe 

such regulations as may be necessary to carry out the administration of 

the insurance programs under this title [XVIII],'' the



[[Page 52791]]



Secretary similarly possesses broad rulemaking authority with respect 

to the Medicare program. See, e.g., Cottage Health Sys. v. Sebelius, 

631 F. Supp. 2d 80, 92 (D.D.C. 2009). Rules issued under such broad 

rulemaking authorities must be ``sustained so long as [they are] 

`reasonably related to the purposes of the enabling legislation.' '' 

and do not contradict or undermine that legislation. Mourning v. Family 

Publ'ns Servs., Inc., 411 U.S. 356, 369 (1973) (quoting Thorpe, 393 

U.S. at 280-81).

    HHS has concluded that the proposed rule has a clear nexus to the 

Social Security Act. In numerous places in the Act, Congress recognized 

the importance of administering the Medicare and Medicaid programs in a 

manner that minimizes unreasonable expenditures. See, e.g., Sections 

1842(b)(8) and (9), 1860D-4(c)(3), 1860D-4(c)(5)(H), 1866(j)(2)(A), 

1893(g), 1902(a)(64), 1902(a)(65), 1936(b)(2). In addition, Congress 

recognized the value of disclosures about drug prices. In section 

1927(b)(3)(A) of the Act, manufacturers with Part B rebate agreements 

must disclose pricing information to the government, including the 

average manufacturer price, the manufacturer's average sales price, and 

at times the manufacturer's wholesale acquisition cost as well as the 

manufacturer's best price for certain drugs. And in the Part D program, 

section 1860(k)(1) compels certain sponsors offering prescription drug 

plans to disclose the difference between the price of a dispensed drug 

and the price of the lowest priced generic available that is 

therapeutically equivalent and bioequivalent. This rule uses means that 

Congress has generally endorsed--disclosures about drug prices--to 

advance an end that Congress endorsed--minimizing unreasonable 

expenditures--and thus there is a clear nexus between HHS's proposed 

actions and the Act.

    In addition, although Congress has not explicitly provided HHS with 

authority to compel the disclosure of list prices to the public, 

Congress has explicitly directed HHS to operate Medicare and Medicaid 

programs efficiently. Promoting pricing transparency, and thus 

efficient markets, for drugs funded through those programs falls within 

the scope of that mandate. Drugs and biological products are covered 

under the Medicare Part B benefit (authorized by various provisions 

including sections 1832, 1861(s)(2) of the Social Security Act (the 

Act)), the Medicare Part D benefit (authorized by section 1860D-1 et 

seq. of the Act), and as part of hospital inpatient admissions under 

Medicare Part A's prospective payment system (authorized by Sections 

1814, 1886 of the Act). The Medicaid drug benefit is authorized by 

sections 1902(a)(54) and 1905(a)(12).

    The Secretary has determined that the proposed regulation is 

necessary to the efficient administration of the Medicare and Medicaid 

programs. The Secretary has an obligation to ensure the wise 

expenditure of federal trust fund dollars, and may promulgate 

regulations to advance these goals. See, e.g., Sid Peterson Mem'l Hosp. 

v. Thompson, 274 F.3d 301, 313 (5th Cir. 2001); see also 42 U.S.C. 

1395i (Medicare Part A trust fund); 42 U.S.C. 1395t (Medicare Parts B 

and D trust fund). Efficient administration of both Medicare and 

Medicaid encompasses federal efforts to achieve good value for funds 

spent in the Medicare and Medicaid programs. Toward that end, the 

agency has issued regulations that promote the responsible use of 

federal funds. See, e.g., 42 CFR part 413, subpart C (limitations on 

reasonable cost reimbursement), Sec.  421.122 (oversight of 

contractors), Sec.  424.5 (conditions for payment), Sec.  438.4 et seq. 

(actuarial soundness of capitation rates). Nonetheless, the cost to the 

federal government, Medicare beneficiaries, and State Medicaid programs 

of prescription drugs and biological products has been increasing at an 

alarming rate due both to increasing prices and increasing utilization. 

See, e.g., https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Information-on-Prescription-Drugs/. As 

discussed further below, DTC advertising without price transparency has 

a direct nexus to these trends of increasing price and utilization. 

This proposed regulation combats these trends by ensuring that 

beneficiaries are provided with relevant information about the costs of 

prescription drugs and biological products, so they can make informed 

decisions. Based on a combination of all of these reasons, the Act 

authorizes HHS to issue this proposed rule.



C. The Cost of Prescription Pharmaceuticals to Medicare and Medicaid 

and Their Beneficiaries Has Been Rising Annually



    The cost of drugs and biological products over the past decade has 

increased dramatically, and are projected to continue to rise faster 

than overall health spending, thereby increasing this sector's share of 

health care spending. The HHS Office of the Assistant Secretary for 

Planning and Evaluation estimates that prescription drug spending in 

the United States was about $457 billion in 2015, or 16.7 percent of 

overall personal health care services. Of that $457 billion, $328 

billion (71.9 percent) was for retail drugs and $128 billion (28.1 

percent) was for non-retail drugs. Factors underlying the rise in 

prescription drug spending from 2010 to 2014 can be roughly allocated 

as follows: 10 percent of that rise was due to population growth; 30 

percent to an increase in prescriptions per person; 30 percent to 

overall, economy-wide inflation; and 30 percent to either changes in 

the composition of drugs prescribed toward higher price products or 

price increases for drugs that together drove average price increases 

in excess of general inflation.\4\

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    \4\ ASPE Issue Brief. Observations on Trends in Prescription 

Drug Spending. March 8, 2016.

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    Manufacturers of prescription drugs in competitive classes often 

offer price concessions in the form of rebates that are paid after the 

prescription is filled. Manufacturer rebates have grown approximately 

10% of gross Part D drug costs in 2008 to 20% of gross Part D drug 

costs in 2016. The CMS Office of the Actuary projects rebates will 

exceed 28% of gross Part D drug costs over the next ten years.\5\

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    \5\ 2018 ANNUAL REPORT OF THE BOARDS OF TRUSTEES OF THE FEDERAL 

HOSPITAL INSURANCE AND FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST 

FUNDS.

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    Because the list price of a drug does not reflect manufacturer 

rebates paid to a PBM, insurer, health plan, or government program, 

obscuring these discounts can shift costs to consumers in commercial 

health plans and Medicare beneficiaries. Many incentives in the current 

system reward higher list prices, all participants in the chain of 

distribution, e.g., manufacturers, wholesalers, pharmacy benefit 

managers, and even private insurers, gain as the list price of any 

given drug increases. These financial gains come at the expense of 

increased costs to patients and public payors, such as Medicare and 

Medicaid, which ultimately fall on the backs of American taxpayers.

    Furthermore, consumers who have not met their deductible or are 

subject to coinsurance, pay based on the pharmacy list price, which is 

not reduced by the substantial drug manufacturer rebates paid to PBMs 

and health plans. As a result, the growth in list prices, and the 

widening gap between list and net prices, markedly increases consumer 

out-of-pocket spending, particularly for high-cost drugs not subject to 

negotiation.

    The Centers for Medicare & Medicaid Services (CMS) is the single 

largest drug



[[Page 52792]]



payor in the nation. In 2016, CMS and its beneficiaries spent $174 

billion on drugs covered under Parts B and D, and $64 billion on drugs 

covered under Medicaid. An additional sum was spent on drugs furnished 

by hospitals under Part A's inpatient prospective payment system, but 

the precise amount is difficult to isolate because hospitals receive a 

single payment for all non-physician services provided during an 

inpatient stay (including drugs). In 2016, CMS and its beneficiaries 

spent more than $238 billion on prescription drugs, approximately 53 

percent of the $448.2 billion spent on retail and non-retail 

prescription drugs in the United States that year. Each year overall 

expenditures on drugs by both the Medicare and Medicaid programs and 

their beneficiaries have increased at rates greater than inflation both 

in the aggregate and on a per beneficiary basis.

    For Part D, according to the 2018 Trustees' Report, CMS's costs 

have grown,



[o]ver the past 10 years, Part D benefit payments have increased by 

an annual rate of 7.4 percent in aggregate and by 3.8 percent on a 

per enrollee basis. These results reflect the rapid growth in 

enrollment, together with multiple prescription drug cost and 

utilization trends that have varying effects on underlying costs. 

For example, there has been a substantial increase in the proportion 

of prescriptions filled with low--cost generic drugs that has helped 

constrain cost growth, while there has also been a significant 

increase in the cost of specialty drugs that has increased cost 

growth.\6\

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    \6\ 2018 Annual Report of the Boards of Trustees of the Federal 

Hospital Insurance and Federal Supplementary Medical Insurance Trust 

Funds at 106, available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2018.pdf.



    In other words, the per beneficiary cost of drugs through Part D 

has increased nearly 40% over the past decade, while the consumer price 

index has increased only 19% during this same period.\7\

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    \7\ https://data.bls.gov/pdq/SurveyOutputServlet?request_action=wh&graph_name=CU_cpibrief.

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    Over the period 2013-2016, Medicare Parts D and B, and Medicaid 

expenditures on a per beneficiary basis increased by 22%, 32%, and 42% 

respectively. Drug price inflation accounts for some of this growth. 

Between 2006 and 2015, Part D brand drug prices rose by an average 66% 

cumulatively.\8\ Since 2009, Medicare Part B drug spending grew at an 

average rate of about 9% per year. About half of the growth in Part B 

drug spending between 2009 and 2013 was accounted for by price growth, 

which reflects increased prices for existing products and shifts in the 

mix of drugs, including the adoption of new drugs.\9\ Medicaid drug 

spending grew 25% in 2015 and 13% in 2015.\10\

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    \8\ MEDPAC. Report to the Congress: Medicare Payment Policy. 

March 2018. 415.

    \9\ MEDPAC. Report to the Congress: Medicare and the Health Care 

Delivery System. June 2017. 37.

    \10\ CMS National Health Expenditure Data. 2016.

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    Price transparency will help improve the efficiency of Medicare and 

Medicaid programs by reducing wasteful and abusive increases in drug 

and biological list prices--spiraling drug costs that are then passed 

on to federal healthcare program beneficiaries and American taxpayers 

more broadly. First, it will provide manufacturers with an incentive to 

reduce their list prices by exposing overly costly drugs to public 

scrutiny. Second, it will provide some consumers with more information 

to better position them as active and well-informed participants in 

their health care decision-making. As discussed further below, 

consumers make a series of critical health care decisions related to 

their treatment with prescription drugs, and the list price of those 

drugs may be informative to those decisions. Even where the consumer 

may be insured, and therefore will be paying substantially less than 

the list price, the coinsurance borne by some consumers will 

necessarily increase as the prices negotiated by PBMs increase.



D. Direct-to-Consumer Advertising and Its Role, in Part, in Fueling the 

Demand for Higher Cost Drugs



    Prescription drugs, by definition, cannot be accessed directly by 

the consumer; they must be prescribed by a licensed health care 

practitioner. We know, however, that consumers are responsible for 

critical choices related to their treatment with prescription drugs. 

For example, consumers decide whether to make the initial appointment 

with a physician; whether to ask the physician about a particular drug 

or drugs; whether to fill a prescription; whether to take the drug; and 

whether to continue taking it in adherence to the prescribed regimen. 

Drug manufacturers, therefore, spend billions of dollars annually 

promoting their prescription drugs directly to consumers through 

television advertisements and other media. In 2017, over $5.5 billion 

was spent on prescription drug advertising, including nearly $4.2 

billion on television advertising.\11\

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    \11\ Kantar Media Advertising Intelligence--2013 to 2017 

Prescription Medications Ad Spend Data.

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    DTC advertising appears to directly affect drug utilization.\12\ 

Studies show how consumers exposed to drug advertisements can exert 

sufficient pressure on their physicians to prescribe the advertised 

product.\13\ 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.\14\ When manufacturers 

direct their DTC advertising to consumers, such messaging can help 

facilitate more informed discussions between consumers and their health 

care providers in making decisions about treatment. But it can also 

result in increased utilization through patients demanding costly drugs 

and biological products based on advertising messaging, with a 

resulting increase in government spending--a problem if less costly 

alternatives are available, or would be available through market 

pressures resulting from greater price transparency.

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    \12\ Dhaval Dave & Henry Saffer, Impact of Direct-to-Consumer 

Advertising on Pharmaceutical Prices and Demand, 79 Southern 

Economic Journal 97-126 (2012); Balaji Datti & Mary W. Carter, The 

Effect of Direct-to-Consumer Advertising on Prescription Drug Use by 

Older Adults, 23 Drugs Aging 71-81 (2006).

    \13\ Barbara Mintzes et al., Influence of direct to consumer 

pharmaceutical advertising and patients' requests on prescribing 

decisions: Two site cross sectional survey, 324 The BMJ 278-79 

(2002).

    \14\ Kaiser Health Tracking Poll (October 2015) https://www.kff.org/health-costs/poll-finding/kaiser-health-tracking-poll-october-2015/.

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    To have the necessary information in making critical decisions 

related to prescription drugs, consumers need some idea of the 

magnitude of the cost of the advertised drug. More informed consumer 

decision making will impact not only each individual beneficiary's own 

finances, but also positively affect the shared taxpayer responsibility 

to fund the Medicare and Medicaid drug benefit programs.



E. Transparency in Drug Pricing Promotes Lower Prices and More Informed 

Purchasing by Beneficiaries



    Both Titles XVIII and XIX of the Act reflect the importance of 

administering the Medicare and Medicaid programs in a manner that 

minimizes unreasonable expenditures. See, e.g., Sections 1842(b)(8) and 

(9), 1860D-4(c)(3), 1860D-4(c)(5)(H), 1866(j)(2)(A), 1893(g), 

1902(a)(64), 1902(a)(65), 1936(b)(2). In order to enable consumers to 

make good health care choices, which will in turn improve the 

efficiency of the Medicare and Medicaid programs, it is critical that 

they understand the costs associated with various medications. This is 

especially important where



[[Page 52793]]



consumers have cost sharing obligations that may be significant.

    As discussed above, DTC advertisements that do not provide pricing 

information may contribute to rising drug prices and rising premiums. 

Consumers of pharmaceuticals are currently missing information that 

consumers of other products can more readily access, namely the list 

price of the product, which acts as a point of comparison when judging 

the reasonableness of prices offered for potential substitute products. 

In an age where price information is ubiquitous, the prices of 

pharmaceuticals remain shrouded and limited to those who subscribe to 

expensive drug price reporting services.

    Consumers may be able to obtain some pricing information by going 

on-line to the websites of larger chain pharmacies. However, there are 

several reasons consumers are not likely to do this. First, while 

consumers make many critical decisions that bring about the ultimate 

writing of the prescription--making the appointment, asking the doctor 

about particular drugs, etc.--the physician, rather than the patient, 

ultimately controls the writing of the prescription, and the patient 

may not even know exactly which drug is prescribed. Second, meaningful 

price shopping is further hindered because the average consumer has no 

anchor price, such as an MSRP for automobiles, to gauge the 

reasonableness of the various price quotes.

    Arming a beneficiary with basic price information will provide him 

or her with an anchor price, in other words, a reference comparison to 

be used when making decisions about therapeutic options. Triggering 

conversations about a particular drug or biological and its substitutes 

may lead to conversations not only about price, but also efficacy and 

side effects, which in turn may cause both the consumer and the 

prescriber to consider the cost of various alternatives (after taking 

into account the safety, efficacy, and advisability of each treatment 

for the particular patient). Ultimately, providing consumers with basic 

price information may result in the selection of lesser cost 

alternatives, all else being equal relative to the patient's care. We 

seek comment on how providing consumers with the list price of a 

medication may influence interactions with prescribers, the selection 

of drug products, and the perceived efficacy of the prescribed drug. We 

also seek comment about how benefit design influences these choices.

    Requiring DTC television ads to disclose pricing information to 

consumers, as proposed in this rule, is consistent with First Amendment 

jurisprudence. Rules, such as this one, that require certain factual 

commercial disclosures pass muster under the First Amendment where the 

disclosure advances a government interest and does not unduly burden 

speech.

    When the government requires accurate disclosures in the marketing 

of regulated products under appropriate circumstances, it does not 

infringe on protected First Amendment interests. As the United States 

Supreme Court recognized in Zauderer v. Office of Disciplinary Counsel, 

471 U.S. 626 (1985) and recently confirmed in Nat'l Inst. of Family and 

Life Advocates v. Becerra, 138 S. Ct. 2361, 2372, 2376 (2018) 

(``NIFLA''), required disclosures of factual, noncontroversial 

information in commercial speech may be subject to more deferential 

First Amendment scrutiny. Under the approach articulated in Zauderer, 

courts have upheld required disclosures of factual information in the 

realm of commercial speech where the disclosure requirement reasonably 

relates to a government interest and is not unjustified or unduly 

burdensome such that it would chill protected speech. See Zauderer, 471 

U.S. at 651; Milavetz v. United States, 559 U.S. 229, 250, 252-53 

(2010); NIFLA, 138 S. Ct. at 2376 (``[W]e do not question the legality 

of . . . purely factual and uncontroversial disclosures about 

commercial products.''). In addition, the United States Supreme Court 

has long recognized that broadcast viewers and listeners have a 

significant First Amendment interest in receiving information about 

matters of public concern. See Red Lion Broad. Co. v. FCC, 395 U.S. 

367, 390, 394 (1969).

    In this proposed rule, the required disclosure consists of purely 

factual and uncontroversial information about a firm's own product, 

namely the list price of the drug or biological product. The required 

disclosure here advances the government's substantial interest in the 

efficient administration of both Medicare and Medicaid programs by 

minimizing unreasonable expenditures. Increased price transparency will 

help reduce unreasonable expenditures associated with soaring drug 

costs by providing manufacturers with an incentive to reduce their list 

prices by exposing overly costly drugs compared to alternatives to 

public scrutiny, and providing consumers with price information to 

facilitate more informed health care decisions. See generally Pharm. 

Care Mgmt. Ass'n v. Rowe, 429 F.3d 294, 310 (1st Cir. 2005) 

(recognizing that the government interest in cost-effective health care 

justified disclosure of financial interests of pharmacy benefit 

managers); N.Y. State Rest. Ass'n v. N.Y. City Bd. of Health, 556 F.3d 

114, 134 (2d Cir. 2009) (recognizing that the government interest in 

``promot[ing] informed consumer decision-making'' justified posting of 

calories on menus in chain restaurants). Indeed, the United States 

Supreme Court has long recognized a strong societal interest in the 

free flow of information about prescription drug prices:



    Those whom the suppression of prescription drug price 

information hits the hardest are the poor, the sick, and 

particularly the aged. A disproportionate amount of their income 

tends to be spent on prescription drugs; yet they are the least able 

to learn, by shopping from pharmacist to pharmacist, where their 

scarce dollars are best spent. When drug prices vary as strikingly 

as they do, information as to who is charging what becomes more than 

a convenience. It could mean the alleviation of physical pain or the 

enjoyment of basic necessities.



Va. State Bd. of Pharmacy v. Va. Citizens Consumer Council, 425 U.S. 

748, 763-64 (1976).

    Furthermore, these price disclosures would neither ``drown[ ] out 

the [speaker's] own message'' or ``effectively rule[ ] out'' a mode of 

communication. NIFLA, 138 S. Ct. at 2378. Indeed, the requirement to 

add certain information to an advertisement is not unduly burdensome 

where, as here, the manufacturer has the ability to convey other 

information of its choosing in the remainder of the advertisement. See, 

e.g., Spirit Airlines, Inc. v. United States Dep't of Transp., 687 F.3d 

403, 414 (D.C. Cir. 2012) (requirement for airlines to make total price 

the most prominent cost figure does not significantly burdens airlines' 

ability to advertise); Discount Tobacco City & Lottery, Inc. v. United 

States, 674 F.3d 509, 524 (6th Cir. 2012) (size of required warnings is 

not unduly burdensome where remaining portions of their packaging are 

available for other information). Indeed, there are many regulatory 

schemes that require the disclosure of price information to consumers. 

See 12 CFR 1026.33(b)(2) (2018) (mortgage lenders must disclose to 

consumers total annual loan cost rates for reverse mortgages); 12 CFR 

226.18 (2018) (creditors must disclose to borrowers multiple terms 

including the annual percentage rate); 12 CFR 1030.4(a) and (b) (2018) 

(depository institutions must provide to a consumer, before an account 

is opened or service provided, account information including fixed or 

variable interest rates); Mass. Ann. Laws ch. 94 Section 295C (2018) 

(retail



[[Page 52794]]



dealers of motor fuel must publicly display and maintain on each pump a 

sign on which the price per gallon per grade is clearly visible); Minn. 

Stat. Section 239.751 (2017) (retail dealers of petroleum must clearly 

display the price of per gallon and the price cannot be obscured in any 

way).\15\

---------------------------------------------------------------------------



    \15\ In addition, regulated entities are required to report 

price information to the government in a variety of settings. See, 

e.g., 7 CFR 59.301(a) and (b) (2018) (packer processing plants must 

daily report to the Secretary of Agriculture the sale price for 

lambs which the Secretary of Agriculture then makes public); 7 CFR 

59.104(a)(1) (2018) (packer processing plants must report to the 

Secretary of Agriculture twice a day the sale price of each lot of 

``boxed beef'' which the Secretary of Agriculture then makes 

public); 17 CFR 229.1204(b)(1) (2018) (oil and gas producers must 

report to the SEC the average sale price per unit of oil, gas, or 

other product by geographic area for three preceding fiscal years).

---------------------------------------------------------------------------



II. Provisions of Proposed Regulation (Sec. Sec.  403.1200, 403.1201, 

403.1202, 403.1203, and 403.1204)



    As discussed at length above, we are proposing this regulation to 

improve the efficient administration of the Medicare and Medicaid 

programs by ensuring that beneficiaries are provided with relevant 

information about the costs of prescription drugs and biological 

products so they can make informed decisions that minimize not only 

their out-of-pocket costs, but also unreasonable Medicare and Medicaid 

expenditures, both of which are significant problems.

    Keeping these principles in mind, we are proposing to amend 

subchapter A, part 403 by adding a new subpart L. Proposed Sec.  

403.1202 sets forth the requirement that advertisements for certain 

prescription drug or biological products on television (including 

broadcast, cable, streaming, and satellite), must contain a statement 

or statements indicating the Wholesale Acquisition Cost (referred to as 

the ``list price'') for a typical 30-day regimen or for a typical 

course of treatment, whichever is most appropriate, as determined on 

the first day of the quarter during which the advertisement is being 

aired or otherwise broadcast, as follows: ``The list price for a [30-

day supply of ] [typical course of treatment with] [name of 

prescription drug or biological product] is [insert list price]. If you 

have health insurance that covers drugs, your cost may be different.'' 

Manufacturers set the Wholesale Acquisition Cost, also known as list 

price, for their products. The Department recognizes that other prices 

may be paid by distributors, pharmacies, patients, and others in the 

supply chain. Because these other prices vary by contracts established 

by payors or others, only the Wholesale Acquisition Cost is certain to 

be known by the manufacturer when creating DTC ads.

    The price stated in the advertisement must be current as of the 

date of publication or broadcast. This provision would specify that 

where the price is related to the ``typical course of treatment,'' and 

the course of treatment varies depending on the indication for which 

the drug is prescribed, the list price used should be the one for the 

``course of treatment'' associated with the primary indication 

addressed in the advertisement. To the extent permissible under current 

laws, manufacturers would be permitted to include an up-to-date 

competitor product's list price, so long as they do so in a truthful, 

non-misleading way. In Sec.  403.1200(b) we are proposing an exception 

to the requirement at proposed Sec.  403.1202(a) to provide that an 

advertisement for any prescription drug or biological product and that 

has a list price, as defined herein, of less than $35 per month for a 

30-day supply or typical course of treatment will be exempt from these 

transparency requirements.

    We are also proposing that Sec.  403.1200 set forth the scope of 

applicability to specify that this requirement will apply to any 

advertisement for a prescription drug or biological product distributed 

in the United States, for which payment is available, directly or 

indirectly, under titles XVIII or XIX of the Social Security Act.

    We are further proposing in Sec.  403.1203 that the required price 

disclosure set forth in proposed Sec.  403.1202 be conveyed in a 

legible textual statement at the end of the advertisement, meaning that 

it is placed appropriately and is presented against a contrasting 

background for sufficient duration and in a size and style of font that 

allows the information to be read easily. We seek comment on whether 

the final rule should include more specific requirements with respect 

to the textual statement, such as specific text size, contrast 

requirements, and/or duration and specifically what those requirements 

should be.

    We are proposing in Sec.  403.1204(a) that the Secretary shall 

maintain a public list that will include the drugs and biological 

products identified by the Secretary to be advertised in violation of 

this rule. We expect that this information will be posted publicly on a 

CMS internet website no less than annually. No other HHS-specific 

enforcement mechanism is proposed in this rule. However, we anticipate 

that the primary enforcement mechanism will be the threat of private 

actions under the Lanham Act Section 43(a), 15 U.S.C. 1125(a), for 

unfair competition in the form of false or misleading advertising. See, 

e.g., POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct. 2228, 2234 (2014); 

In re McCormick & Co., Inc., Pepper Prod. Mktg. & Sales Practices 

Litig., 215 F. Supp. 3d 51, 59 (D.D.C. 2016). Since Lanham Act cases 

normally involve sophisticated parties doing business in the same 

sector, the likelihood of meritless lawsuits is acceptably low. We seek 

comment on the primary enforcement mechanism and other approaches to 

enforcing compliance.

    Under principles of implied preemption, to the extent State law 

makes compliance with both Federal law and State law impossible or 

would frustrate Federal purposes and objectives, the State requirement 

would be preempted. See, e.g., Murphy v. NCAA, 138 S. Ct. 1461, 1480-81 

(2018); Mutual Pharm. Co. v. Bartlett, 570 U.S. 472, 480 (2013); Geier 

v. American Honda Motor Co., 529 U.S. 861, 872-86 (2000). Obstacle 

preemption is not limited to examining the accomplishment of certain 

objectives; the execution is relevant as well. Geier, 529 U.S. 881-82. 

A state law is therefore preempted ``if it interferes with the methods 

by which the federal statute was designed to reach that goal.'' Gade v. 

Nat'l Solid Wastes Mgmt. Ass'n, 505 U.S. 88, 103 (1992) (quoting Int'l 

Paper Co. v. Ouellette, 479 U.S. 481, 494 (1987)).

    Because this proposed rule is part of a broader initiative to 

reduce the price to consumers of prescription drugs and biological 

products, it would be counterproductive if this rule were to increase 

transactional costs in defending meritless litigation. We believe that 

the existing authority cited above, namely the Lanham Act, is the 

appropriate mechanism for enforcing against deceptive trade practices. 

Accordingly, consistent with our not including any HHS-specific 

enforcement mechanism in this proposal, we are proposing at Sec.  

403.1204(b) that this rule preempt any state-law-based claim which 

depends in whole or in part on any pricing statement required by this 

rule.

    In publishing this proposed rule, we are seeking comment on the 

specifics of the proposal. In particular, we seek comment on whether 

Wholesale Acquisition Cost is the amount that best reflects the ``list 

price'' for the stated purposes of price transparency and comparison 

shopping under this proposed regulation. We also seek comment on 

whether 30-day supply and typical course of treatment are



[[Page 52795]]



appropriate metrics for a consumer to gauge the cost of the drug. We 

further seek comment on how to treat an advertised drug that must be 

used in combination with another non-advertised drug or device.

    We also seek comment as to whether the cost threshold of $35 to be 

exempt from compliance with this rule is the appropriate level and 

metric for such an exemption. This threshold was selected because it 

approximates the average copayment for a preferred brand drug. Given 

that the public is already accustomed to pay roughly this amount for 

drugs--and thus, in the absence of new information, may presume that 

patients will pay this amount for a drug--the public's interest in 

being informed of prices that are equal to or less than this amount is 

less strong than for prices in excess of this amount. We also 

considered incorporating a range for exempted drugs defined as less 

than $20 per month for a chronic condition or less than $50 for a 

course of treatment for an acute condition. In particular, we 

considered whether ``chronic condition'' and ``acute condition'' are 

sufficiently distinguishable to accomplish the stated regulatory 

purpose. These prices are also well below the lowest list price of 

advertised drugs. We seek comment on alternative approaches to 

determining a cost threshold, whether or not the threshold should be 

updated periodically, and if so, how the threshold should be updated.

    We also seek comment on the content of the proposed pricing 

information statement as described herein, including whether other 

specifications should be incorporated. For example, we seek comment as 

to whether a statement expressing an expiration date of the current 

price reflected in the advertisement should be incorporated into the 

required disclosure language so that consumers are informed that drug 

prices are subject to frequent changes and a drug price may differ from 

the date the advertisement is broadcast to the date that the drug is 

dispensed.

    We considered whether this regulation should apply to 

advertisements that are in other media forums such as radio, magazines, 

newspapers, internet websites and other forms of social media, but 

concluded that the purpose of this regulation is best served by 

limiting the requirements to only those identified herein. We seek 

comment as to whether we should apply this regulation to other media 

formats and, if so, what the presentation requirements should be.

    We further seek comment as to whether compliance with this rule 

should be a condition of payment, directly or indirectly, from these 

federal health programs.

    We are also considering additional solutions to provide 

beneficiaries with relevant information about the costs of prescription 

drugs and biological products so they can make informed decisions that 

minimize not only their out-of-pocket costs but also expenditures borne 

by Medicare and Medicaid. We seek comment on whether the following 

approaches could support price transparency and informed decision 

making, either in addition to or in lieu of the measures proposed in 

this notice of proposed rulemaking: (1) Kan enhanced CMS drug pricing 

dashboard, (2) a new payment code for drug pricing counseling, and (3) 

intelligent plan selection or use of intelligent assignment. We are 

also interested in other approaches to price transparency and informed 

decision making that we have not contemplated.

    CMS has released several information products that provide greater 

transparency on spending for drugs in the Medicare and Medicaid 

programs. The CMS Drug Spending Dashboards are interactive, web-based 

tools that provide spending information for drugs in the Medicare Part 

B and D programs as well as Medicaid. The Dashboards focus on average 

spending per dosage unit and change in average spending per dosage unit 

over time. The tools also include additional manufacturer-level drug 

spending information as well as consumer-friendly descriptions of the 

drug uses and clinical indications. We seek comment on whether 

manufacturers or others submitting additional information such as list 

price, typical out-of-pocket cost, therapeutic alternatives, 

pharmacoeconomic research, and other data could be helpful for 

consumers and what information would be most useful. We are also 

interested in feedback about the ease of which CMS dashboard data could 

be used by a non-government entity creating and maintaining such a 

price transparency resource for consumers and others. Additionally, CMS 

could announce updated information when a new DTC ad campaign is 

launched and public service announcements could be made to draw 

attention to the dashboard.

    In an effort to incentivize provider engagement with patients on 

their prescription drug out-of-pocket costs, CMS could create a new 

payment code, in a budget neutral manner, for doctors to dialogue with 

patients on the benefits of drugs and drug alternatives. This would 

likely decrease the number of prescriptions that go unfilled because of 

unexpected high out-of-pocket costs, thus improving adherence, but also 

could increase provider awareness of drug pricing which may influence 

prescribing when appropriate cheaper options are available.

    Through intelligent plan selection or use of intelligent 

assignment, beneficiaries could be provided with an auto-generated list 

of plans each year, based upon their most recent drug utilization, that 

would highlight opportunities for savings though competitor plans or 

alternative drugs (e.g., generics or biosimilars). This intelligent 

plan selection would help alleviate beneficiary anxiety associated with 

plan selection and encourage annual plan review by beneficiaries. 

Enrollment in suggested plans would be voluntary.



III. Collection of Information Requirements



    Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), 

we are required to provide 60-day notice in the Federal Register and 

solicit public comment before a collection of information requirement 

is submitted to the Office of Management and Budget (OMB) for review 

and approval. In order to fairly evaluate whether an information 

collection should be approved by OMB, section 3506(c)(2)(A) of the 

Paperwork Reduction Act of 1995 requires that we solicit comment on the 

following issues:

     The need for the information collection and its usefulness 

in carrying out the proper functions of our agency.

     The accuracy of our estimate of the information collection 

burden.

     The quality, utility, and clarity of the information to be 

collected.

     Recommendations to minimize the information collection 

burden on the affected public, including automated collection 

techniques.



In this proposed rule, we are soliciting public comment on the issues 

in this document that contain information collection requirements 

(ICRs).



A. Wage Data



    To derive average costs, we used data from the U.S. Bureau of Labor 

Statistics' (BLS') May 2016 National Occupational Employment and Wage 

Estimates for all salary estimates (https://www.bls.gov/oes/current/oes_nat.htm). In this regard, the following table presents the mean 

hourly wage, the cost of fringe benefits and overhead (calculated at 

100 percent of salary), and the adjusted hourly wage.



[[Page 52796]]







                          Table F1--National Occupational Employment and Wage Estimates

----------------------------------------------------------------------------------------------------------------

                                                                                                     Adjusted

                      BLS occupation title                          Occupation      Mean hourly   hourly wage ($/

                                                                       code         wage ($/hr)         hr)

----------------------------------------------------------------------------------------------------------------

Office and Administrative Support Occupations...................         43-0000          $18.24          $36.48

Marketing Managers..............................................         11-2021           63.57          127.14

----------------------------------------------------------------------------------------------------------------



    As indicated, we are adjusting our employee hourly wage estimates 

by a factor of 100 percent. This is necessarily a rough adjustment, 

both because fringe benefits and overhead costs vary significantly from 

employer to employer, and because methods of estimating these costs 

vary widely from study to study. Nonetheless, there is no practical 

alternative and we believe that doubling the hourly wage to estimate 

total cost is a reasonably accurate estimation method.



B. ICRs Regarding Pricing Information (Sec.  403.1202)



    Proposed Sec.  403.1202 would require that advertisements for 

certain prescription drug or biological products on television 

(including broadcast, cable, streaming, and satellite), contain a 

statement or statements indicating the Wholesale Acquisition Cost 

(referred to as the ``list price'') for a typical 30-day regimen or for 

a typical course of treatment, whichever is most appropriate, as 

determined on the first day of the quarter during which the 

advertisement is being aired or otherwise broadcast. The presentation 

of this information must appear in a specific format. As stated earlier 

in Section II of this notice of proposed rulemaking, the notification 

must be presented as follows, ``The list price for a [30-day supply of 

] [typical course of treatment with] [name of prescription drug or 

biological product] is [insert list price]. If you have health 

insurance that covers drugs, your cost may be different.''

    We estimate that 25 pharmaceutical companies will run an estimated 

300 distinct pharmaceutical ads that appear on television each quarter 

and will be affected by this rule. For these ads, we estimate that 

administrative support staff and marketing managers will need to verify 

the prescribed language and that the correct price appears in each 

advertisement each quarter. We estimate that this will require 10 

minutes and $24.08 ($34.48/hr x .66) per advertisement for 

administrative support staff. We also estimate 5 minutes and $41.96 

($127.14/hr x .33) per advertisement for marketing managers, for a 

total of 15 minutes (0.25 hours) and $66.04 ($24.08 + $41.96) per 

advertisement per quarter or 300 hours per year across all 

pharmaceutical companies running affected televised advertisements 

((300 ads/quarter) x (4 quarters/year) x (.25 hours/ad). As a result, 

using wage information provided in Table 1, we estimate costs of 

$19,812 (300 ads x $66.04/ad) per quarter or $79,248 in each year 

following publication of the final rule after adjusting for overhead 

and benefits.



C. Submission of PRA-Related Comments



    We have submitted a copy of this proposed rule to OMB for its 

review of the rule's information collection and recordkeeping 

requirements. These requirements are not effective until they have been 

approved by the OMB.

    To obtain copies of the supporting statement and any related forms 

for the proposed collections discussed above, please visit CMS' website 

at website address at https://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing.html or call the 

Reports Clearance Office at 410-786-1326.

    We invite public comments on these potential information collection 

requirements. If you wish to comment, please submit your comments 

electronically as specified in the ADDRESSES section of this proposed 

rule and identify the rule (CMS-4187-P) and where applicable the ICR's 

CFR citation, CMS ID number, and OMB control number.

    See the DATES and ADDRESSES sections of this proposed rule for 

further information.



IV. Response to Comments



    Because of the large number of public comments we normally receive 

on Federal Register documents, we are not able to acknowledge or 

respond to them individually. We will consider all comments we receive 

by the date and time specified in the DATES section of this preamble, 

and, when we proceed with a subsequent document, we will respond to the 

comments in the preamble to that document.



V. Regulatory Impact Analysis



A. Statement of Need



    This proposed rule aims to improve the quality, accessibility and 

affordability of the Medicare Part C and Part D programs and to improve 

the CMS customer experience by providing transparency into drug prices 

with the goal of reducing the price to beneficiaries of certain 

prescription drugs and biological products. Currently, consumers have 

incomplete information regarding the cost of pharmaceutical products. 

As a result, they lack important information needed to inform their 

decisions, which likely leads to inefficient utilization of 

prescription drugs. This proposal will require disclosure of 

prescription drug prices to the general public for products advertised 

on television. This may improve awareness and allow the general public 

to respond, potentially increasing the efficiency of prescription drug 

utilization.



B. Overall Impact



    We acknowledge that examination of the impact of this proposed rule 

is required by Executive Order 12866 on Regulatory Planning and Review 

(September 30, 1993), Executive Order 13563 on Improving Regulation and 

Regulatory Review (January 18, 2011), the (RFA) (September 19, 1980, 

Pub. L. 96-354), Section 1102(b) of the Social Security Act, Section 

202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (March 22, 1995; 

Pub. L., Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 

1999), the Congressional Review Act (5 U.S.C. 804(2)), and Executive 

Order 13771 on Reducing Regulation and Controlling Regulatory Costs 

(January 30, 2017).

    The Regulatory Flexibility Analysis (RFA), as amended, requires 

agencies to analyze options for regulatory relief of small businesses, 

if a rule has a significant impact on a substantial number of small 

entities. For purposes of the RFA, small entities include small 

businesses, nonprofit organizations, and small governmental 

jurisdictions.

    In addition, section 1102(b) of the Act requires us to prepare a 

regulatory analysis for any rule or regulation proposed under Title 

XVIII, Title XIX,



[[Page 52797]]



or Part B of the Act that may have significant impact on the operations 

of a substantial number of small rural hospitals. We are not preparing 

an analysis for section 1102(b) of the Act because the Secretary 

certifies that this rule will not have a significant impact on the 

operations of a substantial number of small rural hospitals.

    Section 202 of UMRA also requires that agencies assess anticipated 

costs and benefits before issuing any rule whose mandates require 

spending that may result in expenditures in any one year of $100 

million in 1995 dollars, updated annually for inflation. In 2018, that 

threshold is approximately $150 million. This proposed rule is not 

anticipated to have an effect only on State, local, or tribal 

governments, in the aggregate, of $150 million or more, adjusted for 

inflation. We believe that the proposed rule would impose mandates on 

the private sector that would result in an expenditure of $150 million 

in at least one year.

    Executive Order 13132 establishes certain requirements that an 

agency must meet when it promulgates a proposed rule (and subsequent 

final rule) that imposes substantial direct requirements or costs on 

state and local governments, preempts state law, or otherwise has 

Federalism implications. Since reviewing this rule does not impose any 

substantial costs on state or local governments, under the requirements 

threshold criteria of Executive Order 13132 are not applicable, we have 

determined that this proposed rule would not significantly affect the 

rights, roles, and responsibilities of State or local governments.

    Executive Orders 12866 and 13563 direct agencies to assess all 

costs and benefits of available regulatory alternatives and, if 

regulation is necessary, to select regulatory approaches that maximize 

net benefits (including potential economic, environmental, public 

health and safety effects, distributive impacts, and equity). The 

Office of Management and Budget has determined that this is an 

economically significant regulatory action. In accordance with the 

provisions of Executive Order 12866, this rule was reviewed by the 

Office of Management and Budget.

    Executive Order 13771 (January 30, 2017) requires that the costs 

associated with significant new regulations ``to the extent permitted 

by law, be offset by the elimination of existing costs associated with 

at least two prior regulations.'' The Department believes that this 

proposed rule is a significant regulatory action as defined by 

Executive Order 12866 which imposes costs, and therefore is considered 

a regulatory action under Executive Order 13771.



C. Anticipated Effects



    This proposed rule would affect the operations of prescription drug 

manufacturers. According to the U.S. Census, there were 1,775 

pharmaceutical and medicine manufacturing firms operating in the U.S. 

in 2015.\16\ We estimate that this rule will require individuals 

employed by these entities to spend time in order to comply with these 

regulations. We estimate the hourly wages of individuals affected by 

this proposed rule using the May 2016 National Occupational Employment 

and Wage Estimates provided by the U.S. Bureau of Labor Statistics. We 

assume that the total dollar value of labor, which includes wages, 

benefits, and overhead, is equal to 200 percent of the wage rate. We 

note that, throughout, estimates are presented in 2016 dollars. We use 

the wages of Lawyers as a proxy for legal staff, the wages of Marketing 

and Sales Managers as a proxy for marketing management staff, and 

Office and Administrative Support Occupations as a proxy for 

administrative support staff. Estimated hourly rates for all relevant 

categories are included below.

---------------------------------------------------------------------------



    \16\ https://www.census.gov/data/tables/2015/econ/susb/2015-susb-annual.html.



                          Table 1--Hourly Wages

------------------------------------------------------------------------

 

------------------------------------------------------------------------

Marketing and Sales Managers...................................   $66.52

Lawyers........................................................    67.25

Office and Administrative Support Occupations..................    17.91

------------------------------------------------------------------------



    In order to comply with the regulatory changes proposed in this 

proposed rule, affected businesses would first need to review the rule. 

We estimate that this would require an average of 2 hours for affected 

businesses to review, divided evenly between marketing managers and 

lawyers, in the first year following publication of the final rule. As 

a result, using wage information provided in Table 1, this implies 

costs of $0.47 million in the first year following publication of a 

final rule after adjusting for overhead and benefits.

    After reviewing the rule, prescription drug manufacturers will 

review their marketing strategies in the context of these new 

requirements, and determine how to respond. For some affected entities, 

this may mean substantially changing their advertising paradigm or 

pricing strategy. For others, much more modest changes are likely 

needed. We estimate that this would result in affected businesses 

spending an average of 20 hours reviewing their policies and 

determining how to respond, with 5 hours spent by lawyers and 15 hours 

spent by marketing managers, in the first year following publication of 

the final rule. In subsequent years, we estimate this would result in 

marketing managers at affected businesses spending an average of 10 

hours implementing policy changes. As a result, using wage information 

provided in Table 1, we estimate costs of $4.74 million in the first 

year and $2.36 million in subsequent years following publication of the 

final rule after adjusting for overhead and benefits.

    We estimate that 25 pharmaceutical companies will run an estimated 

300 distinct pharmaceutical ads that appear on television each quarter 

and will be affected by this rule. For these ads, we estimate that 

administrative support staff and marketing managers will need to verify 

the prescribed language and that the correct price appears in each 

advertisement each quarter. We estimate that this will require 10 

minutes and $24.08 ($34.48/hr x .66) per advertisement for 

administrative support staff. We also estimate 5 minutes and $41.96 

($127.14/hr x .33) per advertisement for marketing managers, for a 

total of 15 minutes (0.25 hours) and $66.04 ($24.08 + $41.96) per 

advertisement per quarter or 300 hours per year across all 

pharmaceutical companies running affected televised advertisements 

((300 ads/quarter) x (4 quarters/year) x (.25 hours/ad). As a result, 

using wage information provided in Table 1, we estimate costs of 

$19,812 (300 ads x $66.04/ad) per quarter or $79,248 in each year 

following publication of the final rule after adjusting for overhead 

and benefits.

    In markets for prescription drugs and biological products, 

consumers often need to make decisions with incomplete information 

about prices. As a result, consumers are unable to market decisions 

that best suit their needs. This rule may improve price transparency 

for consumers in order to ensure that their decisions better align with 

their preferences and their budget, potentially improving the 

allocation of resources in the prescription drug market. On the other 

hand, consumers, intimidated and confused by high list prices, may be 

deterred from contacting their physicians about drugs or medical 

conditions. Consumers might believe they are being asked to pay the 

list price rather than a co-pay or co-insurance and wonder why they are 

paying so much when they already paid a premium for their drug plan. 

This could discourage patients from using beneficial medications, 

reduce access, and



[[Page 52798]]



potentially increase total cost of care. We lack data to quantify these 

effects, and seek public comment on these impacts, including comment on 

the best methods for extrapolating, to the prescription drug market, 

estimates of consumer response to the inclusion of prices in 

advertising that may have been developed in other contexts.

    In addition, we believe that this rule may provide a moderating 

force to counteract prescription drug increases. This rule will provide 

direct evidence of prescription drug prices to the general public, 

potentially improving awareness and allowing the general public to 

signal in some cases that prescription drug prices have risen beyond 

their willingness to pay. We believe that this, in turn, may further 

improve the rule's effect on the efficient utilization of prescription 

drugs. We lack data to quantify these effects, and seek public comment 

on these impacts.

    We believe that this rule may also have impacts along other 

dimensions. In particular, it may affect the number of televised DTC 

advertisements, the rate at which televised DTC advertisements are 

updated, prices for prescription drugs, the set of pharmaceutical 

products available for sale, and utilization of various prescription 

drugs. A possibility not reflected in the quantitative estimates above 

is that, with this proposed rule, drug companies would find the cost of 

revising their ads to be prohibitively expensive (for example, if they 

change their WACs so frequently that there is extensive monitoring and 

revision necessary to ensure that ads airing on a particular day match 

the WAC for that day). In this case, TV drug advertising would be 

reduced. However, we think this is unlikely as prices are usually 

changed on a twice-a-year cycle, and manufacturers may already 

frequently revise their ads to align with quarterly marketing plans. We 

therefore request comment on the following questions:

     What is the frequency with which WACs are changed?

     What would be the effect of this potential advertising 

reduction on patient behavior, including as regards the information 

they seek out from their medical providers?

     How might patient outcomes vary depending on advertising 

choices among competitor drug companies? For example, if only some 

producers of drugs that treat a particular condition cease advertising 

on television, are patients likely to switch between drug brands--from 

the no-longer-advertised to the advertised? If all producers of drugs 

for a condition cease advertising on television, to what extent are 

patients likely to switch to other forms of treatment--such as 

surgery--or to forgo treatment?

     To what extent will drug companies, in order to increase 

the feasibility of continuing to advertise on television, reduce the 

frequency of changing their WACs? What would be the consequences for 

drug supply chains and the prices experienced by patients and other 

payers?

    Furthermore, the Department recognizes that some studies indicate 

direct-to-consumer advertising increases disease awareness, and that if 

this rule decreases disease awareness such that untreated illness 

occurs, there may be other impacts. We lack data to quantify the 

effects of this rule along these dimensions, and we seek public comment 

on these impacts. In addition, we acknowledge that we may not have 

considered all areas in which the rule may have effects, and we seek 

public comment on impacts of the rule in areas we have not discussed 

here.

    As discussed above, the RFA requires agencies that issue a 

regulation to analyze options for regulatory relief of small entities 

if a proposed rule has a significant impact on a substantial number of 

small entities. HHS considers a rule to have a significant economic 

impact on a substantial number of small entities if at least 5 percent 

of small entities experience an impact of more than 3 percent of 

revenue. As discussed below, we calculate the costs of the proposed 

changes per affected business over 2020-2024. The estimated average 

costs of the rule per business peak in 2020 at approximately $2,900, 

and are approximately $1,300 in subsequent years. We note that 

relatively large entities are likely to experience proportionally 

higher costs. As discussed below, total costs of the rule are estimated 

to be $5.2 million in 2020 and $2.4 million in subsequent years. 

According to the U.S. Census, 1,775 pharmaceutical and medicine 

manufacturing firms operating in the U.S. in 2015 had annual payroll of 

$23.2 billion. Since the estimated costs of this proposed rule are a 

tiny fraction of payroll for covered entities, the Department 

anticipates that the proposed rule will not have a significant economic 

impact on a substantial number of small entities. We seek public 

comment on this determination, and the rule's impact on small entities.



D. Alternatives Considered



    We carefully considered the alternative of 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. 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.

    We also carefully considered requiring the disclosure of 

alternative or additional prices. If an alternative definition were 

used for list price, burden imposed by the rule would likely be higher. 

For example, manufacturers set the Wholesale Acquisition Cost, also 

known as list price, for their products. The Department recognizes that 

other prices may be paid by distributors, pharmacies, patients, and 

others in the supply chain. Because these other prices vary by 

contracts established by payors or others, only the Wholesale 

Acquisition Cost is certain to be known by the manufacturer when 

creating DTC ads. As such, it would be harder for manufacturers to 

report prices other than Wholesale Acquisition Cost. We believe that 

requiring the disclosure of WAC minimizes administrative burden among 

feasible alternatives and balances the need to provide information to 

the general public. We seek comments on these regulatory alternatives.



E. Accounting Statement



[[Page 52799]]







                     Table 2--Accounting Table of Benefits and Costs of All Proposed Changes

----------------------------------------------------------------------------------------------------------------

                                                   Present value over 2020-2024     Annualized value over 2020-

                                                   by discount rate (millions of       2024 by discount rate

                    Benefits:                              2016 dollars)            (millions of 2016 dollars)

                                                 ---------------------------------------------------------------

                                                     3 Percent       7 Percent       3 Percent       7 Percent

----------------------------------------------------------------------------------------------------------------

Quantified Benefits.............................               0               0               0               0

----------------------------------------------------------------------------------------------------------------

Non-quantified Benefits: Improved transparency for prescription drug and biological product prices.

----------------------------------------------------------------------------------------------------------------

                     Costs:                          3 Percent       7 Percent       3 Percent       7 Percent

----------------------------------------------------------------------------------------------------------------

Quantified Costs................................            12.1             9.4             2.6             2.3

----------------------------------------------------------------------------------------------------------------

Non-quantified Costs:

See narrative discussion.

----------------------------------------------------------------------------------------------------------------



List of Subjects in 42 CFR Part 403



    Grant programs--health, Health insurance, Hospitals, 

Intergovernmental relations, Medicare, Reporting and recordkeeping 

requirements.



    For the reasons set forth in the preamble, the Centers for Medicare 

& Medicaid Services proposes to amend 42 CFR chapter IV as set forth 

below:



PART 403--SPECIAL PROGRAMS AND PROJECTS



0

 1. The authority citation for part 403 is revised to read as follows:



    Authority:  42 U.S.C. 1302, and 1395hh.



0

2. Add subpart L to read as follows:

Subpart L--Requirements for Direct to Consumer Television 

Advertisements of Drugs and Biological Products To Include the List 

Price of That Advertised Product

Sec.

403.1200 Scope.

403.1201 Definitions.

403.1202 Pricing information.

403.1203 Specific presentation requirements.

403.1204 Compliance.



Subpart L--Requirements for Direct to Consumer Television 

Advertisements of Drugs and Biological Products To Include the List 

Price of That Advertised Product





Sec.  403.1200   Scope.



    (a) Covered pharmaceuticals. Except as specified in paragraph (b) 

of this section, this subpart applies to advertisements for a 

prescription drug or biological product distributed in the United 

States for which payment is available, directly or indirectly, under 

titles XVIII or XIX of the Social Security Act.

    (b) Excepted pharmaceuticals. An advertisement for any prescription 

drug or biological product that has a list price, as defined in Sec.  

403.1201, less than $35 per month for a 30-day supply or typical course 

of treatment shall be exempt from the requirements of this subpart.





Sec.  403.1201   Definitions.



    (a) Biological product. Biological product means any biological 

product, as that term is defined in Public Health Service Act (``PHS 

Act'') section 351(i), that is licensed by the Food and Drug 

Administration pursuant to section 351 and is subject to the 

requirements of Federal Food, Drug, and Cosmetic Act (FDCA) section 

503(b)(1).

    (b) Prescription drug. Prescription drug means any drug, as defined 

in the FDCA section 201(g), that has been approved by the Food and Drug 

Administration pursuant to FDCA section 505 and is subject to the 

requirements of FDCA section 503(b)(1).

    (c) List price. List price means the wholesale acquisition cost, as 

defined in paragraph (d) of this section.

    (d) Wholesale acquisition cost. Wholesale acquisition cost means, 

with respect to a drug or biological, the manufacturer's list price for 

the drug or biological to wholesalers or direct purchasers in the 

United States, not including prompt pay or other discounts, rebates or 

reductions in price, for the most recent month for which the 

information is available, as reported in wholesale price guides or 

other publications of drug or biological pricing data.





Sec.  403.1202   Pricing information.



    Any advertisement for any prescription drug or biological product 

on television (including broadcast, cable, streaming, or satellite) 

must contain a textual statement indicating the current list price for 

a typical 30-day regimen or for a typical course of treatment, 

whichever is most appropriate, as determined on the first day of 

quarter during which the advertisement is being aired or otherwise 

broadcast, as follows: ``The list price for a [30-day supply of] 

[typical course of treatment with] [name of prescription drug or 

biological product] is [insert list price]. If you have health 

insurance that covers drugs, your cost may be different.'' Where the 

price is related to the ``typical course of treatment'' and that course 

of treatment varies depending on the indication for which a drug is 

prescribed, the list price to be used is the one for the ``course of 

treatment'' associated with the primary indication addressed in the 

advertisement.





Sec.  403.1203   Specific presentation requirements.



    The textual statement described in Sec.  403.1202 shall be 

presented at the end of an advertisement in a legible manner, meaning 

that it is placed appropriately and is presented against a contrasting 

background for sufficient duration and in a size and style of font that 

allows the information to be read easily.





Sec.  403.1204   Compliance.



    (a) Identification of non-compliant products. The Secretary shall 

maintain a public list that will include the drugs and biological 

products identified by the Secretary to be advertised in violation of 

this subpart.

    (b) State or local requirements. No State or political subdivision 

of any State may establish or continue in effect any requirement that 

depends in whole or in part on any pricing statement required by this 

subpart.



    Dated: October 11, 2018.

Seema Verma,

Administrator, Centers for Medicare & Medicaid Services.

    Dated: October 11, 2018.

Alex M. Azar II,

Secretary, Department of Health and Human Services.

[FR Doc. 2018-22698 Filed 10-15-18; 4:15 pm]

 BILLING CODE 4120-01-P