On May 8, 2019, the Centers for Medicare and Medicaid Services (CMS) released a final rule to require direct-to-consumer (DTC) television advertisements for prescription drug and biological products distributed in the United States and covered by Medicare or Medicaid to include the list price of the product if the price is $35 or more based on a one-month supply or the usual course of therapy. The final rule, which is scheduled to become effective on July 9, 2019, was finalized largely as proposed with only minor modifications and technical changes.

The final rule represents the first regulatory action that the Trump Administration has finalized following release of the Department of Health and Human Services (HHS) Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs (Blueprint) in May 2018. In a press release accompanying the final rule, HHS noted that it is considering stakeholder comments on a number of recent proposed rules that aim to address “opaque systems” and “perverse incentives.” Accordingly, industry stakeholders should be actively preparing for significant regulatory actions in the near term that could affect the drug supply chain and market access.

Below is an overview of key provisions of the final rule.

Scope of the Regulation

The final rule adds a new subpart L at title 42, part 403 of the Code of Federal Regulations. A new section 403.1200 provides that the requirement to disclose drug pricing information in DTC television advertisements applies to “advertisements for a prescription drug or biological product distributed in the United States for which payment is available, directly or indirectly, under [Medicare] or [Medicaid],” except for “any prescription drug or biological product that has a list price . . . less than $35 per month for a 30-day supply or typical course of treatment . . . .”

A new section 403.1201 sets forth definitions for “biological product,” “prescription drug,” “list price,” and “wholesale acquisition cost” or “WAC” without modification. Pricing Disclosure Requirements

A new section 403.1202 sets forth the requirements for pricing disclosure information that must be included in DTC television advertisements. Specifically, any television advertisement for a prescription drug or biological product must contain “a textual statement indicating the current list price [defined as WAC] 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 required textual statement must read 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.

The regulation addresses variations in the typical course of treatment based on the indicated use of the prescription drug or biological product by requiring the advertisement to include the list price for the typical course of treatment associated with the primary indication addressed in the advertisement.

CMS responded to comments requesting clarification on matters related to the reported list price. CMS noted that, to the extent a National Drug Code reflects an amount of the manufacturer’s product other than a 30-day supply or typical course of treatment, manufacturers will be permitted to make reasonable assumptions to determine the list price for the applicable time period.

CMS clarified that manufacturers may, but are not required to, provide pricing information in addition to the WAC of the drug being advertised, such as a patient’s expected out-of-pocket costs, so long as the information does not interfere with safety and effectiveness information. CMS rejected stakeholder proposals that called for omitting list prices from advertisements and instead directing viewers to other resources where the list price and other relevant drug pricing information can be found, such as a manufacturer’s website. In rejecting the proposal, CMS concluded that an alternative that relied on websites would not adequately achieve CMS’s goal of increasing price transparency.

As initially proposed, CMS will allow manufacturers to provide an up-to-date competitor product’s price in the disclosure statement, so long as manufacturers do so in a truthful and non-misleading way and notwithstanding the potential for gaming.  Presentation Requirements

A new section 403.1203 sets forth the specific presentation requirements for the textual statement. Without significant discussion, CMS finalized its proposed requirement that the textual statement appear “at the end of an advertisement in a legible manner, meaning that it is placed appropriately and presented against a contrasting background for sufficient duration and in a size and style of font that allows the information to be read easily.”  Compliance and Enforcement

A new section 403.1204 provides, without modification from the proposed rule, that the Secretary of HHS “will maintain a public list that will include the prescription drugs and biological products identified by the Secretary to be advertised in violation of [the requirements added by the final rule].”

Stakeholders expressed concern that the Lanham Act would not provide an adequate mechanism to enforce manufacturer compliance with the final rule. Nevertheless, CMS maintained that competing pharmaceutical manufacturers, as opposed to consumers, “are best positioned to identify and act upon advertisements that violate [the] regulation.” Moreover, since Lanham Act cases typically involve sophisticated competitors, CMS views the risk of meritless lawsuits that could ultimately diminish the final rule’s effort to reduce drug prices as “acceptably low.” CMS noted that it considered alternative enforcement mechanisms, including making compliance with the final rule a condition of payment under Medicare and Medicaid. While CMS concluded that more stringent regulation is not warranted at this time, the agency warned that the Secretary will re-evaluate potential options and consider further regulatory actions if there is an “absence of robust compliance.”

In what amounted to the only substantive change to the proposed rule, CMS revised the state law preemption language at the new section 403.1204(b) to clarify that the final rule does not create a regulatory “floor” that would allow states to impose varying requirements on television advertisements that may air in their respective states. To that end, states and their political subdivisions are not permitted to “establish or continue in effect any requirement concerning the disclosure in television advertisement of the pricing of a prescription drug or biological product which is different from, or in addition to, any requirement imposed by [the final rule].”