On October 15, 2018, Secretary of Health and Human Services (HHS) Alex Azar delivered remarks at a National Academy of Medicine event in which he provided an update on the Trump Administration’s implementation of the American Patients First Blueprint to reduce drug prices and out-of-pocket costs. Secretary Azar summarized a number of recent Administration policy changes, including proposed expanded reductions in Medicare reimbursement under the 340B drug discount program, allowing Medicare Advantage plans to incorporate step therapy for Part B drugs, and allowing Part D plans to begin implementing indication-based formulary designs, among others.

Secretary Azar’s remarks were timed with the Administration’s release of a proposal to require manufacturers of prescription drugs and biological products to disclose, in direct-to-consumer (DTC) television advertisements, the Wholesale Acquisition Cost (WAC or list price) of such drugs and products for which payment is made directly or indirectly under Medicare or Medicaid. Specifically, HHS proposes that manufacturers provide the WAC for a typical 30-day regimen or for a typical course of treatment, whichever is more appropriate, as determined on the first day of the quarter during which the advertisement is being aired or otherwise broadcast, using the following specific language: “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.”

The proposed rule is scheduled for publication in the Federal Register on October 18, 2018, after which stakeholders will have 60 days to submit comments. HHS specifically seeks comment on a variety of topics including, but not limited to:

  • whether the final rule should include more specific requirements with respect to the required language, including text size, contrast requirements, and duration, among others;
  • whether WAC is the amount that best reflects the list price for purposes of price transparency and comparison shopping;
  • whether 30-day supply and typical course of treatment are appropriate metrics for a consumer to gauge the cost of a drug;
  • how to treat an advertised drug that must be used in combination with another non-advertised drug or device;
  • whether the cost threshold of $35 to be exempt from compliance is an appropriate level and metric for the exemption;
  • whether to apply the proposed requirements to other media formats such as radio, magazines, newspapers, internet websites, and social media;
  • whether compliance with the rule should be a condition of payment for the federal healthcare programs; and
  • whether to enforce the new price transparency requirements through the threat of private actions under Lanham Act section 43(a).

According to the proposed rule, HHS determined that the policy is necessary to the efficient administration of the Medicare and Medicaid programs and issued the proposed rule to promote the responsible use of federal funds. The proposed rule is issued under sections 1102 and 1871 of the Social Security Act (Act). Section 1102(a) of the 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.” Citing Thorpe v. Housing Authority of City of Durham, 393 U.S. 268, 277 n.28 (1969), HHS argues that section 1102 grants the Secretary “broad rule-making authority” for both Medicare and Medicaid. Section 1871(a) 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].” Similarly, HHS cited Cottage Health System v. Sebelius, 631 F. Supp. 2d 80, 92 (D.D.C. 2009) in support of its contention that the Secretary retains broad rulemaking authority with respect to the Medicare program under section 1871(a) of the Act.

Secretary Azar foreshadowed additional regulatory action to address the difference between negotiated and list prices, which Secretary Azar has previously attributed, at least in part, to the industry’s reliance on rebates. Since July, the White House has been reviewing a proposed rule that purports to modify the federal Anti-Kickback Statute’s safe harbor protections for rebates as a means to shift the industry toward a system of fixed, up-front discounts. Secretary Azar encouraged the industry to undertake this transition voluntarily but noted that, as with the DTC advertising proposal, HHS is prepared to take regulatory action to spur industry reform.