Final Drug Pricing DTC Advertising Rule to Take Effect July 9 – But Faces Challenges from Pharmaceutical Companies

This winter we discussed new regulatory guidelines intended to increase transparency in Direct-to-Consumer (DTC) advertising including a proposed rule from the Centers for Medicare and Medicaid Services (CMS) that would require pharmaceutical manufacturers to list prices in DTC advertising for drugs costing $35 for a 30-day supply.

On May 10, 2019, CMS issued the final rule, which is similar to the proposed version and includes a template for price disclosure: “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.” 42 C.F.R. § 403.1202. The rule says this statement should appear 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.” Id. § 403.1203.

Several comments on the proposed rule highlighted ambiguity in its preemption provision, asserting it could lead to litigation asserting violations of state laws regulating advertising, increasing litigation costs and undermining the goal of lowering drug prices. In response, CMS explained that it “did not intend that the rule would create a regulatory ‘floor’” and clarified that the preemption provision precludes states from imposing any requirement “which is different from, or in addition to” those in the rule. Id. § 403.1204(b).

The regulation requires the Secretary of Health and Human Services to maintain a public list of drugs with advertisements that violate the rule, but CMS has stated it expects the rule to be enforced primarily through private actions under the Lanham Act for unfair competition through misleading or false advertising. See Medicare and Medicaid Programs; Regulation to Require Drug Pricing Transparency.

The rule is set to take effect on July 9, 2019, and already has been challenged by three pharmaceutical companies. On June 14, Amgen, Merck, Eli Lilly, and the Association of National Advertisers, Inc. (ANA) sued in the U.S. District Court for the District of Columbia, asserting that the rule is unlawful because the agency lacks statutory authority to impose the rule and that the rule violates their First Amendment rights.

The companies allege that because the rule requires them to list a product’s wholesale acquisition cost, which is almost always higher than actual cost to the consumer, it will “cause many patients to overestimate how much they would have to pay for treatment, and indeed … [will] cause many patients to conclude—incorrectly—that it is not worth asking their doctors about the advertised product even though the treatment might save or significantly improve the quality of their lives.” According to the complaint, for 120 million Americans there is no connection between out-of-pocket cost and a product’s wholesale acquisition cost.

The companies also argue the CMS rule is subject to intermediate scrutiny under the First Amendment because it constitutes content-based regulation of commercial speech. They claim HHS cannot satisfy its burden to show the rule advances its dual goals of incentivizing manufacturers to reduce their list prices and help consumers make more-informed decisions because (1) the rule tends to create confusion rather than increase transparency regarding drug prices; (2) HHS concedes it lacks evidence showing that compelled price listing will decrease prices; and (3) improving drug price transparency and reducing costs can be achieved through alternative channels less restrictive of speech. The companies also assert that HHS impermissibly relied on its general rulemaking authority under the Social Security Act to create the rule.

The first U.S. television advertisement for a prescription drug to include pricing was a commercial for Xarelto that began airing in late March 2019. Other companies must comply with the rule in any commercials they air this summer while they await the decision of the D.C. District Court on the lawfulness of the rule.