Earlier this month, the Trump administration finalized a rule that requires drug-makers to list the price of their drugs in TV advertisements if the cost of the drug is higher than $35 for a one-month supply or a usual course of therapy.
The rule will take effect on July 7, 2019.
Direct-to-Consumer Advertising and Drugs
Direct-to-Consumer (DTC) advertising refers to marketing and advertisements that are directed at the consumer of a prescription drug product, rather than the doctor. DTC advertising is run by drug manufacturers and is seen the most with brand name and expensive new drugs.
Currently, the only two countries in the world where DTC advertising is legal are the United States and New Zealand.
DTC advertisements have been legal in the United States since 1962 and are regulated by the Food and Drug Administration (FDA). While some people may view the ads negatively, others support them. Some arguments for DTC ads include:
- DTC ads inform patients about medical conditions and possible treatments
- DTC ads encourage people to seek medical care
- Diseases are more likely to be treated when consumers see a DTC drug ad
- Drug revenue from DTC ads allows drug companies to produce new life-saving products
Conversely, some arguments against DTC advertisements are:
- DTC ads misinform patients by making drugs seem more beneficial than they are
- DTC ads are usually run for new drugs, while it takes years to determine if the drug is safe long-term
- DTC ads encourage overmedicating for normal bodily functions
- Health care costs increase as a consequence of DTC ads
How Will This Change Affect You?
The $35 price point is based on wholesale acquisition cost (WAC), which is not what you, the consumer, actually pays for a drug. WAC is an estimate of what the wholesaler or distributor pays the manufacturer for the drug. This estimate does not include discounts or rebates to the wholesaler.
To help you understand the supply chain and payments in the pharmaceutical industry:
- Wholesale acquisition cost (WAC): The wholesaler pays the manufacturer and the wholesaler receives the drug.
- Average wholesale price (AWP): The pharmacy pays the wholesaler and the pharmacy receives the drug.
- Usual and customary price (U&C): The patient (or their insurance company) pays the pharmacy and the patient receives the drug.
So, the wholesaler pays the WAC price to the manufacturer, and then a pharmacy purchases the drug from the wholesaler for the AWP price.
On the way from wholesaler to pharmacy and pharmacy to the customer, the price is marked up two more times. Therefore, the price you see on TV is what the drug manufacturer is charging, not what your pharmacy ends up charging.
If you are uninsured, you will probably pay a little more than the list price you’ll see on TV. If you are an insured patient, you could pay any amount up to the list price, depending on your insurance coverage.
Will This Lower Prices for Drugs?
Supporters of the rule claim that listing prices on DTC ads will make consumers more informed and better able to choose the best treatment option with their doctor. President Trump stated that this rule will force drug makers to lower their prices to remain competitive, now that the prices are transparent.
However, it is unclear whether this rule will have the intended effect. The pharmaceutical company Johnson & Johnson debuted an ad in March of 2019 for their anticoagulant Xarelto which displayed its monthly WAC price of $448. Along with the WAC price, the ad states, “Most patients pay between $0 and $47 per month,” referring to typical insurance coverage for the drug.
Effects of the Change on the Opioid Crisis
Opioid drugs like hydrocodone, oxycodone, and codeine are mostly generic, so their prices fall under the $35 threshold. Drug companies could use advertisements to highlight how inexpensive opioid pain medications are, but this is not likely to lower the number of prescriptions doctors write.
Drug Prices on TV Ads: Key Points
Keep the following key points in mind about the new change to how drug prices on TV ads are promoted:
- Starting July 7, 2019, direct-to-consumer (DTC) drug ads on TV will display the prices of the drug
- The pricing rule only applied to drugs that cost more than $35 for a one month supply or a usual course of therapy
- The pricing rule uses wholesale acquisition cost (WAC), which is what drug companies charge to wholesalers
- Proponents of the rule say this will make consumers more informed about drug pricing
Department of Health and Human Services. “Medicare and Medicaid Programs; Regulation to Require Drug Pricing Transparency.” 2019. Accessed May 28, 2019. Mattingly, Joey. “Understanding Drug Pricing.” 2012. Accessed May 28, 2019. Ventola, C Lee. “Direct-to-Consumer Pharmaceutical Advertising: Therapeutic or Toxic?” P&T : A Peer-Reviewed Journal for Formulary Management, 2011. Accessed May 28, 2019.
Department of Health and Human Services. “Medicare and Medicaid Programs; Regulation to Require Drug Pricing Transparency.” 2019. Accessed May 28, 2019.
Mattingly, Joey. “Understanding Drug Pricing.” 2012. Accessed May 28, 2019.
Ventola, C Lee. “Direct-to-Consumer Pharmaceutical Advertising: Therapeutic or Toxic?” P&T : A Peer-Reviewed Journal for Formulary Management, 2011. Accessed May 28, 2019.