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Our Take: CMS will require drugmakers to list prices in ads

Oct 22, 2018

CMS proposed a rule requiring prescription drug manufacturers to post the wholesale acquisition cost (WAC) of Medicare- and Medicaid-approved drugs in direct-to-consumer television advertising.

For drugs used to treat chronic conditions, the price required to be posted will represent WAC for a 30-day supply; for acute drugs, such as antibiotics, the price posted will be for a standard course of therapy. CMS said the HHS secretary would maintain a public list of drugs in violation of the rule.

“Patients often pay their cost-sharing or deductible off of a drug’s list price,” said CMS Administrator Seema Verma. “Today’s proposed rule would ensure that those list prices are included in television advertisements, so patients have the information they need to make informed decisions.”

Our TakeOn balance, the proposed rule is innocuous and unlikely to impact how much Medicare or anyone else spends on prescription drugs, yet it’s the most politically tenable solution to rising drug costs. As we havwritten, it’s unlikely that CMS will be negotiating Part D drug prices any time soon.

In May, when the Trump administration announced its Blueprint to Lower Drug Prices, one of the initiative’s four pillars was to develop incentives for manufacturers to lower list prices. Having them list drug prices on DTC ads—and publicly shaming them when they don’t—is one such incentive.

But here’s the thing: No one pays the list price for drugs. A drug’s WAC isn’t the same as the average manufacturer price, which is the average of prices actually paid by wholesalers and retailers who buy drugs directly from manufacturers.

In addition, the average sales price (what manufacturers realize after discounts and rebates) is far lower than list price. And, the actual price paid by consumers varies widely depending on their insurance coverage—or lack thereof.

Glancing at the list of 46 novel drug approvals by the FDA in 2018, we found that nearly every drug approved was cancer-related or for a rare disease. This undoubtedly means that most of the drugs approved this year are expensive.

This is no accident. Drugmakers, for at least a decade, have moved away from developing drugs that could be used by wide swaths of patients—think blood pressure drugs, cholesterol-lowering drugs and antibiotics. (One antibiotic was approved this year.)

Instead, manufacturers have focused on cancer drugs and rare disease treatments, which can fetch $10,000 per month or more.

A cynic would say that it’s all about profits, and drug innovators can charge whatever they want to recoup their investments in research and development. Smaller patient populations naturally lead to higher prices. Supply and demand.

Viewed another way, the drug industry is behaving rationally. There are plenty of safe and effective choices to lower your cholesterol or blood pressure. But cancer kills 275,000 Americans each year. And there aren’t many treatments for Dravet syndrome or adenosine deaminase severe combined immunodeficiency.

So pharma is putting its resources where they’re needed most.

Will shaming pharma into lowering prices work? Probably not. While consumers will be informed, as Verma says, they won’t have all the information about what the drug will actually cost them. Our sense is that most people will eventually ignore prices in DTC ads—just like they’ve learned to ignore the long and often scary list of possible side effects trailing every TV commercial.

What else you need to know
UnitedHealth Group will soon be launching its own electronic health record, according to CEO David Wichmann. “We will soon be releasing at scale, a first-of-kind fully integrated and fully portable individual health record that delivers personalized next best health actions to people and their caregivers,” said Wichmann on a quarterly earnings conference call. He offered few details, other than the company would leverage its mobile wellness platform Rally to eventually reach its 50 million members. Also unclear is how United’s platform would interact with existing, popular EHR systems such as Epic and Cerner. More here.

Walgreens and Grand Blanc, Mich.-based McLaren Health Care announced a new strategic collaboration for health and pharmacy services. Under the agreement, McLaren will offer a variety of health care services in Walgreens stores across Michigan, including retail health care clinics, urgent care centers and other primary care offerings. Walgreens has acquired McLaren’s pharmacy assets and will operate onsite pharmacies at select McLaren locations. McLaren Health Plan members will be able to access Walgreens pharmacy services at all locations, presumably under a preferred agreement. More here.

A new NAACOS survey of ACO executives reveals deep opposition to CMS’ recently proposed changes to the Medicare program. Under its “Pathways to Success” proposed rule, CMS would allow an ACO to remain in an upside-only (Track 1) risk model for two years. The proposed rule also would limit Track 1 ACOs to 25 percent of eligible shared savings, compared with the current 50 percent rate. Overall, 61 percent of the survey respondents opposed the proposed rule. The largest area of opposition was the reduced shared savings rate for Track 1 ACOs, with 57 percent in opposition. More than a third (36 percent) said they would be unlikely to continue under the revised policies. More here.

The Dignity Health-CHI merger is one step closer to being finalized after receiving the go-ahead from the Vatican. The health systems also announced their board of trustees members last week, which will include six existing board members from each health system, the two current CEOs (Kevin Lofton and Lloyd Dean) and an additional member to be determined after the alignment has been completed. The merger remains subject to state and other regulatory approvals. More here.

Novartis announced that it will acquire West Lafayette, Ind.-based Endocyte, a biopharmaceutical company focused on developing targeted therapies for cancer treatment. Endocyte has a potential first-in-class radioligand treatment for castration-resistant prostate cancer that is in Phase III clinical trials. The deal is valued at $2.1 billion and is subject to customary closing conditions, including the approval of Endocyte’s shareholders. More here.

Blue Cross and Blue Shield of Texas (BCBSTX) and Southwestern Health Resources have formed an accountable care organization that includes 130,000 BCBSTX members in North Texas. Southwestern Health Resources is the clinically integrated network formed by Texas Health Resources and UT Southwestern Medical Center in Dallas. The agreement, announced Oct. 16, took effect July 1. More here.

What we’re reading
The Silent Shapers of Healthcare Services. McKinsey & Co. October 2018
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