Federal Register, Volume 84 Issue 91 (Friday, May 10, 2019)

[Federal Register Volume 84, Number 91 (Friday, May 10, 2019)]
[Rules and Regulations]
[Pages 20732-20758]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09655]

[[Page 20731]]

Vol. 84

Friday,

No. 91

May 10, 2019

Part III

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Part 403

Medicare and Medicaid Programs; Regulation To Require Drug Pricing
Transparency; Final Rule

Federal Register / Vol. 84, No. 91 / Friday, May 10, 2019 / Rules and
Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 403

[CMS-4187-F]
RIN 0938-AT87

Medicare and Medicaid Programs; Regulation To Require Drug
Pricing Transparency

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule revises the Federal Health Insurance Programs
for the Aged and Disabled by amending regulations for the Medicare
Parts A, B, C and D programs, as well as the Medicaid program, to
require direct-to-consumer (DTC) television advertisements of
prescription drugs and biological products for which payment is
available through or under Medicare or Medicaid to include the
Wholesale Acquisition Cost (WAC or list price) of that drug or
biological product. This rule is intended to improve the efficient
administration of the Medicare and Medicaid programs by ensuring that
beneficiaries are provided with relevant information about the costs of
prescription drugs and biological products so they can make informed
decisions that minimize their out-of-pocket (OOP) costs and
expenditures borne by Medicare and Medicaid, both of which are
significant problems.

DATES: This rule is effective July 9, 2019.

FOR FURTHER INFORMATION CONTACT: Cheri Rice, (410) 786-6499.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
A. Purpose and Statutory Basis
B. Summary of the Rule
C. Problems That This Rule Seeks To Address
D. How the Rule Addresses These Problems-Transparency in Drug
Pricing Promotes Competition and Lowers Prices by Informing
Beneficiaries
II. Summary of, Analysis of, and Response to Public Comments
A. Secretary's Statutory Authority To Require List Prices in DTC
Advertising for Manufacturers Whose Drugs Are Payable Under Titles
XVIII or XIX of the Social Security Act
B. General Comments on Direct-to-Consumer Advertising
C. Use of Wholesale Acquisition Cost as List Price
D. First Amendment Considerations
E. Requirements in DTC Advertising Other Than WAC
F. Other Alternatives
G. Enforcement
III. Collection of Information Requirements
A. Wage Data
B. Information Collection Requirements Regarding Pricing
Information (Sec. 403.1202)
IV. Regulatory Impact Analysis
A. Statement of Need
B. Overall Impact
C. Anticipated Effects
D. Alternatives Considered
E. Accounting Statement

I. Background

A. Purpose and Statutory Basis

Delivering better care at more transparent, lower prices is one way
the Trump Administration is putting American patients first. The May
2018 Trump Administration blueprint to lower drug prices described a
new, more transparent drug pricing system that would lower high
prescription drug prices and bring down out-of-pocket (OOP) costs. The
blueprint described four strategies: Boosting competition, enhancing
negotiation, creating incentives for lower list prices, and reducing
OOP spending.
The blueprint called for HHS to consider requiring the inclusion of
list prices in direct-to-consumer (DTC) advertising. This final rule
will improve the efficient administration of the Medicare and Medicaid
programs by improving drug price transparency and informing consumer
decision-making, both of which can increase price competition and slow
the growth of federal spending on prescription drugs.

B. Summary of the Rule

In the October 18, 2018 Federal Register (83 FR 52789), we
published a proposed rule titled ``Medicare and Medicaid Programs;
Regulation to Require Drug Pricing Transparency'' (hereinafter referred
to as the ``October 2018 proposed rule''). After consideration of the
public comments received, we are finalizing this rule largely as
proposed, with one modification to proposed Sec. 403.1204(b) in
response to comments, and other minor technical changes to improve
clarity.
This final rule requires DTC television advertisements for
prescription drugs and biological products for which reimbursement is
available, directly or indirectly, through or under Medicare or
Medicaid to include the list price of that product. This final rule
amends subchapter A, part 403, by adding a new subpart L.
New Sec. 403.1202 requires that advertisements for certain
prescription drugs or biological products on television (including
broadcast, cable, streaming, and satellite) contain a statement or
statements indicating the Wholesale Acquisition Cost (referred to as
WAC or the list price) 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, 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.''
New Sec. 403.1200 specifies that this requirement applies to any
advertisement for a prescription drugs or biological product
distributed in the United States, for which payment is available,
directly or indirectly, under titles XVIII or XIX of the Social
Security Act, except for a prescription drugs or biological product
that has a list price, as defined herein, of less than $35 per month
for a 30-day supply or typical course of treatment. The list price
stated in the advertisement must be current, as determined on the first
day of the quarter during which the advertisement is being aired or
otherwise broadcast. When the typical course of treatment varies based
on the indication for which the drug or biological product is
prescribed, the list price should represent the typical course of
treatment associated with the primary indication addressed in the
advertisement. To the extent permissible under current laws,
manufacturers are permitted to include an up-to-date list price of a
competitor's product, so long as they do so in a truthful, non-
misleading way.
New Sec. 403.1203 specifies that the required list price
disclosure set forth in Sec. 403.1202 must be conveyed in a legible
textual statement at the end of the advertisement, 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.
Finally, new Sec. 403.1204 specifies that the Secretary will
maintain a public list that would include the prescription drugs and
biological products advertised in violation of these requirements. We
anticipate that the primary enforcement mechanism will be the threat of
private actions under the Lanham Act sec. 43(a), 15 U.S.C. 1125(a), for
unfair competition in the form of false or misleading advertising.

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Accordingly, we proposed at Sec. 403.1204(b) that this rule preempt
any state-law-based claim that depends in whole or in part on any
pricing statement required by this rule. No state or political
subdivision of any state may establish or continue in effect any
requirement that depends in whole or in part on any pricing statement
required by these regulations.

C. Problems That This Rule Seeks To Address

1. Rising Prices and Costs and Their Effect on the Medicare and
Medicaid Programs and Their Beneficiaries
(a) Rise in Prices and Costs
The cost of drugs and biological products over the past decade has
increased dramatically, and prices are projected to continue to rise
faster than overall health spending, thereby increasing this sector's
share of health care spending. The HHS Office of the Assistant
Secretary for Planning and Evaluation estimates that prescription drug
spending in the United States was about $457 billion in 2015, or 16.7
percent of overall personal health care services. Of that $457 billion,
$328 billion (71.9 percent) was for retail drugs and $128 billion (28.1
percent) was for non-retail drugs. Factors underlying the rise in
prescription drug spending from 2010 to 2014 can be roughly allocated
as follows: 10 percent of that rise was due to population growth; 30
percent to an increase in prescriptions per person; 30 percent to
overall, economy-wide inflation; and 30 percent to either changes in
the composition of drugs prescribed toward higher price products or
price increases for drugs that together drove average price increases
in excess of general inflation.\1\
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\1\ U.S. Department of Health and Human Services Office of the
Assistant Secretary for Planning and Evaluation, ASPE Issue Brief:
Observations on Trends in Prescription Drug Spending, (2016).
https://aspe.hhs.gov/system/files/pdf/187586/Drugspending.pdf.
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This final rule is designed to address rising list prices by
introducing price transparency that will help improve the efficiency of
Medicare and Medicaid programs by reducing wasteful and abusive
increases in drug and biological product list prices--spiraling drug
costs that are then passed on to federal healthcare program
beneficiaries and American taxpayers more broadly. First, it will
provide manufacturers with an incentive to reduce their list prices by
exposing overly costly drugs to public scrutiny. Second, it will
provide some consumers with more information to better position them as
active and well-informed participants in their health care decision-
making. Consumers make a series of critical health care decisions
related to their treatment with prescription drugs or biological
products, and the list price of those drugs may inform those decisions.
Even where the consumer may be insured, and therefore may be paying
substantially less than the list price, the coinsurance borne by some
consumers will increase as the WAC increases.
(b) Impact of Rise in Prices and Costs on Part B and Part D
Beneficiaries
As discussed in the proposed rule, CMS is the single largest payor
of prescription drugs in the nation. In 2017, CMS and its beneficiaries
spent $224.6 billion ($166.2 billion net of rebates) on drug benefits
provided under Part B ($30.6 billion),\2\ Part D ($129.7 billion gross
spend, $100.7 billion net of rebates),\3\ and Medicaid ($64.0 billion
gross spend, $34.9 billion net of rebates including federal and state
funds).\4\ An additional sum was spent on drugs furnished by hospitals
under Part A's inpatient prospective payment system, but the precise
amount is difficult to isolate because hospitals receive a single
payment for all non-physician services provided during an inpatient
stay (including drugs). In 2016, CMS and its beneficiaries spent more
than $238 billion on prescription drugs, approximately 53 percent of
the $448.2 billion spent on retail and non-retail prescription drugs in
the United States that year. Each year overall expenditures on drugs by
both the Medicare and Medicaid programs and their beneficiaries have
increased at rates greater than inflation both in the aggregate and on
a per beneficiary basis.\5\ These dramatically increasing costs are a
threat to the sustainability of the programs and harm CMS beneficiaries
every day.
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\2\ ASPE Calculations from Part B Standard Analytic Files.
\3\ 2018 Annual Report of the Board of Trustees' of the Federal
Hospital and Insurance and Federal Supplementary Medical Insurance
Trust Funds.
\4\ MACPAC. Fact Sheet: Medicaid Drug Spending Trends. Feb 2019.
https://www.macpac.gov/wp-content/uploads/2019/02/Medicaid-Drug-Spending-Trends.pdf.
\5\ According to the 2018 Annual Report of the Board of
Trustees' of the Federal Hospital and Insurance and Federal
Supplementary Medical Insurance Trust Funds, over the past 10 years,
Part D benefit payments have increased by an annual rate of 7.4
percent in aggregate and by 3.8 percent on a per enrollee basis.
These results reflect the rapid growth in enrollment, together with
multiple prescription drug cost and utilization trends that have
varying effects on underlying costs. For example, though there has
been a substantial increase in the proportion of prescriptions
filled with low-cost generic drugs there has also been a significant
increase in spending on high-cost specialty drugs (including those
most frequently advertised via televised DTC advertisements),
leading to overall increased costs. In other words, the per
beneficiary cost of drugs through Part D has increased nearly 40%
over the past decade, while the consumer price index has increased
only 19% during this same period. Over the period 2013-2016,
Medicare Parts D and B, and Medicaid expenditures on a per
beneficiary basis increased by 22%, 32%, and 42% respectively. Drug
price inflation accounts for some of this growth. Between 2006 and
2015, Part D brand drug prices rose by an average 66% cumulatively.
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(c) Impact on States Under Medicaid--Rising Prices and Costs Adversely
Affects Medicaid and Benefits Offered to Beneficiaries
The increasing cost of drugs and biological products are a major
concern for state Medicaid agencies. The Medicaid and CHIP Payment and
Access Commission (MACPAC) states that the ``[h]igh rates of spending
growth for prescription drugs have been of great concern to state and
federal Medicaid officials. In 2014, Medicaid prescription drug
spending experienced its highest rate of growth in almost three
decades. And although spending growth slowed in 2015 and 2016, over the
next 10 years prescription drugs could see the fastest average annual
spending growth of any major health care good or service due to growth
in high-cost specialty drugs.'' \6\ States are having to balance
alternatives to control drug costs,\7\ and increases in drug spending
that threaten the provision of other health services are causing other
states to address drug costs to keep their programs
sustainable.^{8 9 10}
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\6\ MACPAC. Prescription Drugs. https://www.macpac.gov/topics/prescription-drugs/.
\7\ Young K and Garfield R. Kaiser Family Foundation Issue
Brief: Snapshots of Recent State Initiatives in Medicaid
Prescription Drug Cost Control. Feb 2018, http://files.kff.org/attachment/Issue-Brief-Snapshots-of-Recent-State-Initiatives-in-Medicaid-Prescription-Drug-Cost-Control.
\8\ Reck J. As Drug Prices Rise, Oklahoma's Medicaid Agency
Advances Alternative Payment Models. National Academy for State
Health Policy. 2018 Dec 17. https://nashp.org/as-drug-prices-rise-oklahomas-medicaid-agency-advances-alternative-payment-models/.
\9\ Rosenberg T. Treat Medicines Like Netflix Treats Shows. NYT.
https://www.nytimes.com/2019/03/05/opinion/can-netflix-show-americans-how-to-cut-the-cost-of-drugs.html.
\10\ Gee R. Health Affairs Blog. Louisiana's Journey Toward
Eliminating Hepatitis C. 2019 April 1. https://www.healthaffairs.org/do/10.1377/hblog20190327.603623/full/.
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2. Direct-to-Consumer Advertising
Prescription drugs, by definition, cannot be accessed directly by
the consumer; they must be prescribed by a licensed health care
practitioner. We know, however, that consumers are responsible for
critical choices related to their treatment with prescription drugs.
For example, consumers decide whether

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to make the initial appointment with a physician; whether to ask the
physician about a particular drug or biological product; whether to
fill a prescription; whether to take the drug; and whether to continue
taking it in adherence to the prescribed regimen. Drug manufacturers,
therefore, spend billions of dollars annually promoting their
prescription drugs and biological products directly to consumers
through television advertisements and other media.
In 2017, over $5.5 billion was spent on prescription drug
advertising, including nearly $4.2 billion on television
advertising.\11\ DTC advertising appears to directly affect drug
utilization.\12\ DTC advertising may increase disease awareness and
facilitate more informed discussions between consumers and their health
care providers. But it can also result in increased utilization through
patients requesting costly drugs and biological products seen on
television. This could cause problematic increases in government
spending if less costly alternatives are available, or would be
available through market pressures resulting from greater price
transparency.
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\11\ Kantar Media Advertising Intelligence--2013 to 2017
Prescription Medications Ad Spend Data.
\12\ Dave D and Saffer H. Impact of Direct-to-Consumer
Advertising on Pharmaceutical Prices and Demand, Southern Economic
Journal. 79 (1), 97-126; Datti B and Carter MW. The Effect of
Direct-to-Consumer Advertising on Prescription Drug Use by Older
Adults, Drugs Aging. 2006;23(1):71-81.
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(a) Direct-to-Consumer Advertising Promotes Interaction With
Physicians, but Also Is a Factor in Increasing Demand for Higher Cost
Drugs
Studies show that consumers exposed to drug advertisements can
exert sufficient pressure on their physicians to prescribe the
advertised product.\13\ In one recent survey, 11 percent said they were
prescribed a specific drug after asking a doctor about it as a result
of seeing or hearing an advertisement.\14\ Another study concludes that
there is evidence that DTC advertising can lead to more physician
visits, diagnoses, and prescriptions for advertised conditions, though
there is little evidence showing that the additional care is medically
necessary.\15\ The same study found that DTC advertising is associated
with higher prescribing volume of advertised drugs, increased patient
demand, and a shift in prescribing behavior. Other studies have shown
that DTC advertising increases both the utilization of pharmaceuticals
\16\ and costs of pharmaceuticals.\17\
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\13\ Mintzes B, Barer ML, Kravitz RL, et al. Influence of direct
to consumer pharmaceutical advertising and patients' requests on
prescribing decisions: Two site cross sectional survey, BMJ. 2002
Feb 2;324(7332):278-9.
\14\ Kirzinger A, Wu B, and Brodie M. Kaiser Health Tracking
Poll--June 2018: Campaigns, Pre-Existing Conditions, and
Prescription Drug Ads. Jun 27, 2018. https://www.kff.org/health-costs/poll-finding/kaiser-health-tracking-poll-june-2018-campaigns-pre-existing-conditions-prescription-drug-ads/.
\15\ Mintzes B. Advertising of Prescription-Only Medicines to
the Public: Does Evidence of Benefit Counterbalance Harm? Annu Rev
Public Health. 2012 Apr;33:259-77.
\16\ Frosch DL, Grande D, Tarn DM, Kravitz RL. A decade of
controversy: Balancing policy with evidence in the regulation of
prescription drug advertising. Am J Public Health. 2010;100(1):24-
32.
\17\ Law MR, Soumerai SB, Adams AS, Majumdar SR. Costs and
consequences of direct-to-consumer advertising for clopidogrel in
Medicaid. Arch Intern Med. 2009 Nov 23;169(21):1969-74.
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(b) Physicians Lack Access to Published WAC Data or a Patient's Out-of-
Pocket Costs
DTC advertising, which has been shown to increase prescribing and
demand for high-cost drugs, currently provides no context for
physicians and other prescribers to assess a drug's cost or compare the
costs of different treatments. Although the WAC for most drugs payable
under Medicare Part B is reported to CMS and the WAC for most other
drugs is reported to commercial compendia for widespread use by
pharmacies and payors, prescribers generally lack access to this
information. In addition, prescribers generally lack information about
a drug's formulary placement or the cost sharing that patients would
pay. For this reason, in our recent proposed rule titled, ``Modernizing
Part D and Medicare Advantage to Lower Drug Prices and Reduce Out-of-
Pocket Expenses,'' 83 FR 62152 (November 30, 2018), we proposed to
require that Part D plan sponsors implement an electronic real-time
benefit tool (RTBT) capable of integrating with at least one
prescriber's e-prescribing and electronic medical record systems, to
make beneficiary-specific drug coverage and cost information visible to
prescribers who wish to consider such information in their prescribing
decisions. This could provide an important supplement to any pricing
information that is provided to patients and allow both the patient and
provider to be informed when having discussions about the best overall
therapy for the patient.
3. Direct-to-Consumer Advertising That Lacks Meaningful Pricing
Information Is Potentially Misleading
As we stated in the October 2018 proposed rule, price transparency
has been lacking in the case of prescription drugs or biological
products, where consumers often need to make decisions without
information about a product's price. Price transparency is a necessary
element of an efficient market that allows consumers to make informed
decisions when presented with relevant information. However, for
consumers of prescription drugs or biological products, including those
whose drugs are covered through Medicare or Medicaid, both the list
price and actual price to the consumer remain hard to find. Third-party
payment, a dominant feature of health care markets, is not a prominent
feature of other markets of goods and services and causes distortions,
such as an absence of meaningful prices and the information and
incentives those prices provide. Because of the confusion and
distortions in the existing prescription drug market, it is our view
that the absence of the WAC would make a DTC television advertisement
potentially misleading because consumers appear to dramatically
underestimate their OOP costs for expensive drugs, but once they learn
the WAC, they become far better able to approximate their OOP
costs.\18\
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\18\ Garrett JB, Tayler WB, Bai G, et al. Consumer Responses to
Price Disclosure in Direct-to-Consumer Pharmaceutical Advertising.
JAMA Intern Med. 2019;179(3):435-437. (``JAMA 2019 Study'').
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(a) Studies Suggest That Patients Are Ill-Informed About Their Out-of-
Pocket Costs and Do Not Use Available Online Services
As we explain in further detail in section II.C.1 below, although
the WAC is highly relevant to patients' OOP costs, it may not reflect
what a patient actually pays. Studies show that many beneficiaries do
not appropriately use existing online tools, such as the Medicare Part
D Plan Finder, to find the most cost effective product ^{19 20}
or to determine their OOP costs. While we continue to believe that the
Medicare Part D Plan Finder is very helpful and we hope more patients
use it, we think the DTC advertisement disclosure provides additional
information that is very useful to patients to help them understand
drug pricing. In this context, the availability of readily accessible
pricing data--such as what would be conveyed at the time a DTC

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advertisement is aired--becomes more important.
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\19\ Heiss F, Leive A, McFadden D, and Winter J. Plan selection
in Medicare Part D: evidence from administrative data. J Health
Econ. 2013 Dec;32(6):1325-44.
\20\ Zhou C and Zhang Y. The vast majority of Medicare Part D
beneficiaries still don't choose the cheapest plans that meet their
medication needs. Health Aff. 2012 Oct;31(10):2259-65.
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(b) Studies Suggest That Patients Want to Know the List Price of Drugs
Despite the fact that a patient's OOP costs will likely differ from
the list price, studies indicate that knowing the list price of a drug
is important to consumers. A recent tracking poll by the Kaiser Family
Foundation found that 88 percent of Americans support requiring drug
manufacturers to include their list prices in DTC advertisements.\21\
The same survey found that 24 percent of Americans find it difficult to
afford their drugs, and 10 percent say that it is very difficult to
afford their drugs. Of those that spend more than $100 per month on
drugs, 58 percent find it difficult to afford their drugs. The poll
showed broad support for policies intended to reduce prescription drug
costs. The price disclosure requirements that we are finalizing in this
rule will provide consumers with this important information needed to
aid them in an effort to find lower cost alternatives, and improve the
efficiency of Medicare and Medicaid.
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\21\ Kirzinger A, Lopes L, We B, and Brodie M. KFF Health
Tracking Poll--February 2019: Prescription Drugs. Kaiser Family
Foundation. 2019 March 01. https://www.kff.org/8c7d090/.
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(c) Studies Suggest That Patients Who Know the List Price of a Drug Are
Better Informed About Their Out-of-Pocket Costs Than Those Who Are Not
Informed of the List Price
A recent study strongly suggests that when told the price of
pharmaceutical products, patients are better able to approximate their
OOP costs.\22\ In that study, published after the proposed rule was
issued, researchers asked subjects to estimate their monthly OOP costs
for a drug with a hypothetical price of $15,500 per month. When
subjects were provided no information about price, they responded that
their OOP costs would be, on average, $78 per month. This finding tends
to support our belief that patients seem to underestimate the true cost
of drugs advertised on television. However, when subjects were told the
price, they more accurately determined their OOP costs at $2,787 or
about 18 percent of the hypothetical price. The informed estimates were
far closer to what one would expect to see paid at the pharmacy counter
under most plans than the uninformed assessment of $78. This finding
provides evidence that patients may adjust their expectations of cost
if they received pricing information.
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\22\ Garrett JB, Tayler WB, Bai G, et al. Consumer Responses to
Price Disclosure in Direct-to-Consumer Pharmaceutical Advertising.
JAMA Intern Med. 2019;179(3):435-437. (``2019 JAMA Study'')
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D. How the Rule Addresses These Problems-Transparency in Drug Pricing
Promotes Competition and Lowers Prices by Informing Beneficiaries

Both Titles XVIII and XIX of the Social Security Act reflect the
importance of administering the Medicare and Medicaid programs in a
manner that minimizes unreasonable expenditures. See, e.g., Sections
1842(b)(8) and (9), 1860D-4(c)(3), 1860D-4(c)(5)(H), 1866(j)(2)(A),
1893(g), 1902(a)(64), 1902(a)(65), 1936(b)(2). In order to enable
consumers to make good health care choices, which will in turn improve
the efficiency of the Medicare and Medicaid programs, it is critical
that they understand the costs associated with various medications.
This is especially important where consumers have cost sharing
obligations that may be significant. As discussed above, DTC television
advertisements that do not provide pricing information may contribute
to rising drug prices. Consumers of pharmaceuticals are currently
missing information that consumers of other products can more readily
access, namely the list price of the product, which acts as a point of
comparison when judging the reasonableness of prices offered for
potential substitute products. In an age where price information is
ubiquitous, the prices of pharmaceuticals remain shrouded and limited
to those who subscribe to expensive drug price reporting services.
Consumers may be able to obtain some pricing information by going
online to the websites of larger chain pharmacies. However, there are
several reasons consumers are not likely to do this. First, while
consumers make many critical decisions that bring about the ultimate
writing of the prescription--making the appointment, asking the doctor
about particular drugs, etc.--the physician, rather than the patient,
ultimately controls the writing of the prescription. Second, meaningful
price shopping is further hindered because the average consumer
receives no basic price information. Arming a beneficiary with basic
price information will provide him or her with an anchor price or a
reference comparison to be used when making decisions about therapeutic
options. Triggering conversations about a particular drug or biological
product and its substitutes may lead to conversations not only about
price, but also efficacy and side effects, which in turn may cause both
the consumer and the prescriber to consider the cost of various
alternatives (after taking into account the safety, efficacy, and
advisability of each treatment for the particular patient). Ultimately,
providing consumers with basic price information may result in the
selection of lesser cost alternatives, all else being equal relative to
the patient's care.
To this end, this rule requires price transparency for drugs that
are advertised on television. Price transparency can be an effective
and appropriate way to influence behavior and improve market
efficiency. Price transparency has the potential to influence patient
behavior, as well as address our increasing health care costs.
Additionally, price transparency has been identified as a low-risk
intervention with the potential to reduce health care costs without
directly regulating health care reimbursement systems.\23\
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\23\ Sinaiko AD and Rosenthal MB. Increased price transparency
in health care--challenges and potential effects. N Engl J Med. 2011
Mar 10;364(10):891-4.
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II. Summary of, Analysis of, and Response to Public Comments

We received 147 comments in response to the October 18, 2018
proposed rule (83 FR 52789). Stakeholders offered comments that
addressed both high-level issues related to DTC advertising as well as
our specific proposals and requests for comments. We extend our deep
appreciation to the public for its interest in lower drug prices and
increased price transparency, and the many comments that were made in
response to our proposed policies. In some instances, the public
comments offered were outside the scope of the proposed rule and will
not be addressed in this final rule.

A. Secretary's Statutory Authority To Require List Prices in Direct-to-
Consumer Advertising for Manufacturers Whose Drugs Are Payable Under
Titles XVIII or XIX of the Social Security Act

We proposed to use our authority under sections 1102 and 1871 of
the Social Security Act to require manufacturers to disclose their list
prices in DTC television advertisements. We received comments on our
use of these authorities. These comments, and our responses, follow.
Comment: Many commenters stated that the proposal is beyond the
authority of CMS to promulgate these regulations under a reasonable
interpretation of sections 1102 and 1871 of the Social Security Act,
specifically

[[Page 20736]]

noting that neither statutory provision says anything about
prescription drugs or biological products, their prices, or
advertisements about them. A commenter stated that while CMS
acknowledges that it is bound both by the purposes and means specified
by Congress, the agency improperly tries to mix and match various ends
and means from disparate Social Security Act provisions to essentially
create a new statute that this rule would ``implement.'' Commenters
stated that CMS's interpretation is unreasonable because sections 1102
and 1871 of the Social Security Act are general housekeeping statutes,
not broad delegations of authority.
Response: We disagree with these comments. As discussed in the
proposed rule, the Secretary has the authority to promulgate
regulations as necessary for the efficient administration of Medicare
and Medicaid. Although we acknowledge that neither section 1102 nor
section 1871 of the Social Security Act specifically references
prescription drugs or biological products, their prices, or
advertisements, we nevertheless believe that requiring manufacturers to
include list prices in DTC television advertisements is supported by
the plain text of these statutes. Section 1102 requires the Secretary
to ``make and publish such rules and regulations, not inconsistent with
this Act, as may be necessary to the efficient administration of the
functions with which [he or she] is charged'' under the Social Security
Act. Similarly, section 1871 requires the Secretary to ``prescribe such
regulations as may be necessary to carry out the administration of the
insurance programs under [Title XVIII].'' By their terms, then, these
provisions authorize regulations that the Secretary determines are
necessary to administer these programs. These statutes do not impose a
limit on the means, other than to say, in the case of section 1102,
that they not be inconsistent with the Social Security Act.
We also disagree with the commenters who believe that our
interpretation of sections 1102 and 1871 is unreasonable. These
provisions confer broad discretion upon the Secretary to determine the
regulations that are necessary to the efficient administration of the
functions with which he or she is charged under the Social Security Act
(in the case of section 1102), and the administration of Medicare (in
the case of section 1871). Thus, the text of these statutes clearly
indicates that they are intended to permit requirements that are
necessary to achieve those aims. Medicare and Medicaid beneficiaries
have access to significant amounts of information about their OOP drug
costs, such as the Medicare Part D Plan Finder, which permits Medicare
Part D enrollees to look up information about their expected costs.
However, beneficiaries do not use Plan Finder to the extent necessary
to promote price competition. We are imposing this disclosure
requirement to enable beneficiaries to make more informed decisions, as
this will promote transparency, efficiency, and the responsible use of
federal funds, in particular the Medicare trust funds.
We further disagree with commenters who contended that we are
``mixing and matching'' ends and means to form a statutory basis for
this rule. In the proposed rule, we stated that the rule uses means
that Congress has generally endorsed--disclosures about drug prices--to
advance an end that Congress endorsed--minimizing unreasonable
expenditures--and thus there is a clear nexus between HHS's proposed
actions and the Act. This statement was not intended to indicate that
we believe we can piece together statutory authority from various
sources; rather, it was intended to show only that the requirements we
proposed are within the realm of what is necessary for the efficient
administration of Medicare and Medicaid because they are consistent
with other means Congress has authorized elsewhere in the Social
Security Act.
We disagree that sections 1102 and 1871 are housekeeping statutes.
A true housekeeping statute, such as 5 U.S.C. 301, relates to internal
agency governance. In contrast, sections 1102 and 1871 provide broad
rulemaking authority to carry out Medicare and Medicaid and have been
cited as authority for a multitude of regulations to implement these
programs. See Thorpe v. Housing Authority of City of Durham, 393 U.S.
268, 277 n.28 (1969) (``Thorpe'').
Comment: Commenters stated that the cases cited in the proposed
rule did not support the agency's interpretation of these statutory
authorities and that because the cases cited predate Chevron U.S.A.,
Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), they
are the not the correct standard under which to assess the agency's
interpretation of its statutory authorities. These commenters state
that the agency's interpretation fails under the two-part Chevron test.
Response: We disagree with these comments. The cases we cited stand
for the proposition that a grant of broad rulemaking authority permits
regulations that are reasonably related to the purposes of the programs
for which rulemaking is authorized, and that the Secretary has
discretion to determine which rules are necessary. See Mourning v.
Family Publ'ns Servs., Inc., 411 U.S. 356, 369 (1973) (``Mourning'');
Thorpe, 393 U.S. at 277 n.28; Sid Peterson Mem'l Hosp. v. Thompson, 274
F.3d 301, 313 (5th Cir. 2001); Cottage Health Sys. v. Sebelius, 631 F.
Supp. 2d 80, 92 (D.D.C. 2009). Even the cases cited in which
regulations were struck down support CMS's interpretation. For example,
in Food & Drug Administration v. Brown & Williamson Tobacco
Corporation, 519 U.S. 120 (2000), the Supreme Court instructed that an
agency's power to regulate must be grounded in a valid grant of
authority from Congress, viewed in context of the overall statutory
scheme. Viewing the Medicare and Medicaid schemes as a whole, nothing
prohibits the requirements we are finalizing in this rule. Instead,
they are consistent with the overall statutory scheme under the Social
Security Act given the clear nexus between this requirement and
Congress's recognition throughout the Social Security Act of the
importance of administering the Medicare and Medicaid programs in a
manner that minimizes unreasonable expenditures. Similarly, Colorado
Indian River Tribes v. National Indian Gaming Commission, 466 F.3d 134
(D.C. Cir. 2006), states that agencies are bound by Congress's ultimate
purpose and the selected means, but in that case--similar to Brown &
Williamson--the regulations at issue, though based on a general grant
of rulemaking authority, were invalidated because they would have been
inconsistent with the overall statutory scheme that called for class
III gaming to be subject to state-tribal compacts rather than agency
regulations.
We disagree that the cases cited in the proposed rule represent the
incorrect standard under which to assess our interpretation of sections
1102 and 1871 or that this rule fails the two-part Chevron test. With
respect to questions of statutory interpretation, ``considerable weight
should be accorded to an executive department's construction of a
statutory scheme it is entrusted to administer.'' Chevron, 467 U.S. at
844. Chevron sets forth a deferential two-step process to review an
agency's construction of a statute which it administers. 467 U.S. at
842. First, if Congress has unambiguously spoken to the issue in
question, the court must give effect to Congress's intent. Id. at 843.
Second, if the statute

[[Page 20737]]

is silent or ambiguous, the court should accord deference to the
agency's construction so long as it is reasonable. Id. at 843-44. This
rule complies with the first step of the Chevron test because Congress
did not directly speak to the question of requiring the disclosure of
the list price in DTC television advertisements, and nothing in the
text or structure of the Medicare statute prohibits this rule. At the
same time, consistent with the second step of the Chevron test, this
rule is a permissible interpretation of the Secretary's broad authority
to regulate for the efficient administration of the Medicare and
Medicaid programs. As noted above, Mourning and Thorpe hold that broad
rulemaking authority permits regulations reasonably related to program
purposes. While we acknowledge that Congress has, indeed, provided HHS
with various specific authorities to address drug costs and
reimbursement rates, it does not follow that the requirements we are
finalizing in this final rule are unauthorized. Just because Congress
has expressly authorized particular means of addressing drug costs in
general by authorizing generics and biosimilars and by imposing a
rebate system for Medicaid does not signify that all other reasonable
means are foreclosed, particularly if the other means are not
inconsistent with the Social Security Act. The commenter's argument
does not consider plain language of the provisions of the Social
Security Act at issue, which, as noted previously, authorize
regulations as may be necessary for the efficient administration of
Medicare and Medicaid, so long as they are not inconsistent with the
Social Security Act. For the reasons described in the proposed rule,
the regulations we are finalizing in this rule are necessary for the
efficient administration of Medicare and Medicaid. The Social Security
Act's prohibition of the Secretary from interfering in Part D
negotiations does not make the price disclosure requirement
inconsistent with the Social Security Act. Rather, the non-interference
provision is not relevant to whether we may require list prices be
transparent to beneficiaries. List prices already are known to payors
and manufacturers, so simply requiring they be made known to
beneficiaries has no bearing on payor-manufacturer negotiations.
Comment: Several commenters further stated that Congress's
directive to CMS to operate the Medicare and Medicaid programs
efficiently cannot reasonably be construed as giving CMS the authority
to regulate prescription drug advertising and that if Congress intended
for CMS to do so, it would have expressly given the agency that
authority.
Response: We disagree that explicit authority for this particular
regulation is needed, because Congress has explicitly directed the
Secretary to operate the Medicare and Medicaid programs efficiently and
has expressly authorized regulations necessary to that purpose, so long
as they are not inconsistent with the Social Security Act. Promoting
pricing transparency, and thus efficient markets, for drugs funded
through those programs falls within the scope of the Secretary's
mandate. As we stated in the proposed rule, there is a clear nexus
between the requirement we are imposing in this final rule and the
efficient administration of Medicare and Medicaid. The DTC disclosure
requirement is simply a way to ensure transparency of information
necessary to minimize unreasonable expenditures, which is an important
purpose that Congress has recognized throughout Titles XVIII and XIX of
the Social Security Act.
Comment: One commenter stated that Congress has prescribed other
means to address the costs of prescription drugs and biological
products through federal laws such as the Drug Price Competition and
Patent Term Restoration Act of 1984 and the Biologics Price Competition
and Innovation Act of 2009, and that if Congress intended for CMS to
have this authority it would have given it explicitly to CMS. The
commenter stated that Congress also has prescribed numerous, highly
detailed methods to control prescription drug and biological product
costs in Medicare and Medicaid, such as the Medicaid drug rebate
statute, but has expressly prohibited CMS from interfering in
negotiations in Medicare Part D, which means that Congress has
addressed a course of conduct for the agency that does not permit CMS
to regulate prescription drug and biological product prices outside of
federal healthcare programs. This commenter stated that the disclosure
requirement would undermine the purposes of Medicare and Medicaid by
discouraging appropriate and medically necessary use of drugs (and not
just ``waste'' as the proposed rule contends), which demonstrates that
Congress did not empower the Secretary to adopt the DTC requirement as
a cost-containment measure.
Response: We disagree with the contention that requiring a
disclosure of the list price is a cost control. In implementing this
rule, we are not regulating how a manufacturer sets its list price,
which remains entirely in the manufacturer's control. As we stated in
the proposed rule, in order to enable consumers to make informed health
care choices, which can, in turn, improve the efficiency for the
Medicare and Medicaid programs, it is critical that they understand the
costs associated with various medications. If transparency in such
pricing prompts a manufacturer to make the business decision to reduce
the list price of overly costly drugs, it is a desired, but by no means
a required, outcome. Instead, this rule provides Medicare and Medicaid
beneficiaries with important information--namely, an anchor price--they
can use to make informed decisions about their care, including whether
the difference between the list price and what they actually pay out of
pocket is reasonable. For this reason, as well as the reasons described
above in section I.C.3. of this final rule, requiring the disclosure of
the WAC improves the efficiency of both Medicare and Medicaid.
Finally, we disagree that this disclosure requirement is
inconsistent with the purposes of Medicare and Medicaid. The Medicare
program provides federally funded health insurance to the elderly and
the disabled. Medicaid is a federal-state program that provides
financial assistance to states to furnish medical care to needy
individuals. As we stated in the proposed rule, there are numerous
provisions in the Social Security Act in which Congress has recognized
that Medicare and Medicaid should be operated in such a manner as to
minimize unreasonable expenditures. Making sure beneficiaries
understand the value of their benefits is fully consistent with this
goal. Congress has acknowledged in provisions such as sections 1851 and
1860D-1(c), which require the Secretary to broadly disseminate
information to Medicare beneficiaries and prospective Medicare
beneficiaries on coverage options under Medicare Parts C and D, that
the provision of information to promote an active, informed selection
among coverage options is important. This final rule, which requires
disclosure of information to promote beneficiaries' understanding of
the value of their benefits and enable them to make more informed
choices, is similarly consistent with the programs' purposes.
Comment: One commenter wrote that CMS is acting within its
authority under sections 1102 and 1871 of the Social Security Act in
proposing to require pricing information in DTC advertisements, as CMS
has broad

[[Page 20738]]

latitude to issue regulations that advance the efficient administration
of the Medicare and Medicaid programs.
Response: We agree, and we thank the commenter for the support.
Comment: One commenter specifically noted its belief that CMS lacks
the authority to regulate broadcast, cable, streaming, and satellite
communications.
Response: We disagree with this comment. First, this rule does not
regulate broadcasting. Second, as noted previously, sections 1102 and
1871 authorize regulations as necessary for the efficient
administration of Medicare and Medicaid, and for the reasons described
elsewhere in this preamble, the requirements we are finalizing in this
rule are both necessary to that purpose, and not inconsistent with the
Social Security Act. We also note that current HHS regulations address
broadcast advertisements. For example, we regulate marketing by
Medicare Advantage and Part D plans, including via newspapers,
magazines, television, radio, billboards, the internet, and social
media. See 42 CFR 422.2260, 423.2260.
Comment: Several commenters stated that Congress has given the FDA
the authority to regulate DTC advertisements, not CMS. Several
commenters stated that while the FDA has the authority to regulate DTC
advertisements, it does not have any specific authority to require the
listing of prices. A commenter stated that CMS lacks authority to
promulgate a rule that would require manufacturers to violate existing
FDA statutory or regulatory requirements.
Response: The statutory authority to issue rules, whether under the
Social Security Act or the Federal Food, Drug, and Cosmetic Act, rests
with and can always be exercised by the Secretary, even if such
authority has been delegated to the individual agencies. We take no
position in this rule on whether FDA has the authority to require the
listing of drug prices in DTC advertisements. Whether FDA possesses
such authority is not dispositive of the question of CMS's authority to
implement the disclosure requirement necessary for the efficient
administration of Medicare and Medicaid. Indeed, given CMS's role as an
agency that reimburses for drugs, it is appropriate that CMS impose the
price disclosure requirement, as it is the Medicare and Medicaid
programs that bear the cost of drugs with excessively high prices.
Comment: One commenter stated that CMS has not drawn a rational
connection between its proposal and high drug prices and provides no
explanation for subjecting only television advertisements to the
proposal. As such, the commenter contended that the proposal is
arbitrary and capricious.
Response: We disagree with this comment. As discussed in the
proposed rule, HHS has concluded that the rule has a clear nexus to the
Social Security Act. In numerous places in the Act, Congress recognized
the importance of administering the Medicare and Medicaid programs in a
manner that minimizes unreasonable expenditures. Efficient
administration of both Medicare and Medicaid, therefore, encompasses
federal efforts to achieve value for funds spent in the Medicare and
Medicaid programs. The transparency required by the disclosure
requirement will provide beneficiaries with relevant information about
the costs of prescription drugs and biological products, so they can
make informed decisions that minimize costs, both for themselves and
the Medicare and Medicaid programs. As discussed above in section I.C.2
of this final rule, studies suggest that DTC advertising directly
affects drug utilization and exerts pressure to prescribe. The list
price disclosure requirement is rational because it will require the
price information to be transmitted at the same time as the rest of the
advertisement; thus, it will be a seamless and meaningful way to
provide concurrent, important context (i.e., the list price) in a way
that is low-cost for the manufacturer, and low-burden--but high-
impact--for affected beneficiaries. It is appropriate and rational to
implement this policy for only television advertisements because
television advertising makes up over two thirds of the DTC spend for
pharmaceuticals.\24\ Additionally, television is a universal medium
widely watched by beneficiaries, and therefore it is an efficient and
effective means to ensure beneficiaries are provided with appropriate
information. Traditional television reaches about 87 percent of the
adult population, with older adults spending the most time watching
television (Age 50-64: 5 hours and 38 minutes per day; Age 65+: 6 hours
and 55 minutes per day).\25\
---------------------------------------------------------------------------

\24\ Schwartz LM and Woloshin S. Medical Marketing in the United
States, 1997-2016. JAMA. 2019 Jan 1;321(1):80-96.
\25\ The Nielsen Total Audience Report Q2 2018. https://www.nielsen.com/content/dam/corporate/us/en/reports-downloads/2018-reports/q2-2018-total-audience-report.pdf.
---------------------------------------------------------------------------

B. General Comments on Direct-to-Consumer Advertising

We received general comments on the merits of DTC advertising.
Comment: Many commenters recommended against allowing DTC
advertising at all. Some commenters noted that DTC advertisements leads
to longer, less efficient patient encounters and reduced patient
confidence in prescribers' advice. Commenters also stated DTC
advertising increases inappropriate prescribing and drives demand for
products that patients may not need. Many other commenters stated that
DTC advertisements provide an important source of patient education by
increasing disease awareness and informing patients and caregivers
about new treatments.
Response: Eliminating DTC advertising is outside of the scope of
this rule. We agree that DTC advertisements can both drive utilization
and provide a source of patient education, and we are implementing the
list price disclosure requirement so as to provide additional
information as a resource to educate and inform patients in a manner
that can temper the increases in demand that DTC advertising causes.
Comment: Many commenters support including the list price of
prescription drugs and biological products in DTC advertising as an
important step toward providing price transparency in our health care
system. Many commenters note that being aware of the price of goods is
essential for an efficient and competitive market to work.
Additionally, many commenters note that drug cost is an important
concern for patients, and this information will be important to allow
them to have a meaningful conversation with their providers to select
the best, most cost-effective, and most appropriate overall therapy.
Response: We appreciate the support for our proposal, and we agree
that requiring a list price in DTC television advertising will provide
valuable new information for patients to empower them to engage with
their providers and engage in their care decisions. We agree that
pricing information is essential for creating a more transparent health
care system and an important element in creating a free and competitive
market that will allow patients to be engaged consumers.

C. Use of Wholesale Acquisition Cost as List Price

In the proposed rule, we sought comment on whether WAC is the
amount that best reflects the list price

[[Page 20739]]

for the stated purposes of price transparency and comparison shopping.
Comment: A few commenters expressed concern that the WAC is not
standardized or well-defined enough to serve as a meaningful price
point. A few commenters noted that the WAC varies by National Drug Code
(NDC) and requested clarification on which NDC would be used in
determining the WAC to be included in advertisements.
Response: We disagree that the WAC is not standardized or well-
defined. Congress defined WAC in section 1847A of the Social Security
Act, and we are finalizing a definition in this rule that parallels the
statutory definition. WAC has been used in Medicare Part B drug payment
policy for more than a decade without significant concern that it is
not a meaningful price point.\26\ In Medicare Part D, the negotiated
price is a function of pharmacy-level charges, which are typically
expressed in network pharmacy contracts as a function of the WAC (e.g.,
((WAC x 1.2) - 15% + $2.00)). With respect to the commenters' request
for clarification about NDCs, we note that the regulation requires the
list price for a 30-day supply or typical course of treatment. To the
extent an NDC reflects an amount of the manufacturer's product other
than a 30-day supply or typical course of treatment, the manufacturer
will need to use reasonable assumptions to determine the appropriate
list price for a 30-day supply or typical course of treatment.
---------------------------------------------------------------------------

\26\ The WAC is used in Part B in two ways. First, Medicare Part
B pays 106 percent times the lesser of the Average Sales Price (ASP)
or WAC. See Social Security Act sec. 1847A(b)(4). Second, when a new
Part B drug or biological product comes to market and has no
established ASP, the Secretary may use the drug's or biologic's WAC
or methodologies in effect on November 1, 2003 to determine the Part
B payment amount. See Social Security Act sec. 1847A(c)(4).
---------------------------------------------------------------------------

Comment: Several commenters supported the use of the WAC. One
commenter noted that the WAC is a well understood price point that is
defined in statute and applies to every drug, and that because it
serves as a starting point for negotiating prices, it directly impacts
patients' costs. A few commenters noted that the full WAC is paid by
the uninsured and by beneficiaries with high deductibles. Others noted
that patients could estimate their out of pocket costs from the WAC if
they understand the percentage coinsurance of their coverage. A few
noted that due to variation in other price points, it would be
administratively burdensome for manufacturers to display any price
other than the WAC and that the proposal is easy for manufacturers to
comply with. A few commenters noted their belief that with the proposed
cost variation disclaimer, the WAC is an appropriate price point to
share in advertisements. Others noted that the WAC is primarily
informative for single-source drugs, which make up the majority of DTC
advertisements.
Response: We appreciate these commenters' support for the use of
the WAC, and agree that it is an appropriate metric for disclosure in
DTC television advertisements for the reasons commenters note. The WAC
is the most commonly used benchmark in the pharmacy purchasing of
drugs, which means that it is a single, manufacturer-published price
that excludes rebates and discounts, and therefore is the closest
metric we have to a generalizable list price that applies to all
patients prior to the application of insurance coverage, making this an
actual list price of the drug. While insurance coverage will affect
what the patient pays OOP for the drug, as stated above the WAC is an
important factor for determining the final price that patients will pay
for the drug. Moreover, the WAC is a real price that manufacturers set
for their drugs and share with various private price compilers such as
Red Book, Medispan, and First DataBank. WAC publishers sell
subscriptions to their compilations, allowing pharmacies and others
willing to pay annual subscription fees to access current prices. For
all of these reasons, the WAC is a relevant and important price point
in the drug supply chain.
Comment: Several commenters recommended that additional or
different information should be required in advertisements other than
the WAC. Specifically, commenters requested that DTC advertisements
include detail on what a patient may expect to pay out of pocket. One
commenter recommended that advertisements include both the WAC and
expected out of pocket costs. A few commenters recommended that
advertisements include rebate, discount and formulary information as
well as details for consumers to make a coinsurance calculation. One
commenter noted that patients want information about what payment
support options may be available to them. One commenter expressed
concern that the proposed disclosure does not give patients information
about what other drug options may be available. A few commenters
recommended that advertisements include appropriate explanations of
what the WAC means.
Response: We decline to require manufacturers to provide pricing
information in addition to the WAC of the drug being advertised because
this rule is targeted to providing the minimum amount of cost
information that will allow a patient to engage in shared decision
making with their prescriber. We also decline to require that DTC
advertisements explain what the WAC means, as the required disclosure
language refers to the ``list price,'' and does not the term WAC.
Further, the rule is targeted to require disclosure of the most
essential price information, but manufacturers may include additional
information if they so choose, so long as the information does not
obscure safety and effectiveness information.
Comment: One commenter requested clarification on whether standard
manufacturer costs would be used if the proposal were applied to the
inpatient setting.
Response: The requirement we are finalizing in this rule will
require DTC television advertisements to disclose the WAC of any drug
for which payment is available under Medicare or Medicaid, regardless
of the care setting.
Comment: A few commenters expressed concern that for drugs that
lack therapeutic alternatives, disclosure of the WAC will be irrelevant
because patients do not have cheaper options to choose from.
Response: We disagree. Even if a drug does not have any cheaper
therapeutic alternatives, it will be useful to the patient and his or
her caregivers to know its list price, as it will inform the
conversation about anticipated costs.
Comment: Many commenters agree that the WAC is the best price point
to include in DTC television advertisements because it is a single,
easily accessible metric created by manufacturers and available to
wholesalers, and is the most common benchmark used in pharmacy
purchasing and reimbursement. One commenter recommended using National
Average Drug Acquisition Cost (NADAC), which is a CMS-published
benchmark created through a national survey of actual invoices paid by
retail pharmacies to wholesalers. The commenter suggested that it is
more accurate, especially for generic drugs. One commenter noted that
alternative price points are more relevant to what patients pay, such
as the Federal Upper Limit (FUL) and the Maximum Allowable Cost (MAC),
which reflect rebates and discounts provided by manufacturers. One
commenter recommended against displaying the average wholesale price
(AWP), average acquisition cost (AAC), or national average drug
acquisition cost (NADAC).
Response: We appreciate the feedback on alternative metrics for the
list price.

[[Page 20740]]

We agree with the commenters that the WAC is an appropriate metric to
use as a list price because it is commonly used, easily available and
manufacturer-developed. We appreciate the comments that noted that the
WAC is not available for all drugs. However, not only is the WAC
generally available for the overwhelming majority of drugs, but it is
available for the more expensive drugs that are commonly advertised on
television, as shown in Table 1. All drugs that are distributed through
a wholesaler have a WAC, including all of the top 20 drugs that have
the highest DTC advertising spending. While we agree that other price
metrics may be useful, we decline to adopt any of these other metrics
as alternatives because we believe the WAC is a better metric for
purposes of the disclosure requirement. As noted previously, a
manufacturer sets its WAC, and therefore readily knows the WAC for all
of its advertised products. In addition, generic drugs are rarely
advertised on television, so the NADAC, which tracks generic prices, is
not only less relevant for purposes of this rule, but is also one step
removed from information--WAC--that the manufacturer already has at
hand.
1. WAC Is a Benchmark for Federal and Commercial Healthcare Programs
A drug's WAC has relevance as a benchmark in both federal and
commercial health care programs. In the commercial sector, nearly half
of all beneficiaries have high deductible plans including those with
plans purchased on the Health Insurance Exchange under the Affordable
Care Act.\27\ An analysis of commercial health plans also determined
that nearly half of all drug spending is subject to deductible or
coinsurance.\28\
---------------------------------------------------------------------------

\27\ Cohen R, Martinez M, and Zammitte E. Health Insurance
Coverage: Early Release of Estimates From the National Health
Interview Survey, January-March 2018. National Center for Health
Statistics. https://www.cdc.gov/nchs/data/nhis/earlyrelease/Insur201808.pdf.
\28\ Rae M, Cox C, and Sawyer B. What are recent trends and
characteristics of workers with high drug spending? Peterson-Kaiser
Health System Tracker. https://www.healthsystemtracker.org/chart-collection/recent-trends-characteristics-workers-high-drug-spending-2016/#item-deductibles-and-coinsurance-represent-a-larger-share-of-out-of-pocket-drug-spending-than-a-decade-ago.
---------------------------------------------------------------------------

Under Medicare Part B, after meeting the annual $185 deductible,
beneficiaries generally pay a 20 percent co-insurance for all items and
services, including prescription pharmaceuticals. When a Medicare Part
B drug is new, it may be reimbursed for a period of time based on its
WAC rather than its ASP. After that time, Medicare pays for
prescription drugs based on the ASP. Sixty percent of the top 50 Part B
drugs by spending have an ASP that is less than 10 percent different
from the WAC.
Medicare Part D allows beneficiaries to choose a private health
plan offering prescription drug benefits, and these include a
standalone prescription drug plan (PDP) for those with original
Medicare or a Medicare Advantage plan that includes prescription drug
coverage (MA-PD). In 2018, the majority of Part D enrollees had some
form of deductible, and more than 70 percent of standalone Part D plans
offered in 2019 included a deductible.\29\ The top 10 PDPs by
enrollment, which represents 81 percent of standalone PDP enrollment,
all charge coinsurance rather than copayments for drugs on nonpreferred
tiers, charging 32 percent to 50 percent of each prescription's
negotiated price (which closely resembles the WAC).\30\ All Part D
plans may charge coinsurance for drugs on the specialty tier. As such,
the overwhelming majority of Part D beneficiaries are exposed to OOP
costs based on the negotiated price (which closely resembles the WAC).
---------------------------------------------------------------------------

\29\ MedPAC Report to the Congress: Medicare Payment Policy.
March 2019.
\30\ MedPAC Report to the Congress: Medicare Payment Policy.
March 2019.
---------------------------------------------------------------------------

Table 1 includes the 20 drugs with the highest television
advertising expenditures during CY2016. The average WAC for these drugs
is $3,473 (range: $189-$16,937.91) per month.
Two of the drugs are covered by Medicare Part B, which requires
Medicare beneficiaries to pay a coinsurance equal to 20 percent of a
drug's ASP-based payment allowance for physician-administered drugs.
For the two Part B drugs, the ASP of the drug closely resembles the
WAC, suggesting that a beneficiary who knows the drug's WAC can easily
approximate their OOP costs.
Eighteen of the drugs are covered by Medicare Part D, in which a
beneficiary's OOP spending is dependent on the plan benefit design. For
these 18 Part D drugs, the mean per month WAC was $3,586.44. We used
the benefit design of the two PDPs with the lowest and highest premiums
available to a Medicare beneficiary in Washington, DC, to estimate the
formulary coverage and OOP costs for these 18 drugs. In the low-premium
plan, all 18 drugs were subject to a deductible, during which time the
beneficiary pays the negotiated price until entering the next phase of
the benefit, seven (39 percent) were on the preferred tier and subject
to a copayment after meeting the deductible, six (33 percent) were on
the non-preferred or specialty tier and subject to coinsurance after
meeting the deductible, and five (27 percent) were non-formulary drugs
for which no insurance benefit is available (unless the beneficiary
obtains a formulary exception). Thus, OOP spending was based on the WAC
for all of the drugs before meeting the deductible, and 61 percent of
the drugs after meeting the deductible. In the high-premium plan, all
18 drugs were subject to a deductible, during which time the
beneficiary pays the negotiated price until entering the next phase of
the benefit, five (27 percent) were on the preferred tier and subject
to a copayment after meeting the deductible, eight (33 percent) were on
the non-preferred or specialty tier and subject to coinsurance after
meeting the deductible, and five (27 percent) were non-formulary drugs
for which no insurance benefit is available (unless the beneficiary
obtains a formulary exception). Thus, OOP spending was based on the WAC
for all of the drugs before meeting the deductible, and 61 percent of
the drugs after meeting the deductible. Of note, the WAC was often less
than the Part D plan's negotiated price, and the high-premium plan
subjected beneficiaries to coinsurance more often than the low-premium
plan for the drugs with the highest DTC ad spending.
Thus, when drugs are purchased early in the year before a
deductible has been met, or during the plan year when coinsurance
applies, or at any time when a drug is not covered by insurance, the
patient often pays the WAC or cost-sharing based on the WAC, making the
WAC highly relevant. Knowing the WAC may also help a beneficiary begin
a conversation about less expensive alternatives, prompt them to ask
their pharmacist if a lower-cost option would be available, or
encourage them to choose a plan with more favorable cost-sharing
requirements.

[[Page 20741]]

Table 1--Comparison of List Price and Out of Pocket Cost Under High and Low Premium Plans for the Drugs With the Highest DTC Advertising Expenditures
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Representative low premium plan Representative high premium plan
-----------------------------------------------------------------------------------------------------------------------------------------------
Drug (quantity) WAC per Negotiated Negotiated
month Tier price and Initial Coverage Catastrophic Tier price and Initial Coverage Catastrophic
deductible coverage gap deductible coverage gap
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Humira (2 pens)................... $5,174 Specialty........... $5,169 $1,292 $1,292 $258 Specialty........... $5,097 $1,325 $1,274 $255
Lyrica (60 tabs).................. 468 Preferred Brand..... 446 40 117 23 Preferred Brand..... 462 42 115 23
Xeljanz (60 tabs)................. 4,481 Specialty........... 4,477 1,119 1,119 224 Non-formulary....... 5,377 5,377 5,377 5,377
Trulicity (4 pens)................ 730 Preferred Brand..... 730 40 182 36 Nonpreferred Drug... 720 345 180 36
Xarelto (30 tabs)................. 448 Preferred Brand..... 448 40 112 22 Preferred Brand..... 442 42 110 22
Otezla (60 tabs).................. 3,398 Non-formulary....... 4,078 4,078 4,078 4,078 Non-formulary....... 4,078 4,078 4,078 4,078
Eliquis (60 tabs)................. 444 Preferred Brand..... 444 40 111 22 Preferred Brand..... 438 42 110 22
Keytruda.......................... 4,719 Part B
Ibrance (30 tabs)................. 16,938 Specialty........... 17,608 4,402 4,402 880 Specialty........... 16,686 4,338 4,171 834
Jardiance (30 tabs)............... 493 Preferred Brand..... 493 40 123 25 Preferred Brand..... 486 42 66 24
Rexulti (30 tabs)................. 1,109 Specialty........... 1,109 277 277 55 Nonpreferred Drug... 1,093 525 273 55
Taltz (1 pen)..................... 5,162 Non-formulary....... 6,442 6,442 6,442 6,442 Non-formulary....... 6,194 6,194 6,194 6,194
Verzenio (60 tabs)................ 12,087 Specialty........... 12,510 3,128 3,128 626 Nonpreferred Drug... 11,907 5,715 2,977 595
Prevnar-13........................ 189 Part B
Eucrisa (1 tube).................. 633 Non-formulary....... 745 745 745 745 Non-formulary....... 745 745 745 745
Latuda (30 tabs).................. 1,223 Nonpreferred Drug... 1223 562 306 61 Nonpreferred Drug... 1,200 528 300 60
Victoza (3 pens).................. 922 Preferred Brand..... 921 40 230 46 Preferred Brand..... 908 42 227 45
Farxiga (30 tabs)................. 492 Preferred Brand..... 492 40 123 25 Nonpreferred Drug... 486 233 121 24
Enbrel (4 pens)................... 5,174 Non-formulary....... 6,209 6,209 6,209 6,209 Specialty........... 5,097 1,325 1,274 255
Cosentyx (1 pen).................. 5,179 Non-formulary....... 4,661 4,661 4,661 4,661 Non-formulary....... 4,661 4,661 4,661 4,661
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: In Table 1, we looked at the Top 20 drugs with the highest television advertising expenditures during CY 2016, per Kantar Media. We filled out the WAC for each of the drugs based on the
common monthly package size using Analysource and ProspectoRx data. Then, we selected the plan in the Washington DC area (Zip 20201) that had the lowest monthly premium (WellCare Value
Script (PDP)--$14 monthly premium) and a choice plan with the highest monthly premium (Express Scripts Medicare (PDP)--Choice--$97.20 monthly premium). We identified the tiers for the drugs
based on the respective formularies for each plan. Then, we used the Plan Finder website for each plan to identify the deductible and initial coverage for each drug to estimate the OOP costs
for beneficiaries before they enter catastrophic coverage phase. The WAC was obtained from Analysource and ProspectoRx data. Tiering info was obtained from Express Scripts Medicare Choice
PDP 2019 Formulary and WellCare Value Script PDP 2019 Formulary. Deductible and Initial Coverage Period for Value Plan (WellCare Value Script (PDP)) OOP amounts were obtained from the
Medicare.gov Part D Planfinder for an applicable beneficiary living in Washington DC (20201). Deductible and Initial Coverage Period for Choice Plan (Express Scripts Medicare (PDP)--Choice)
OOP amounts were obtained from the Medicare.gov Part D Planfinder for an applicable beneficiary living in Washington DC (20201).

2. Absence of WAC as Potentially Misleading
Comment: Many commenters strongly opposed the use of the WAC and
expressed concern that the WAC is not a meaningful measure of what a
patient will pay for a drug and is instead misleading and confusing.
Commenters noted that, based on insurance coverages, rebates, patient
assistance programs, and negotiated discounts, consumers could pay less
for a drug with a higher list price than for a drug with a lower list
price and that disclosure of the WAC does not provide accurate or
relevant information to patients. Commenters expressed concern that the
proposal will deter patients from seeking appropriate care, as some may
believe the WAC represents their out of pocket costs. Commenters noted
their belief that the proposal puts the burden of increasing drug
prices on consumers and stated that disclosing the price out of context
will overemphasize costs. Commenters noted that the WAC is useful only
if patients have a detailed understanding of the provisions of their
drug coverage. Commenters stated that if information about OOP costs
cannot be included, we should not require inclusion of any prices at
all.
Response: We disagree that disclosure of a drug's WAC would be
misleading. For the reasons stated above, WAC is a highly relevant data
point with significance in both federal and commercial health care.
Indeed, it is our view that the absence of a drug's WAC would make a
DTC television advertisement potentially misleading because consumers
appear to dramatically underestimate their OOP costs for expensive
drugs, but once they learn the WAC they become far better able to
approximate their OOP costs. In the 2019 JAMA study,\31\ published
after the proposed rule was issued, researchers asked subjects to
estimate their monthly OOP costs for a drug with a hypothetical WAC of
$15,500 per month. When subjects were provided no information about
price, they responded that their OOP costs would be, on average, $78
per month or about 0.5 percent of the WAC. However, when subjects were
told the WAC, they more accurately determined their (OOP) costs at
$2,787 or about 18 percent of the WAC. We do not know whether subjects
used their own plans as the bases for their calculations and if so, the
report does not reveal their plans' coinsurance rates. Nonetheless, the
informed estimates were far closer to what one would expect to see paid
at the pharmacy counter under most plans than the uninformed assessment
of $78. This study strongly suggests that advertisements without the
WAC may lull viewers into a false sense affordability and may therefore
be potentially misleading under the relevant state laws. See, e.g.,
Calif. Bus. & Prof. Code sec. 17200.
---------------------------------------------------------------------------

\31\ Garrett JB, Tayler WB, Bai G, et al. Consumer Responses to
Price Disclosure in Direct-to-Consumer Pharmaceutical Advertising.
JAMA Intern Med. 2019;179(3):435-437. (``2019 JAMA Study'').
---------------------------------------------------------------------------

We also disagree with commenters' concerns that the list price may
be more confusing than beneficial to patients because it is not related
to their OOP costs. As noted above, consumers may be better able to
predict their OOP costs when they know a drug's WAC. In addition, the
list price will be new information to patients, and a starting point
for conversations among prescribers, patients and caregivers. We
believe it would be too complicated to require manufacturers to try to
disclose every possible cost sharing outcome in a DTC television
advertisement, but requiring disclosure of the list price will help
prompt further discussions that help consumers make informed decisions
about appropriate treatment options. (As discussed elsewhere in this
preamble, the rule also requires inclusion of the statement, ``If you
have health insurance that covers drugs, your cost may be different,''
a further disclosure that provides context for consumers.) As noted
above, the list price is relevant for uninsured patients, and insured
patients with deductibles and coinsurance as is frequently the case
under Part D for high cost drugs advertised on television.
We disagree that disclosure of a drug's WAC in DTC television
advertisements will overemphasize costs or deter patients from seeking
care. As noted in the 2019 JAMA Study, the risk of patients not seeking
care is mitigated

[[Page 20742]]

when the advertisement includes a caveat that OOP costs may be
less.\32\
---------------------------------------------------------------------------

\32\ Garrett JB, Tayler WB, Bai G, et al. Consumer Responses to
Price Disclosure in Direct-to-Consumer Pharmaceutical Advertising.
JAMA Intern Med. 2019;179(3):435-437. (``2019 JAMA Study'').
---------------------------------------------------------------------------

Comment: Some comments cite evidence that the disclosure of the
list price may dissuade patients from discussing certain medical
treatments with their prescribing health care practitioners.\33\ In
support of the dissuasion argument, at least one comment also cited to
an article about a study that concluded that high deductibles
discourage patients from seeking prompt medical care.\34\ Another
comment disagreed, asserting that companies advertising their products
expend considerable resources to ensure that their advertising
communicates effectively. The comment further asserts that consumers
who are able to understand and make use of the information about a
prescription drug or biological product described in the advertisement
would have the capacity to understand and make use of the pricing
information.
---------------------------------------------------------------------------

\33\ Dusetzina SB and Mello MM. Disclosing Prescription-Drug
Prices in Advertisements--Legal and Public Health Issues. N Engl J
Med. 2018 Dec 13;379(24):2290-2293.
\34\ Gordon S. High Deductibles May Mean Poorer Diabetes Care.
U.S. News & World Report, Nov. 20, 2018. https://health.usnews.com/health-care/articles/2018-11-20/high-deductibles-may-mean-poorer-diabetes-care.
---------------------------------------------------------------------------

Response: We find the latter comment more persuasive. The article
from the New England Journal of Medicine was published under the
``Perspectives'' heading, which the journal describes as ``[c]over[ing]
timely, relevant topics in health care and medicine in a brief,
accessible style.'' See https://www.nejm.org/author-center/article-types. The authors opine that ``a potential unintended consequence of
price disclosure may be to dissuade patients from seeking care because
of the perception that they cannot afford treatment'' (emphasis
added).\35\ This statement of the authors' opinion is not based on any
data, and we do not find it persuasive. We are also not persuaded that
the study on high deductibles undermines the DTC ad requirement. That
study concluded that individuals who transitioned from low-deductible
to high-deductible insurance demonstrated a delay in seeking care for
certain diabetes complications, as compared to peers who remained in
low-deductible plans. Furthermore, the study suggests that people with
diabetes should select benefit designs that are appropriately tailored
to their expected use of care. But the proposition that individuals, if
informed of a drug's list price, will necessarily delay visiting a
doctor and discussing treatment options (including but not limited to
the advertised drug) does not necessarily follow from the study's
conclusion.
---------------------------------------------------------------------------

\35\ Dusetzina SB and Mello MM. Disclosing Prescription-Drug
Prices in Advertisements--Legal and Public Health Issues. N Engl J
Med. 2018 Dec 13;379(24):2290-2293.
---------------------------------------------------------------------------

In contrast, as we discussed in section I.C., price transparency is
essential to enable consumers to make informed health care choices,
which will in turn improve the efficiency of the Medicare and Medicaid
programs, as it is critical that beneficiaries understand the costs
associated with various medications. This is especially important where
consumers have significant cost sharing obligations. Increasing drug
price transparency changes patient behavior, and price transparency is
an accepted strategy for addressing our increasing health care costs.
Additionally, price transparency is recognized as a low-risk
intervention because it has the potential to reduce health care costs
without otherwise affecting health care delivery and reimbursement.\36\
---------------------------------------------------------------------------

\36\ Sinaiko AD and Rosenthal MB. Increased price transparency
in health care--challenges and potential effects. N N Engl J Med.
2011 Mar 10;364(10):891-4.
---------------------------------------------------------------------------

Comment: Many commenters note that including the list price could
be a psychological burden for patients, whether or not it is related to
their OOP costs, because many advertised drugs are expensive, sole
source drugs for severe, debilitating, or terminal diseases. This means
patients often will not have the opportunity to ``shop'' for lower cost
alternatives. Some commenters note that patients should not be the one
bearing the responsibility for making cost-benefit analyses when they
are undergoing active treatment for severe disease, so it is
inappropriate to include the list price as an element for patients to
consider as they enter active treatment. Commenters also stated that
including the list price could also have the unintended consequence of
patients' electing to use higher-cost drugs, particularly if there is
no difference in OOP costs, because price is seen as an indicator of
quality in other categories of consumer goods.
Response: While we acknowledge that a person's clinical needs or
health condition may make it infeasible for them to seek lower cost
drug therapies, we disagree that this makes the provision of list price
information inappropriate. We believe providing this information
regarding price is better than providing no information, even if the
additional information is not considered by a particular patient and
his or her providers in making treatment decisions. Contrary to
commenters' assertions, it may be more burdensome for patients and
their caregivers not to have pricing information to take into
consideration as they determine the most appropriate course of action.
Moreover, we would not characterize any decision to prescribe a higher
cost drug, based on consideration of all the applicable factors
including safety, efficacy, side effects, and price, as an unintended
consequence of this rule.
Comment: Commenters noted that because WAC has no relation to what
patients will actually pay, it is unreasonable to assume the proposal
will have any impact on treatment choices or the cost of drugs.
Response: We disagree. As discussed above, studies show that
consumer behavior is affected by DTC advertisements, and that consumers
who know the list price may be better able to predict their OOP costs.
This evidence leads to the conclusion that the additional data point,
which, as discussed elsewhere in this rule, is highly relevant and
would have an effect on treatment choices and, potentially, the cost of
drugs.
Comment: A few commenters expressed concern that disclosing the WAC
fails to account for the value of drugs and could lead to consumers
comparing drugs based on the WAC alone, without considering important
factors such as safety and effectiveness.
Response: We disagree that providing this limited price information
would lead to decision making that disregards safety and effectiveness.
Given that the drugs and biological products that are subject to this
rule are dispensed upon a prescription, and therefore require
consultation with a prescriber, the choice of an appropriate treatment
option is not based solely on a drug's WAC.
Comment: A few commenters expressed concern that the proposed
disclosure of the WAC in DTC advertisements undermines FDA efforts to
make advertisements simple and clear to patients.
Response: We disagree. The DTC disclosure requirement we are
finalizing in this rule requires simple, standardized text be placed at
the end of the ad, and would not make the advertisement any more
complicated. However, we remind manufacturers that they have to comply
with all applicable FDA requirements and that nothing in this rule is
intended to supersede any FDA requirement.
Comment: Some commenters note that providers and prescribers do not

[[Page 20743]]

have the time, resources, or expertise to have conversations with
patients about the cost of drugs or biological products, so it may be
inappropriate to provide list price information to patients encouraging
them to discuss this information with their providers or prescribers.
Commenters stated that DTC television advertising may actually decrease
the quality of conversations between patients and their providers
because it will force the provider to dedicate a portion of their
limited time with the patient discussing a list price unrelated to
their OOP costs that the physicians are not trained to discuss. Some
commenters note that the payor or the pharmacists may be better
equipped to educate the patient on the cost of therapies.
Response: This rule does not require that providers and prescribers
discuss pricing or costs with their patients. Rather, this rule merely
requires that relevant information be shared with patients should
providers and prescribers wish to discuss drug costs with them. We
believe it is important that providers discuss any barriers to
medication adherence, such as cost, with their patients to determine if
consideration of alternative therapies is needed. The availability of
list price information will not decrease the quality of doctor-patient
interaction or require any particular training or resources. In fact,
it may encourage patients to discuss any barriers to medication
adherence with their providers. As discussed in section F of this final
rule, certain Medicare billing codes already account for the resources
associated with counseling patients on therapeutic options.
3. Use of a $35 Threshold
We sought comment as to whether the cost threshold of $35 to be
exempt from compliance with this rule is the appropriate level and
metric for such an exemption. We proposed this threshold because it
approximates the average copayment for a preferred brand drug. We also
considered incorporating a range for exempted drugs defined as less
than $20 per month for a chronic condition or less than $50 for a
course of treatment for an acute condition. In particular, we
considered whether ``chronic condition'' and ``acute condition'' are
sufficiently distinguishable to accomplish the stated regulatory
purpose. We sought comment on alternative approaches to determining a
cost threshold, whether or not the threshold should be updated
periodically, and if so, how the threshold should be updated.
Comment: Some commenters agree that $35 is a reasonable cost
threshold to be exempt from compliance with this rule. Many commenters
recommend that we do not include a threshold price for drugs that would
exempt them from including their list price in DTC advertising. They
note that if one of the purposes of this rule is to improve price
transparency, then it is important to provide the prices on all drugs
and biological products that are subject to DTC advertising. Some of
these commenters also note that it is not appropriate to assume that
$35 is a good threshold as an approximation of the co-payment of an
average copayment for a preferred brand drug because $35 may still be a
financial burden for many patients, and awareness of this amount could
be useful for patients. One commenter recommended that we reduce the
threshold to $25 because that is also representative of copayments for
brand drugs. Another commenter recommended that we increase the
threshold to $100 to avoid inundating patients with price
notifications, and potentially reducing their effect. Finally, several
commenters noted that it may be confusing to patients on why some drugs
and biologic products have a list price included in their DTC
television advertisements, while others do not. To avoid this
confusion, the price should be included in all advertisements. We did
not receive any comments on whether or how often this threshold would
need to be revisited.
Response: We agree with commenters that $35 is an appropriate list
price threshold for exemption from compliance with this rule. We
disagree with commenters that suggested there should not be an
exemption from the list price disclosure requirement. Since patients
with the traditional benefits with no low income cost subsidies can
already expect to pay up to $35 in cost sharing for a preferred brand
drug, knowing the list price of low-cost drugs is unlikely to affect
their drug purchasing decisions. We appreciate commenters'
recommendation to reduce the threshold to $25, but we continue to
believe that $35 is a more appropriate threshold, given that it
frequently is the copayment amount for preferred brand drugs. For the
same reason, we decline to adopt the suggestion to raise the threshold
to $100. Also, there are likely not many additional drugs that would
receive the exemption if we move it from $35 to $100. Finally, we
disagree that it will be confusing to patients that some drugs and
biological products include prices in their DTC advertising while
others do not because drugs and biological products that do not have
the price displayed will be within the range of what they would expect
to pay for a prescription regardless of insurance coverage or
structure, or if they are uninsured. DTC advertisements that do not
have prices will be just like advertisements on television today.
Moreover, nothing in this rule prevents a manufacturer from including
its WAC even though it is exempt. Advertisements with prices will
simply provide additional information that can help beneficiaries
engage their doctors and make appropriate treatment decisions.

D. First Amendment Considerations

1. Background--Zauderer/Central Hudson
As an initial matter, the speech here at issue does not implicate
core First Amendment interests. Manufacturers already disclose the very
same information at issue, their products' WACs, to purchasers as well
as publishers of various pricing databases and other compendia. As the
Supreme Court has explained, ``Our lodestars in deciding what level of
scrutiny to apply to a compelled statement must be the nature of the
speech taken as a whole and the effect of the compelled statement
thereon.'' Riley v. Nat'l Fed'n of Blind, 487 U.S. 781, 796 (1988). The
key concern relating to compelled speech is having the government
compel a speaker to convey a message with which it disagrees. Johanns
v. Livestock Mktg. Ass'n, 544 U.S. 550, 557 (2005); see, e.g., Nat'l
Inst. of Family and Life Advocates v. Becerra, 138 S. Ct. 2361, 2379
(2018) (``NIFLA'') (law at issue ``compel[ed] individuals to contradict
their most deeply held beliefs, beliefs grounded in basic
philosophical, ethical, or religious precepts'') (Kennedy, J.,
concurring). More routine disclosure requirements are ``simply not the
same as forcing a student to pledge allegiance[ ] or forcing a
Jehovah's Witness to display the motto `Live Free or Die.' '' Rumsfeld
v. Forum for Academic & Institutional Rights, Inc., 547 U.S. 47, 62
(2006). The ``disclos[ure of] objective facts and statistics'' about
price information ``is simply not the same as forcing a speaker to
support or accommodate an idea, belief, or opinion.'' Beeman v. Anthem
Prescription Management, LLC (``Beeman''), 315 P.3d 71, 84 (Cal. 2013)
(citations and internal punctuation omitted).
It is therefore well established that the government may,
consistent with the First Amendment, require the disclosure of factual
information in marketing

[[Page 20744]]

commercial products where the disclosure is justified by a government
interest and does not unduly burden protected speech. Zauderer v.
Office of Disciplinary Counsel, 471 U.S. 626 (1985); NIFLA, 138 S. Ct.
at 2372. The rule's required disclosure meets this test. The list price
is a fact that is controlled by the manufacturer; it does not represent
a government viewpoint or policy message. Price transparency enhances
the information available in the market and allows markets to function
more efficiently to the benefit of consumers. And the brief textual
statement placed at the end of a television advertisement would not
unduly burden the advertiser's ability to convey its message in the
remainder of the advertisement.
Many comments assert that the rule should be evaluated under the
intermediate scrutiny test for commercial speech articulated in Central
Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n, 447 U.S. 557 (1980).
Under that test, agencies can regulate speech where the regulation
advances a substantial government interest and the regulation is no
more extensive than necessary to serve that interest.
Although we believe that Zauderer provides the appropriate
framework for review, the rule also satisfies the elements of the
Central Hudson test. The government interest is clear. Prescription
drug spending in the United States has increased dramatically in recent
years and is projected to account for an increasing share of the
country's health care spending. This affects consumers both through
their own OOP expenses and through the expenses borne by Medicare and
Medicaid and taxpayers. Price transparency helps improve market
efficiencies by helping consumers make informed choices and the
disclosure of price information clearly and directly advances this
interest. The brief disclosure at the end of a prescription drug
advertisement is narrowly tailored to achieve that result and does so
more effectively than alternatives that do not provide the information
in the advertisement itself.
2. Application of the Zauderer Test
Comment: Some comments assert that the Zauderer test applies only
where the government interest relates to preventing consumer deception.
In contrast, at least one comment noted that some lower court cases
have recognized other interests. Another comment stated that the United
States Supreme Court has not resolved the issue.
Response: The latter comments more accurately summarize the current
state of the law. While some lower court decisions could be read to
limit the application of Zauderer to matters where the government
interest relates to preventing consumer deception, e.g., Entm't
Software Ass'n v. Blagojevich, 469 F.3d 641, 651-53 (7th Cir. 2006),
other courts have held that Zauderer applies where other interests
support the compelled speech. See, e.g., Am. Bev. Ass'n v. City & Cty.
of San Francisco, 916 F.3d 749, 755-56 (9th Cir. 2019) (en banc); Am.
Meat Inst. v. United States Dep't of Agric., 760 F.3d 18 (D.C. Cir.
2014) (en banc). The Supreme Court did not reach this issue in NIFLA.
See 138 S. Ct. at 2377. It is our view, based on current law, that the
Zauderer test is not limited to disclosures designed to prevent
consumer deception.
Comment: Several comments assert that the Zauderer test applies
only to mandated disclosure of ``purely factual and uncontroversial''
information, but that the WAC, even if a literally true, should not be
considered factual and uncontroversial because many patients would pay
less, and therefore the WAC is incomplete, misleading, and will be
misunderstood. Other comments argued that the disclosed prices ``for a
typical 30-day regimen or for a typical course of treatment'' will
often be inaccurate for certain drugs, where the course of treatment
varies based on patient-specific factors such as age, weight, or
baseline test results. Some comments further assert that by misleading
patients, the compelled disclosure of inflated prices could dissuade
patients from seeking appropriate treatment.
Response: We disagree with these comments. The rule requires the
disclosure of ``the current list price for a typical 30-day regimen or
for a typical course of treatment.'' The current list price for a
prescription drug or biological product is an objective fact. As
discussed above, the WAC is a manufacturer-specified metric that is
commonly used, reported in compendia, defined in statute, and relevant
to both federal and commercial health care programs.
As discussed in the proposed rule, price disclosure requirements
are commonplace under federal, state, and local laws, and have been
upheld when challenged under the First Amendment as permissible
disclosures of factual and uncontroversial information. See, e.g.,
Spirit Airlines, Inc. v. United States Dep't of Transp., 687 F.3d 403,
414 (D.C. Cir. 2012); Poughkeepsie Supermarket Corp. v. Dutchess Cnty,
648 Fed. Appx. 156, 157-158, 2016 U.S. App. LEXIS 8770 (2d Cir. 2016);
see also Beeman, 58 Cal. 4th at 341, 315 P.3d at 78, 165 Cal. Rptr. 3d
at 809 (upholding compelled disclosure of pharmacy fees under the right
to free speech guaranteed by article I of the California Constitution,
which is ``at least as broad as and in some ways is broader than the
comparable provision of the federal Constitution's First Amendment'')
(citations and internal punctuation omitted). The ``disclos[ure of]
objective facts and statistics'' about price information ``is simply
not the same as forcing a speaker to support or accommodate an idea,
belief, or opinion.'' Beeman, 58 Cal. 4th at 349, 315 P.3d at 84, 165
Cal. Rptr. 3d at 816 (citations and internal punctuation omitted). And
as the Supreme Court confirmed in NIFLA, ``we do not question the
legality of . . . purely factual and uncontroversial disclosures about
commercial products.'' 138 S. Ct. at 2376.
The rule further requires the disclosure to contain the following
statement: ``If you have health insurance that covers drugs, your cost
may be different.'' Again, this is undeniably a truthful statement of
objective fact. Moreover, it directly addresses the issue raised in
some of the comments in that it contextualizes the list price
information. The assertions in the comments that consumers will
misunderstand the price disclosure with this additional context are
purely speculative. In addition, nothing in the rule would prevent the
manufacturer from presenting additional contextual information, should
the manufacturer wish to do so. However, we remind manufacturers that
they have to comply with all applicable FDA requirements and that
nothing in this rule is intended to supersede any FDA requirement.
Comment: At least one comment asserts that disclosure of the WAC is
controversial because pharmaceutical pricing is a controversial topic,
and therefore even if the Zauderer test for permissible compelled
disclosures did apply, it would not be satisfied here. The comment
cites NIFLA and Nat'l Ass'n of Mfrs. v. SEC, 800 F.3d 518 (D.C. Cir.
2015) as support for this proposition.
Response: We disagree with this comment and the applicability of
the cited cases. First, because the WAC is a truthful statement of
objective fact that is not subject to dispute, it is
``uncontroversial.'' Indeed, all drug manufacturers provide this
information voluntarily to companies who publish this information in
compendia or databases available to the public, and we note that one
drug manufacturer

[[Page 20745]]

voluntarily chose to include the list price of their more commonly
prescribed drug prior to the establishment of a legal requirement to do
so. Second, under the case law, it is not clear that
``uncontroversial'' or ``noncontroversial'' is a legal standard that is
part of the Zauderer test. See Disc. Tobacco City & Lottery, Inc. v.
United States, 674 F.3d 509, 559 n.8 (6th Cir. 2012) (The test under
Zauderer is ``factual'' and ``accurate''; the Court in Zauderer used
the term ``noncontroversial'' once to ``merely describe[ ] the
disclosure the Court faced in that specific instance.''). Indeed, some
cases have not mentioned ``uncontroversial'' or ``noncontroversial'' in
the course of applying the Zauderer test. See, e.g., Milavetz, Gallop &
Milavetz, P.A. v. United States, 559 U.S. 229 (2010); Spirit Airlines,
Inc., 687 F.3d 403.
In NIFLA, the Supreme Court held that the Zauderer test applies
only to required disclosures about the speaker's own product or
service, and therefore it did not apply to a disclosure about the
availability of state-sponsored medical services (including, in that
case, the potential provision of abortion services). See 138 S. Ct. at
2372. Although the Court noted that abortion is ``anything but an
`uncontroversial' topic,'' that statement does not appear to be the
basis for its finding that Zauderer did not apply to the disclosure
about state-sponsored services. See id. Here, by contrast, the
disclosure required by the rule relates to the product being
advertised, thus falling squarely within the traditional ambit of the
Zauderer test.
Unlike the 6th Circuit holding in Discount Tobacco, the D.C.
Circuit held in Nat'l Ass'n of Mfrs that ``uncontroversial'' is part of
the Zauderer test. However, the holding in that case underscores that a
drug's list price is not ``controversial.'' At issue in that case was a
requirement that companies report to the SEC and state on their website
if any of their products ``have not been found to be DRC conflict
free''--which the court described as ``a metaphor that conveys moral
responsibility for the Congo war'' and ``compel[s] [a company] to
confess blood on its hands.'' 800 F.3d at 530. A disclosure of the list
price of a prescription drug or biological product is hardly
comparable, and courts have upheld required disclosures similar to the
one here. See, e.g., Spirit Airlines, Inc., 687 F.3d 403 (upholding
requirement for airlines to make total price the most prominent cost
figure in advertisements); N.Y. State Rest. Ass'n v. N.Y. City Bd. of
Health, 556 F.3d 114, 134 (2d Cir. 2009) (upholding required posting of
calories on menus in chain restaurants); Nat'l Elec. Mfrs. Ass'n v.
Sorrell, 272 F.3d 104 (2d Cir. 2001) (upholding requirement that
mercury-containing products be labeled with a statement that the
products contain mercury and, on disposal, should be recycled or
disposed of as hazardous waste). Thus, even if ``uncontroversial'' is
part of the Zauderer test and given the meaning adopted by the court in
Nat'l Ass'n of Mfrs, the disclosure of price information is
uncontroversial.
Comment: Some comments assert that the required disclosures are not
adequately justified. Some state that the government goal of
encouraging the selection of cost-effective therapies cannot justify
the compelled disclosure of the WAC, because the WAC is not the kind of
health care economic information that would facilitate informed price-
shopping and providing pricing in advertisements is too disconnected
from purchasing decisions, which are often made during physician-
patient discussions. Other commenters claimed that CMS assumed, without
sufficient evidence, that higher drug costs result from a lack of
transparency about drug prices, and that CMS failed to explain why the
disclosure of the WAC would be effective in light of the distortions in
the market created by third-party payors. Commenters also stated the
rule would fail to advance the government's interests because it would
simply result in manufacturers shifting advertisements from TV to other
forms, such as online or through social media. One comment asserts that
the required disclosure is unnecessary because many prescription drug
manufacturers will begin voluntarily providing this pricing information
on their websites pursuant to a document issued by the Pharmaceutical
Researchers and Manufacturers of American (``PhRMA''), entitled PhRMA
Guiding Principles-Direct to Consumer Advertisements About Prescription
Medicines. That document was revised in October 2018 to include a new
price disclosure principle recommending that prescription drug
broadcast advertisements include direction to where patients can find
information about the cost of the medicine, such as a company-developed
website.
Response: We disagree with these comments--the rule is more than
adequately justified. The Zauderer test requires that compelled
disclosures ``remedy a harm that is potentially real [and] not purely
hypothetical.'' NIFLA, 138 S. Ct. at 2377 (citation and internal
punctuation omitted). Here, the harm is clearly real. As discussed in
section I.C. above, rising drug prices increase federal health care
costs, threatening the sustainability of federal health care programs
and the availability to care to Medicare and Medicaid beneficiaries,
and are a harm to beneficiaries by increasing their health care and OOP
costs.
PhRMA's issuance of a new guiding principle in October 2018 does
not change the need for the rule. The PhRMA principles are voluntary;
they are not binding on PhRMA members, let alone non-members, and there
is nothing to prevent PhRMA from revising its principles at any time, a
fact which is underscored by the timing of the issuance of the
guideline to coincide with the issuance of the proposed rule. Moreover,
including direction to where price information can be found will not
have the same impact as including the information in the advertisement
itself. As noted in section II.E.7. of this rule, one third of adults
surveyed stated that they do not frequently use the internet, making
the PhRMA proposal relatively meaningless to that cohort. As to the
other two thirds who do, the PhRMA proposal would require them to
immediately open their browser, navigate to the URL flashed on the
television screen, and then click through to find the pricing
information. We believe that relatively few viewers will make use of
the approach advocated by the PhRMA proposal, even assuming that its
members implement the proposal.
Comment: Some comments assert that the rule would be unduly
burdensome in that it would clutter the advertisement and would require
monthly updates.
Response: We disagree. ``[C]ompliance with most compelled
disclosure laws will logically entail some expense.'' Poughkeepsie
Supermarket Corp. v. Cnty. of Dutchess, 140 F. Supp. 3d 309, 317
(S.D.N.Y. 2015), aff'd 648 Fed. Appx. 156, 157-158, 2016 U.S. App.
LEXIS 8770 (2d Cir. 2016). Courts, however, have not found them to be
unduly burdensome unless they ``drown[ ] out the [speaker's] own
message'' or ``effectively rule[ ] out'' a mode of communication.
NIFLA, 138 S. Ct. at 2378. As we explained in the proposed rule, the
requirement to add certain information to an advertisement is not
unduly burdensome where, as here, the manufacturer has the ability to
convey other information of its choosing in the remainder of the
advertisement. See, e.g., Spirit Airlines, Inc., 687 F.3d at 414
(requirement for airlines to make total price the most prominent cost
figure does not significantly burdens

[[Page 20746]]

airlines' ability to advertise); Discount Tobacco City & Lottery, Inc.
v. United States, 674 F.3d 509, 524 (6th Cir. 2012) (size of required
warnings is not unduly burdensome where remaining portions of their
packaging are available for other information). The inclusion of a
brief textual statement at the end of a broadcast advertisement neither
drowns out the speaker's message nor rules out broadcast advertisements
as a mode of communication.
Even if economic burden were relevant under Zauderer, the burden
here is minimal. First, most manufacturers report the WAC to compendia
and databases for other business purposes. Second, we are narrowly
limiting the amount of information included on the advertisements and
the advertisements subject to this policy to minimize the burden on
manufacturers and advertising platforms to only deliver the minimum
amount of necessary information to implement the policy. Finally, the
fact that one pharmaceutical manufacturer is voluntarily including list
prices in its television advertisements shows that including these
prices is a minimal burden to the manufacturers.\37\ Finally, the
Regulatory Impact Analysis in section IV shows that the cost to
implement this change would cost less than 0.1 percent of what
manufacturers spend on DTC television advertising.
---------------------------------------------------------------------------

\37\ Johnson and Johnson. What Cost Information Helps Patients
in a TV Ad? We Asked Them. https://www.jnj.com/our-company/what-cost-information-helps-patients-most-we-asked-them.
---------------------------------------------------------------------------

Comment: Some comments assert that the rule will be burdensome on
other actors in the chain of distribution such as broadcasters and
cable operators, particularly in that the disclosure requirement will
have the effect of diverting the advertising revenue to different
media.
Response: Spending on DTC pharmaceutical commercials increased 62
percent between 2012 and 2017.\38\ Studies estimate that every dollar
spent on DTC advertising increases sales on the advertised drug by
$2.20-$4.20.\39\ Because of the value and return on investment related
to DTC advertising,\40\ it is unlikely that adding the list price of
pharmaceuticals to DTC television advertising will significantly affect
the amount spent by that sector on television advertisements (i.e.,
$4.2 billion in 2017).
---------------------------------------------------------------------------

\38\ Kantar Media. Pharma ups the ante on DTC advertising.
https://www.kantarmedia.com/us/newsroom/km-inthenews/pharma-ups-the-ante-on-dtc-advertising.
\39\ Ventola CL. Direct-to-Consumer Pharmaceutical Advertising:
Therapeutic or Toxic? P T. 2011 Oct; 36(10): 669-674, 681-684.
\40\ Garrett JB, Tayler WB, Bai G, et al. Consumer Responses to
Price Disclosure in Direct-to-Consumer Pharmaceutical Advertising.
JAMA Intern Med. 2019;179(3):435-437. (``2019 JAMA Study'')
---------------------------------------------------------------------------

In addition, we disagree that this type of alleged impact is
properly part of the First Amendment analysis. The undue burden that
the Zauderer test contemplates is an undue burden on ``protected
speech,'' not the economic impact on other actors. See NIFLA, 138 S.
Ct. at 2377.
Comment: Some comments assert that government-scripted speech is
always burdensome.
Response: We disagree. There are many products and services
regulated under federal, state, and local laws for which disclosures
are required. See Reed v. Town of Gilbert, 135 S. Ct. 2218, 2234-35
(2015) (Breyer, J., concurring); Beeman, 58 Cal. 4th at 366-67, 315
P.3d at 96-97, 165 Cal. Rptr. 3d at 830-31. And the Court in NIFLA
confirmed that ``we do not question the legality of health and safety
warnings long considered permissible, or purely factual and
uncontroversial disclosures about commercial products.'' 138 S. Ct. at
2376. Thus, the fact that many of these disclosures are ``government-
scripted'' does not make them unconstitutional.
Moreover, disclosure of price information is fundamentally
different from the viewpoint discrimination that lies at the heart of
First Amendment protections. ``Required disclosure of accurate, factual
commercial information presents little risk that the state is forcing
speakers to adopt disagreeable state-sanctioned positions, suppressing
dissent, confounding the speaker's attempts to participate in self-
governance, or interfering with an individual's right to define and
express his or her own personality.'' Nat'l Elec. Mfrs. Ass'n v.
Sorrell, 272 F.3d 104, 114 (2d Cir. 2001).
The disclosure required by the rule is:
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 bracketed language will be drafted by the company and the list
price will be incorporated by the company. The few remaining words that
constitute ``scripted'' language do not unduly burden First Amendment
values.
Accordingly, we conclude that this final rule is constitutionally
proper under the Zauderer test.
3. Application of the Central Hudson Test
Comment: Most comments did not dispute that the government
interests described in the preamble to the proposed rule are
substantial. Some comments affirmatively assert that HHS has a
substantial interest in reducing Medicare and Medicaid costs. One
comment, however, asserts that the proposed rule failed to establish
that HHS's interest in the efficient administration of both Medicare
and Medicaid programs was substantial.
Response: We agree with the comments that affirm the substantial
government interest in reducing prescription drug or biological product
costs generally, as well as the costs borne by Medicare and Medicaid.
As discussed in section I.C.2.a. above, DTC advertising increases both
utilization and costs of pharmaceuticals. Because DTC advertising has a
direct impact on the utilization of prescription drugs or biological
products, and the drugs most frequently advertised on television are
high-cost drugs, the link between DTC advertising and efficient
administration of the Medicare and Medicaid program is clear. In our
view, there is no question that this interest is substantial.
Comment: Some comments assert that the rule will not advance any
substantial government interests. Some of these comments assert that
disclosure of the list price to consumers would not be helpful to
consumers because of the disparity between the list price and the price
actually paid by most patients.
Response: We disagree. As discussed in section I.C.1., there is a
substantial government interested in reducing list prices because list
price is directly linked to a number of factors that directly tie to
how much Medicare Part D patients will pay for their drugs. Increased
spending on high-cost drugs harms CMS programs and CMS beneficiaries.
Additionally, as discussed in Section II.C., the WAC is a good price
metric to use to represent list price.
Comment: Some comments assert that disclosure of the list price
will not reduce drug prices. Other comments assert that the record is
not sufficient to support the conclusion that the rule will be
effective and that further study is necessary. At least one comment
asserts that the rule will directly advance the government interest in
reducing the high cost of prescription drugs or biological products
including reducing Medicare and Medicaid costs.
Response: We agree with the latter comment. As discussed in section
I.C., it is well accepted that price transparency helps improve market

[[Page 20747]]

efficiencies by helping consumers make informed choices. Disclosure of
price information clearly and directly advances this interest. Cf.
Spirit Airlines, Inc., 687 F.3d at 415. Including the price of
pharmaceuticals in DTC consumer advertising does change patient
behavior, as discussed in section I.C. above. At the same time, any
potential risks of being a barrier to access can be mitigated by
notifying patients that the price may not reflect what the patient will
pay OOP. Instead, it will create an opportunity for conversation
between the patient and provider.\41\
---------------------------------------------------------------------------

\41\ Garrett JB, Tayler WB, Bai G, et al. Consumer Responses to
Price Disclosure in Direct-to-Consumer Pharmaceutical Advertising.
JAMA Intern Med. 2019;179(3):435-437. (``2019 JAMA Study'')
---------------------------------------------------------------------------

Comment: At least one comment asserts that the rule could cause
companies to withdraw their television advertisements in favor of other
media.
Response: We find this scenario highly unlikely. As discussed,
above, the heath care and pharmaceutical industry spent over $4.2
billion on DTC advertising in 2017,\42\ up to a 4 fold increase in
spending on the advertised drug for every dollar spent on DTC.\43\
Given the popularity of TV among potential purchasers of a
manufacturer's drugs as discussed in Section II.A, we have no basis to
conclude that manufacturers would stop advertising on TV in favor of
other media.
---------------------------------------------------------------------------

\42\ Kantar Media. Pharma ups the ante on DTC advertising.
https://www.kantarmedia.com/us/newsroom/km-inthenews/pharma-ups-the-ante-on-dtc-advertising.
\43\ Ventola CL. Direct-to-Consumer Pharmaceutical Advertising:
Therapeutic or Toxic? P T. 2011 Oct; 36(10): 669-674, 681-684.
---------------------------------------------------------------------------

Comment: Some comments assert that the rule is not appropriately
tailored to advance the government interests. At least one comment
asserts that it is underinclusive in that the media is limited to
television advertisements and drug products are limited to those
reimbursed by Medicare and Medicaid. The comment also opined that rule
is overinclusive in that it would cover drugs for which there is no
alternative.
Response: We disagree with these comments. The Central Hudson
standard does not require the government to employ ``the least
restrictive means'' of regulation or to achieve a perfect fit between
means and ends. Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 556
(2001). Instead, it is sufficient that the government achieve a
``reasonable'' fit by adopting regulations ``in proportion to the
interest served.'' Bd. of Trustees v. Fox, 492 U.S. 469, 480 (1989)
(citation omitted). As long as the regulation is ``[w]ithin those
bounds'' of reasonable fit and proportion, the agency may determine
``what manner of regulation may best be employed.'' Id. The final rule
starts with television advertising because we want to define the rule
as narrowly as possible to achieve the goal improving price
transparency and reducing the costs of prescription drugs and
biological products. Since DTC television advertising makes up the
majority of DTC spending, this is a good place to start to have the
largest impact with the smallest burden. We reserve the right to expand
the rule to include other media formats through future rulemaking.
As discussed above, the rule targets television advertisements for
drugs because television advertising makes up the largest portion of
DTC spend and has an outsized impact compared to other forms. As we try
to educate as many patients as possible with this valuable information,
as manufacturers do with their advertisements, we want to focus on the
most commonly used and broadest reaching medium. This will allow us to
maximize the number of patients educated while minimizing burden on
manufacturers. The scope is limited to Medicare and Medicaid because we
can directly link the lack of information and transparency on drug
pricing to harm to those programs and their beneficiaries.
We disagree with the concern that providing the price for drugs or
biological products that have no alternatives is overinclusive. As
discussed above, the purpose of this rule is to provide valuable
information about the drugs and biological products to the patient
facilitate conversations and shared decision-making with their
providers. The purpose is not to deter patients from using high cost
prescription drugs and biological products. In the case of drugs and
biologic products that have no alternative, the price will still be an
informative talking point.
Comment: Some comments assert that the preamble to the proposed
rule incorrectly cited Red Lion Broad. Co. v. FCC, 395 U.S. 367, 390
(1969) because the ``fairness doctrine'' at issue in that case is
inapplicable here.
Response: We agree that the fairness doctrine is inapplicable to
this rule. The preamble to the proposed rule cited Red Lion
Broadcasting for the much more limited proposition that the Supreme
Court has recognized that broadcast advertisements can be a
particularly powerful means for conveying information to listeners.
Comment: Some comments assert that there are better alternatives
that would be less burdensome on speech. Some comments assert that HHS
should encourage companies to institute voluntary price disclosure
measures, which the comments assert are preferable to compelled speech.
At least one comment disagrees and asserts that, since corporations owe
duties to their shareholders, not to the public, they should not be
allowed to self-regulate.
Response: Since the issuance of the proposed rule, some
manufacturers have made more pricing information, including list price,
available on websites, and one manufacturer has begun to disclose list
price information in some of its television advertisements. While we
applaud these measures, we have concluded that voluntary measures will
be insufficient to ensure the continued commitment of all of the
relevant companies. We address the issue of manufacturer websites
further below in section II.E.7.
4. Heightened and Strict Scrutiny
Comment: Some comments suggest that content-based compelled speech
and speaker-based regulation should be subject to strict scrutiny or at
least heightened scrutiny, citing Reed v. Town of Gilbert, 135 S. Ct.
2218, 2226 (2015), Sorrell v. IMS Health Inc., 564 U.S. 552 (2011), and
NIFLA.
Response: We disagree with these comments. As discussed above, HHS
believes that this rule is properly reviewed under Zauderer. In Reed v.
Town of Gilbert, the Court applied strict scrutiny to content-based
restrictions on non-commercial speech in public fora. In that opinion,
the Court stated that, ``[c]ontent-based laws--those that target speech
based on its communicative content--are presumptively unconstitutional
and may be justified only if the government proves that they are
narrowly tailored to serve compelling state interests.'' 135 S. Ct. at
2226. However, as Justice Breyer explained in his concurring opinion,
many regulatory programs ``inevitably involve content discrimination'';
applying strict scrutiny to those programs would ``write a recipe for
judicial management of ordinary government regulatory activity.'' Id.
at 2234-35 (Breyer, J., concurring). Lower courts have subsequently
held that Town of Gilbert does not apply to the regulation of
commercial speech. See, e.g., Sarver v. Chartier, 813 F.3d 891, 903 n.5
(9th Cir. 2016). And the Supreme Court has not applied strict scrutiny
to the content-based regulations in decisions issued after Town of
Gilbert, namely Matal v. Tam, 137 S. Ct. 1744 (2017), Expressions Hair
Design v. Schneiderman, 137 S. Ct. 1144, 1151 (2017), and NIFLA itself.

[[Page 20748]]

The Supreme Court in Sorrell suggests that content- and speaker-
based restrictions would be subject to ``heightened scrutiny,'' but
nevertheless continued to apply the ``commercial speech inquiry'' as
outlined in Central Hudson. Sorrell v. IMS Health Inc., 564 U.S. 552,
571-72 (2011). That led to debate in the lower courts about whether
heightened scrutiny is a different standard from Central Hudson and, if
so, what the test is and when it is applied. See, e.g. Retail Digital
Network, LLC v. Prieto, 861 F.3d 839 (9th Cir. 2017) (en banc)
(``Sorrell did not mark a fundamental departure from Central Hudson's
four-factor test, and Central Hudson continues to apply.'');
Wollschlaeger v. Florida, 848 F.3d 1293 (11th Cir. 2017) (en banc)
(applying ``heightened scrutiny'' to a content-based restrictions); 1-
800-411-Pain Referral Service, LLC v. Otto, 744 F.3d 1045, 1055 (8th
Cir. 2014) (Because Sorrell did not define heightened scrutiny, Central
Hudson applies to restrictions on commercial speech that are content-
or speaker-based). Thus, the legacy of Sorrell remains unclear.
In addition, there have been suggestions that heightened scrutiny
should be connected to viewpoint discrimination, and not more broadly
to content-based regulation. See Sorrell, 564 U.S. at 565 (law under
review ``goes even beyond mere content discrimination, to actual
viewpoint discrimination''); Matal, 137 S. Ct. at 1767 (Kennedy, J.,
concurring) (``the viewpoint based discrimination at issue here
necessarily invokes heightened scrutiny''). This distinction may be
particularly important given that many regulatory programs necessarily
involve both content- and speaker-based restrictions. See Sorrell, 564
U.S. at 589 (Breyer, J., dissenting) (``Regulatory programs necessarily
draw distinctions on the basis of content. . . . Nor, in the context of
a regulatory program, is it unusual for particular rules to be
`speaker-based,' affecting only a class of entities, namely, the
regulated firms.'').
While the First Amendment jurisprudence continues to evolve, one
thing is clear--the disclosure required by this rule does not implicate
the concerns underlying Sorrell and many other cases--that is, the
government's ``regulation of speech because of disagreement with the
message it conveys.'' Sorrell, 564 U.S. at 566. Here, the rule requires
merely the disclosure of price information regarding prescription drugs
or biological products in television advertisements--objective, factual
information that will help inform consumers and improve market
efficiencies.

E. Requirements in DTC Advertising Other Than WAC

1. Medium To Include List Price
We sought comment on whether we should apply the proposed
regulation to other media formats and, if so, what the presentation
requirements should be.
Comment: Some commenters recommended that list price be included on
all DTC advertising, such as radio, magazine, and online communication.
Some commenters asked CMS to explain why this rule only applies to DTC
advertisements on television. Including the prices on all media formats
would support the goal of this rule in increasing transparency and
informing patients. Several commenters recommend providing the list
price to the patient and provider at the time of prescribing, which
would require expanding beyond just television advertising, because
this is when the provider and patient would best be able to use the
information when making care decisions.
Response: We appreciate recommendations to include the list price
on all forms of DTC advertising. We intend to only apply this rule to
television advertising because we want to apply this rule as narrowly
as possible to achieve our goal of promoting price transparency and
reducing drug costs, with minimal burden on those providing the
information. We appreciate commenters' recommendations to make the list
price available at the time of prescribing. In our recent proposed rule
titled ``Modernizing Part D and Medicare Advantage to Lower Drug Prices
and Reduce Out-of-Pocket Expenses,'' 83 FR 62152 (November 30, 2018),
we proposed to require Part D sponsors to implement an electronic real-
time benefit tool (RTBT) capable of integrating with at least one
prescriber's e-prescribing and electronic medical system to provide
complete, accurate, timely and clinically appropriate patient-specific
real-time formulary and benefit information, including cost, formulary
alternatives, and utilization management requirements.
2. Typical Regimen--30 Days or Course of Treatment
We sought comment on whether 30-day supply and typical course of
treatment are appropriate metrics for a consumer to gauge the cost of
the drug.
Comment: Many commenters agreed that 30 days is an appropriate
quantity for the purposes of providing a usable list price in a
television ad, especially for chronic medications. One commenter
suggested providing the cost for a 90-day supply because many payors
prefer that patients fill their prescriptions for a 90-day supply. Some
comments, including those that support using a 30-day supply, recommend
including the annual cost instead of, or in addition to, the cost for
30-day supply.
Many commenters also agreed that the price for a typical course of
treatment would be appropriate for drugs that are not taken chronically
or do not have standard 30-day supply. Commenters note that it is
important for CMS to provide specific guidance on the definition of a
typical course of treatment, as this could be an opportunity for gaming
to provide the cost for the minimum possible treatment.
Some commenters note that it is difficult for manufacturers to
calculate a WAC or list price for a 30-day supply or a typical course
of treatment because doses can vary dramatically for individual
patients based on characteristics such as weight, gender,
pharmacogenomics, renal and liver function, or severity of disease.
Response: We appreciate commenters' feedback. We are finalizing the
requirement as proposed. While we understand that including the WAC for
a 90-day supply or the annual cost may be useful for some patients, we
believe that our requirement to include the WAC of a 30-day supply will
provide sufficient information for patients to assess their costs on a
monthly, or even a 90-day or other basis without being burdensome to
manufacturers. In addition, we understand that payors generally cover
chronic medication in monthly increments, which makes the 30-day price
most relevant. In response to comments seeking further guidance on what
constitutes a typical course of treatment, we decline to impose
specific requirements for determining the typical course of treatment
at this time. The manufacturers will be in the best position to
determine what a typical course of treatment would be for their drugs,
and therefore will be in the best position to determine the appropriate
list price for a typical course of treatment, consistent with the
disclosure requirement set forth at Sec. 403.1202. We will monitor
compliance and take appropriate action if warranted.
3. Other Information
We also sought comment on the content of the proposed pricing
information statement as described herein, including whether other
specifications should be incorporated.

[[Page 20749]]

Comment: Some commenters agreed with the general disclosure, ``If
you have health insurance that covers your drug, your cost may be
different'' because, while it does not provide the specifics of how
different the OOP cost may be from the list price, it provides enough
information for the patient to expect a different price based on his or
her insurance. Other commenters believe that this is not enough of a
stipulation, and that patients need additional context for the
information to be meaningful.
Response: We appreciate commenters' support for the general
disclosure about OOP costs. Although a general statement might not
provide detailed information about each patient's OOP cost or address
the potential confusion between list price and OOP cost for a patient,
we believe it is sufficient because, as noted in section II.C.2., DTC
advertising is a source of information for patients from which to start
a conversation patient and provider or payor. This rule encourages such
conversations by promoting price transparency without unduly burdening
manufacturers. We therefore decline to require a more specific
disclosure about a patient's OOP costs.
Comment: A few commenters recommended that CMS not expand the
proposed disclaimer in such a way as to allow manufacturers to state
the price of a drug after the consideration of a coupon or discount.
Commenters noted that this would allow manufacturers to mask the true
cost of their drugs.
Response: We are finalizing the standard disclaimer as proposed. We
also note that this rule requires the inclusion in DTC television
advertisements of the drug's WAC, which we have defined--consistent
with section 1847A of the Social Security Act--to exclude prompt pay or
other discounts. Thus, the pricing information that must be disclosed
will not be obscured by the application of coupons or discounts.
4. Combination of Drugs
We sought comment on how to treat an advertised drug that must be
used in combination with another non-advertised drug or device.
Comment: A few commenters recommended that, in the cases of drugs
that are typically used in combination with other drugs, DTC television
advertisements include a standardized statement, such as ``Note: this
drug may require use in combination with another drug or device, whose
price is not reflected in this cost.'' These commenters also
recommended against trying to estimate or include costs associated with
the other drugs that are typically included in combination.
Response: We appreciate commenters' recommendations to include a
standardized statement alerting patients to the fact that this drug is
often used in combination with other drugs. Although we decline to
require inclusion of such a statement at this time, we encourage
manufacturers of drugs typically used in combination with other drugs
to include such a statement in their DTC television advertisements. We
similarly decline to require that such a statement, if included in a
DTC television advertisements, estimate or reflect costs associated
with the other drugs, as we agree that may be confusing for patients.
5. Placement of Information/Content of the Statement (Including Use of
Competitors' Prices)
We sought comment on whether the final rule should include more
specific requirements with respect to the textual statement, such as
specific text size, contrast requirements, and/or duration and
specifically what those requirements should be.
Comment: Many commenters recommend that the information is
displayed clearly in a way that is easy to see and easy for the average
reader to read. Some commenters recommend that CMS specify requirements
on font, size, location, and duration because without a clear,
readable, and understandable standard format, manufacturers may
intentionally make the information difficult to read or understand.
Commenters also recommend reading the list price as part of the audio
in addition to printing the price on the ad to further make the
information available.
Other commenters recommended against specific requirements on how
to display the list price in the ad because advertisements are
extremely limited in time and space and recommended flexibility in
order to develop an understanding of the best way to display this
information. These commenters recommend that manufacturers be able to
test different methods and details for displaying the information to
best educate patients.
Response: We appreciate these comments. We will finalize Sec.
403.1203 as proposed because we believe it provides a sufficiently
detailed standard for how the information must be conveyed in the
advertisement, while still allowing manufacturers flexibility to
develop a format that--consistent with the regulatory standard--best
conveys the required information. We will monitor compliance with the
regulation and provide guidance as necessary. We also will consider
adopting more detailed requirements through future rulemaking if
warranted.
Comment: Two commenters recommended against allowing manufacturers
to include an up-to-date competitor product's list price because they
believe that manufacturers will always list the highest competitor
price available, which may confuse patients if other cheaper
alternatives are available. Other commenters support the option to
provide the list price of a therapeutic competitor, because the list
price is not useful to the patient without additional context.
Response: We appreciate these comments. Although we recognize
commenters' concerns about gaming, we are finalizing this provision as
proposed. Allowing manufacturers to provide an up-to-date competitor
product's price, so long as they do it in a truthful and non-misleading
way, will provide additional information that the patient can use to
manage his or her care. We believe that providing information about the
prices of therapeutic alternatives provides valuable context for the
patient. However, we remind manufacturers that they have to comply with
all applicable FDA requirements and that nothing in this rule is
intended to supersede any FDA requirement.
6. Effective Dates of Price
We proposed to require that the list price be current as determined
on the first day of the quarter during which the advertisement is being
aired or otherwise broadcast. We sought comment as to whether a
statement expressing an expiration date of the current price reflected
in the advertisement should be incorporated into the required
disclosure language so that consumers are informed that drug prices are
subject to frequent changes and a drug price may differ from the date
the advertisement is broadcast to the date that the drug is dispensed.
Comment: Many commenters recommended that DTC advertisements
include a list price's expiration date to ensure that patients are
acting on accurate information and to prevent manufacturers from
intentionally providing misleading information. Commenters noted that,
due to the frequency of prices changes, advertisements should specify
the dates that the price is valid or when the price is expected to
expire or change. Some commenters recommended specifying how timely the
manufacturer must be in updating prices in the advertisements. A few
commenters recommended that

[[Page 20750]]

CMS require that the price always be up-to-date when they appear in the
advertisement. Finally, one commenter suggested that as an alternative
to updating list prices, the advertisement could include the WAC over
some look-back period to approximate what the current price may be.
Response: We appreciate these comments and are finalizing Sec.
403.1202 as proposed, with minor technical modifications described
below, meaning that the list price must be current, as determined on
the first day of the quarter during which the advertisement is being
aired or broadcast. As we anticipate that manufacturers update their
WACs twice per year, we do not believe advertisements will need to be
changed with significant frequency. We decline to require inclusion of
a price's expiration date in the advertisement because we want to
minimize the burden on manufacturers and because we do not think that
the information would helpful to patients beyond what is already
required. However, a manufacturer may specify the effective dates of
its prices, should it choose, so long as the price listed is current
(as determined under Sec. 403.1202). As noted above, we are making
technical changes to the regulation text at Sec. 403.1202 to refer
consistently to a typical course of treatment and to remove the
quotation marks that do not pertain to the required text.
7. Use of Manufacturer Websites
Comment: Commenters suggested that in lieu of requiring the WAC in
the advertisement, the government could require that advertisements
include a reference to where price information can be found, such as a
company website that would include the list price and other context
about the potential cost of the medicine. Specifically, many commenters
recommend the alternative of encouraging voluntary price reporting in
DTC advertising, pursuant to the PhRMA Guiding Principles-Direct to
Consumer Advertisements about Prescription Medicines. These guiding
principles now recommend that prescription drug broadcast
advertisements include direction to where patients can find information
about the cost of the medicine, such as a company-developed website.
Commenters note that this would provide the flexibility to include the
most important information in a method that is most appropriate for
patients. Commenters note that this approach would avoid some of the
potential adverse consequences associated with the requirements of the
final rule, and would meet the overall objectives of the policy of
providing promoting price transparency for patients.
Response: We appreciate the commenters' recommendation to promote a
program of voluntarily listing drug prices. However, we disagree that
voluntary price disclosure would adequately meet the goals of providing
price transparency. If price disclosure were voluntary, some
manufacturers would decline to provide the list price to the patient,
and the patient would therefore lack that valuable information. For the
reasons stated elsewhere in this rule, we believe it is necessary to
the efficient administration of Medicare and Medicaid that this
information be disclosed in DTC television advertisements. In contrast,
referring patients to other resources, such as company-owned websites,
would not serve this purpose. First, it is likely that there would be a
very low conversion of patients going to a website that is referenced
in a TV ad that they see when they are not at their computer. More
importantly, as noted in section II.D., 33 percent of adults surveyed
say they do not frequently use the internet; as to the other, requiring
them to open a browser, navigate to a site they saw on television, and
click through to find pricing information creates additional burden and
uncertain outcomes. Thus, manufacturer websites are not an adequate
alternative to the price disclosure requirement we are finalizing in
this final rule.
8. Use of Plan Finder
Comment: Some comments assert that CMS should develop its own
database of list prices for the public to access.
Response: We continue to believe that the Medicare Part D Plan
Finder is a valuable tool for patients, and we will continue to improve
the tool over time through efforts such as the eMedicare
Initiative.\44\ We think the DTC television advertisement requirement
provides additional information that is very useful to patients'
understanding of drug pricing and provides important supplementary
information to the Plan Finder tool.
---------------------------------------------------------------------------

\44\ CMS News Room. CMS announces new streamlined user
experience for Medicare beneficiaries. 2018 Oct 01. https://www.cms.gov/newsroom/press-releases/cms-announces-new-streamlined-user-experience-medicare-beneficiaries-0.
---------------------------------------------------------------------------

Comment: Some comments stated that steps should be taken to
encourage practitioners, plans, and payors to provide more information
on prices and coverage.
Response: We agree that it is important to encourage health care
practitioners, health plans, and payors to provide more information
about prices and coverage. Price transparency is an important aspect of
Medicare's most recent payment rules. In a recent proposed rule titled
``Modernizing Part D and Medicare Advantage to Lower Drug Prices and
Reduce Out-of-Pocket Expenses,'' which appeared in the Federal Register
on November 30, 2018 (83 FR 62152), we proposed to require Part D
sponsors to adopt Real-Time Pharmacy Benefits Tools (RTBT) and enhanced
Explanation of Benefits (EOB) forms to provide beneficiaries and their
prescribers with more drug price information. We continue to encourage
all patient-facing stakeholders in the drug supply chain to educate
their patients and incorporate the cost of drugs and biological
products into all of the shared-decision making conversations to
identify the best overall therapy for the patient.

F. Other Approaches

We also considered additional solutions to provide beneficiaries
with relevant information about the costs of prescription drugs and
biological products so they can make informed decisions that minimize
not only their OOP costs but also expenditures borne by Medicare and
Medicaid. We sought comment on whether the following approaches could
support price transparency and informed decision making, either in
addition to or in lieu of the measures proposed in this notice of
proposed rulemaking: (1.) An enhanced CMS drug pricing dashboard, (2.)
intelligent plan selection or use of intelligent assignment, and (3.) a
new payment code for drug pricing counseling. We are also interested in
other approaches to price transparency and informed decision making
that we have not contemplated.
1. Enhanced Drug Pricing Dashboard
Comment: Many commenters supported the development of a tool that
could provide real-time information on drug costs, formulary, and cost-
sharing that is easily accessible to patients. Some commenters pointed
to useful examples in the private sector. Other commenters noted that
PBMs and payors already have this capability. One commenter suggested
that an enhancement could be to highlight drugs with excessive price
increases or high prices, and list lower cost alternatives. Other
commenters expressed general skepticism that a dashboard would be a
useful tool for patients. First, commenters noted that there are
existing private tools, such as GoodRx, that provide similar
information. Next, commenters noted

[[Page 20751]]

that dashboards, no matter how they are configured, are going to be
complex and difficult for patients to use. While the information will
be useful and interesting to researchers, it would likely provide
limited value to patients.
Response: We appreciate these recommendations and agree that online
information is no substitute for pricing information in the DTC ad
itself. As discussed in section II.E.8., we recently proposed to
require Part D sponsors to adopt a real time benefit tool (RTBT) that
would provide information about drug costs, formulary placement and
cost-sharing. In addition, we also recently enhanced the Medicare and
Medicaid Drug spending dashboards \45\ to identify the manufacturers of
drugs with price increases and highlight year-over-year pricing
information. We appreciate feedback sharing concern about the
usefulness of the drug dashboard for patients. We will take this
feedback into consideration as we continue to improve and enhance the
drug dashboard.
---------------------------------------------------------------------------

\45\ Available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Information-on-Prescription-Drugs/index.html.
---------------------------------------------------------------------------

2. Intelligent Plan Selection
Comment: Some commenters generally supported the development of a
tool to support intelligent plan selection that is voluntary for
patients, and recommended it as a general improvement. One commenter
was concerned that such a tool would be difficult to implement. One
commenter expressed concern that intelligent plan selection could lead
to adverse selection of patients and potential market instability.
Response: We appreciate these recommendations and concerns. There
are likely various operational issues that would need to be addressed
as a threshold matter for such a tool to be feasible. If CMS were to
pursue development of such a tool, we would need to consider and
address such issues, as well as consider how to address commenters'
concerns. We will continue to consider this concept.
3. Counseling Code
In an effort to incentivize provider engagement with patients on
their prescription drug and biological product OOP costs, CMS could
create a new payment code, in a budget neutral manner, for doctors to
dialogue with patients on the benefits of drugs and drug alternatives.
This would likely decrease the number of prescriptions that go unfilled
because of unexpected high OOP costs, thus improving adherence, but
also could increase provider awareness of drug pricing which may
influence prescribing when appropriate cheaper options are available.
Comment: Some commenters recommend creating a new payment code for
counseling on drug pricing to appropriately reimburse providers for the
additional time that they will need to spend on discussing the cost of
therapies for patients. One commenter supports creating a new code, but
recommends that the code be broad enough to also reimburse providers
for care planning and navigation, shared decision making, developing a
plan of care, and fostering a care coordination process, which would
include counseling patients on the potential costs of their drugs and
biological products. A couple commenters that supported the creation of
the new payment code recommended making this code available to
pharmacists, who may be one of the best resources to provide this
information to the patient. One commenter noted that providers will
need real time access to cost data if they are expected to counsel
patients on cost, so we should keep this in mind if we plan to create
the code.
Other commenters recommend against creating a new payment code. One
commenter noted that providers are not necessarily the ones that should
be having these conversations because they do not always have access to
the relevant drug pricing information. Instead, they recommend that
payors provide this information to patients. Another commenter noted
that most providers already counsel their patients on their OOP costs
and the importance of filling their prescription, so it is not
necessary to create a separate code. Another commenter notes that
current E&M documentation guidelines are broad enough to cover these
conversations as part of the risk and benefits of treatment options.
Finally, many commenters, including those that generally support
creating a new billing code are concerned where the resources would
come from based on the budget neutral element of the code.
Response: We agree that services such as patient counseling, care
planning and navigation, and shared decision making are valuable to
patients and important for delivering high quality care. We also agree
that pharmacists may be able to provide information on drug pricing and
patient coinsurance to patients and advise patients on the availability
of less expensive drugs in the event cost is a barrier to medication
adherence. While we are not finalizing in this rule, we will consider a
counseling code for future rulemaking in the appropriate benefit
categories as allowed by statute.

G. Enforcement

We proposed in Sec. 403.1204(a) that the Secretary will maintain a
public list that will include the drugs and biological products
identified by the Secretary to be advertised in violation of this rule.
We expect that this information will be posted publicly on a CMS
internet website no less than annually. No other HHS-specific
enforcement mechanism was proposed. However, we anticipate that the
primary enforcement mechanism will be the threat of private actions
under the Lanham Act sec. 43(a), 15 U.S.C. 1125(a), for unfair
competition in the form of false or misleading advertising. See, e.g.,
POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct. 2228, 2234 (2014); In re
McCormick & Co., Inc., Pepper Prod. Mktg. & Sales Practices Litig. 215
F. Supp. 3d 51, 59 (D.D.C. 2016). Since Lanham Act cases normally
involve sophisticated parties doing business in the same sector, the
likelihood of meritless lawsuits is acceptably low. We sought comment
on the primary enforcement mechanism and other approaches to enforcing
compliance.
Under principles of implied preemption, to the extent State law
makes compliance with both Federal law and State law impossible or
would frustrate Federal purposes and objectives, the State requirement
would be preempted. See, e.g., Murphy v. NCAA, 138 S. Ct. 1461, 1480-81
(2018); Mutual Pharm. Co. v. Bartlett, 570 U.S. 472, 480 (2013); Geier
v. American Honda Motor Co., 529 U.S. 861, 872-86 (2000). Obstacle
preemption is not limited to examining the accomplishment of certain
objectives; the execution is relevant as well. Geier, 529 U.S. 881-82.
A state law is therefore preempted ``if it interferes with the methods
by which the federal statute was designed to reach that goal.'' Gade v.
Nat'l Solid Wastes Mgmt. Ass'n, 505 U.S. 88, 103 (1992) (quoting Int'l
Paper Co. v. Ouellette, 479 U.S. 481, 494 (1987)).
Because this proposed rule is part of a broader initiative to
reduce the price to consumers of prescription drugs and biological
products, it would be counterproductive if this rule were to increase
transactional costs in defending meritless litigation. We believe that
the existing authority cited above, namely the Lanham Act, is the
appropriate mechanism for enforcing against deceptive trade practices.
Accordingly, consistent with our not proposing any HHS-specific
enforcement mechanism, we proposed at Sec. 403.1204(b) that this

[[Page 20752]]

rule preempt any state-law-based claim that depends in whole or in part
on any pricing statement required by this rule.
1. Lanham Act
Comment: Several commenters were concerned that private actions
under the Lanham Act would not be an adequate enforcement mechanism for
the requirement that manufacturers include the current list price of a
prescription drug or biological product in all DTC television
advertisements. In particular, these commenters were concerned that
standing to enforce this requirement would be limited to competitors,
and that consumers, who have the greatest interest in receiving this
pricing information, would be precluded from taking action against
violators. A few commenters added that the high costs of pursuing an
action under the Lanham Act would discourage companies from bringing
claims, while one commenter expressed concern about the potential for
higher drug costs due to drug manufacturers having to internalize the
costs of Lanham Act litigation. Several commenters noted it would be
difficult to prove a claim under the Lanham Act for false advertising
solely on the basis of the omission of information regarding the list
price of a prescription drug or biological product, which they assert
differs from the price paid by most consumers. Some of these commenters
also expressed concerns that a competitor would be unable to
demonstrate commercial injury.
Response: We disagree with the comments asserting that the threat
of private actions under the Lanham Act for unfair competition in the
form of false or misleading advertising is not an appropriate mechanism
to enforce the price disclosure requirement in Sec. 403.1202. We
acknowledge that standing to bring suit under the Lanham Act is limited
to competitors and others that can allege an injury to a commercial
interest, and consumers would not be able to challenge the omission of
pricing information. See Lexmark Int'l, Inc. v. Static Control
Components, Inc., 572 U.S. 118, 132 134 S.Ct. 1377, 1390 (2014). We
considered this limitation when proposing to rely upon the Lanham Act
as the primary enforcement mechanism for the requirements of this rule.
We continue to believe that competitors are best positioned to identify
and act upon advertisements that violate this regulation. Furthermore,
although consumers lack standing to bring an action under the Lanham
Act, we note that a fundamental premise of the rules in section 43(a)
of the Lanham Act is the strong public interest in protecting consumers
from false and misleading advertising. See Novartis Consumer Health,
Inc. v. Johnson & Johnson-Merck Consumer Pharm., Co., 290 F.3d 578, 597
(3d Cir. 2002) (``[T]here is a strong public interest in the prevention
of misleading advertisements . . . .'') (citations omitted); Vidal
Sassoon, Inc. v. Bristol Myers Co., 661 F.2d 272, 277 (2d Cir. 1981)
(recognizing ``the clear purpose of Congress in protecting the
consumer''). See also, Lillian R. BeVier, Competitor Suits for False
Advertising Under Section 43(a) of the Lanham Act: A Puzzle in the Law
of Deception, 78 Va. L. Rev. 1, 3 (1992) (``[T]he proper perspective
from which to view the rules in section 43(a) cases is that of the
potentially deceived consumer rather than the possibly injured
competitor.''); Ross D. Petty, Competitor Suits Against False
Advertising: Is Section 43(a) of the Lanham Act a Proconsumer Rule or
an Anticompetitive Tool?, 20 U. Balt. L. Rev. 381, 395 (1991) (``Most
courts recognize that there is a `strong public interest' in using the
Lanham Act to prevent misleading advertising and presume that
consumers' as well as competitors' interests are to be protected under
the Act.'') (citations omitted).
Although several commenters objected to our proposal to rely on
Lanham Act actions by competitors to enforce the requirements of this
rule on the grounds that such actions would be too costly, no
commenters provided specific evidence that it would be prohibitively
expensive to bring a Lanham Act suit. Indeed, if a competitor is able
to establish a violation of section 43(a) of the Lanham Act, 15 U.S.C.
1125(a), and demonstrates that it has been injured as a result of that
violation, it may be entitled to recover not only its own damages, but
also the defendant's profits and the costs of the action. See 15 U.S.C.
1117(a). Furthermore, as we indicated in the proposed rule, because
Lanham Act cases typically involve sophisticated parties doing business
in the same sector, the likelihood of meritless lawsuits is acceptably
low. As a result, the use of this enforcement mechanism is unlikely to
force drug manufacturers to raise prices to account for the heavy costs
of defending against meritless litigation.
Nor do we agree with those commenters who believe it will be
impossible to demonstrate competitive harm from the omission of the
required pricing information from a drug manufacturer's advertising. As
noted by the commenters, a successful suit under section 43(a) of the
Lanham Act, requires a ``false or misleading description of fact, or
false or misleading representation of fact.'' 15 U.S.C. 1125(a).
However, it is also well-established that a statement can be actionable
under section 43(a) if it is ``affirmatively misleading, partially
incorrect, or untrue as a result of failure to disclose a material
fact.'' See 5 J. Thomas McCarthy, McCarthy on Trademarks and Unfair
Competition sec. 27.65 (5th ed. 2018) (citations omitted) (emphasis
added). Failure to disclose the list price in a DTC advertisement, if
required to do so by Sec. 403.1202, makes that advertisement false and
misleading. The disclosure requirements under Sec. 403.1202 apply to
all prescription drugs and biological products distributed in the
United States for which payment is available, directly or indirectly,
under titles XVIII or XIX of the Social Security Act other than
``excepted pharmaceuticals.'' Excepted pharmaceuticals are defined in
Sec. 403.1200(b) as 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. These excepted pharmaceuticals are exempt from the
requirement to disclose pricing information in their advertisements. As
a result, when an advertisement does not include pricing information,
it would be reasonable for a consumer to conclude that the prescription
drug or biological product is an excepted pharmaceutical, with a list
price of less than $35. Thus, the omission of pricing information from
an advertisement for a higher cost pharmaceutical is inherently false
and misleading.
Finally, we disagree that it will be impossible for a competitor to
show harm arising from the omission of information regarding the list
price of a prescription drug or biological product from an
advertisement. Commenters asserted this would be the case because the
list price does not reflect the actual purchase price that will be paid
by all consumers for all purchases. However, as discussed above, there
is a direct link between the WAC and the price paid for the majority of
patients, including any uninsured patients and patients with high-
deductible health plans, or co-insurance, including Part D. Disclosure
of the list price substantially affected consumer interest in high-
priced drugs. In contrast, price disclosures had little influence on
consumer interest in low-priced drugs.\46\ Thus, it is reasonable to
believe that the omission of list price information for a particular
prescription

[[Page 20753]]

drug or biological product, which would imply that the drug or biologic
is in the low-priced category of excepted pharmaceuticals, could be
material to a consumer's decision to choose that prescription drug or
biological product, rather than a competing product that includes a
higher list price in its advertising, as required under Sec. 403.1202.
See McCormick & Co, Inc., Pepper Prod. Mktg. & Sales Practices Litig.,
215 F. Supp. 3d 51, 57 (D.D.C. 2016)(`` `[I]t is the stuff of the most
elementary economic texts that if two firms are offering a similar
product for different prices, the firm offering the lower price will
draw away customers from its competitor.' '') (quoting Am. Soc'y of
Travel Agents, Inc. v. Blumenthal, 566 F.2d 145, 157 (D.C. Cir. 1977)
(Bazelon, C.J., dissenting)). Furthermore, the Lanham Act can be an
effective enforcement tool even in the absence of direct evidence of
lost sales or other competitive injury. Courts have held that there is
no requirement that a competitor prove direct injury in order to bring
an action to enjoin conduct that violates section 43(a) of the Lanham
Act. See, e.g., Porous Media Corp. v. Pall Corp., 110 F.3d 1329, 1335
(8th Cir. 1997) (``A plaintiff suing to enjoin conduct that violates
the Lanham Act need not prove specific damage.''); Southland Sod Farms
v. Stover Seed Co., 108 F.3d 1134, 1145 (9th Cir. 1997). Thus, even if
a manufacturer were unable to prove direct injury from the omission of
accurate pricing information from a competitor's advertisement, it
would not be precluded from bringing an action under the Lanham Act
seeking to enjoin the competitor from continued use of that false or
misleading advertisement.
---------------------------------------------------------------------------

\46\ Garrett JB, Tayler WB, Bai G, et al. Consumer Responses to
Price Disclosure in Direct-to-Consumer Pharmaceutical Advertising.
JAMA Intern Med. 2019; 179(3): 435-437. (``2019 JAMA Study'').
---------------------------------------------------------------------------

2. State Preemption
Comment: Three commenters had comments on proposed Sec.
403.1204(b), preempting the exercise of State laws based on the pricing
statement required in the proposed rule. One commenter stated that
remedies under State law, particularly those that could be accessed by
consumers, should be available as a supplement to the Lanham Act remedy
cited in the proposed rule with respect to information revealed as a
result of the pricing statement required in the proposed rule. Two
other commenters supported the transparency provisions of the proposed
rule, but asked that CMS clarify that these provisions represent a
``floor,'' such that State laws that impose transparency requirements
that go further than those in the proposed rule should not be pre-
empted.
Response: As noted in the preamble to the proposed rule, we believe
that the Lanham Act is the appropriate mechanism for addressing
improper drug manufacturer practices that may be revealed as the result
of the reporting required by this rule. We remain concerned that the
pricing statement required under this final rule could give rise to the
use of State law requirements or remedies in a manner that could result
in litigation costs involving potentially meritless cases that could
defeat the goal of this rule of lowering drug prices. We appreciate the
comment for highlighting a potential ambiguity in the proposed
preemption provision. We do not intend for this rule to create an
environment where states would impose varying disclosure requirements
on television advertisements that may air in each respective state. We
did not intend that the rule would create a regulatory ``floor.'' To
ensure that prescription pharmaceutical advertisements on television
would not have to vary from state to state, we have modified the
preemption language at Sec. 403.1204(b) as set out in the regulatory
text at the end of this rule.
3. Alternative Enforcement Mechanisms
We sought comment on whether compliance with this rule should be a
condition of payment, directly or indirectly, from these federal health
care programs.
Comment: Several commenters suggested that CMS consider additional
enforcement mechanisms, including ones the government could initiate,
to ensure compliance with the requirement to disclose drug pricing
information. Some of these commenters also responded directly to our
request for comments as to whether compliance with this rule should be
a condition of payment, directly or indirectly, under Medicare and
Medicaid, by asserting that such a requirement would be more effective
than either the public list or the threat of lawsuits under the Lanham
Act. One commenter agreed that making compliance a condition of either
coverage or payment would be a stronger enforcement mechanism, but
noted that pursuing either of these options would require a change in
law.
Response: We thank the commenters for their suggestions. For the
reasons explained previously, we continue to believe that posting a
list of drugs and biological products identified by the Secretary to be
advertised in violation of this final rule on the CMS internet website,
coupled with the threat of private actions under the Lanham Act for
false or misleading advertising, is the most appropriate approach to
enforcing the requirements of this final rule. In reaching this
conclusion, we carefully evaluated the alternative of making compliance
with this rule a condition of payment under Medicare and Medicaid,
including the comments recommending this approach. At this time, we do
not believe that more stringent regulation is warranted, but will
continue to assess compliance. If there is absence of robust
compliance, then the Secretary will re-evaluate potential options and
consider further rulemaking in this area.
In summary, we are finalizing this rule as proposed, except for the
technical changes to Sec. 403.1202 described above to improve clarity,
the modification at Sec. 403.1204(b) in response to comments, and
technical changes to Sec. Sec. 403.1201(d) and 403.1204(a) to use
defined terms.

III. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et
seq.), we are required to provide 30-day notice in the Federal Register
before a collection of information requirement is submitted to the
Office of Management and Budget (OMB) for review and approval. We
solicited public comment on the issues in this document that contain
information collection requirements (ICRs).
Comment: Some comments assert that the rule would be unduly
burdensome in that it would clutter the advertisement and would require
monthly updates.
Response: Please see the response to comments on the burden of the
rule in Section II.D.

A. Wage Data

To derive average costs, we used data from the U.S. Bureau of Labor
Statistics' (BLS') May 2016 National Occupational Employment and Wage
Estimates for all salary estimates (http://www.bls.gov/oes/current/oes_nat.htm). In this regard, the following table presents the mean
hourly wage, the cost of fringe benefits and overhead (calculated at
100 percent of salary), and the adjusted hourly wage.

[[Page 20754]]

Table 2--National Occupational Employment and Wage Estimates
----------------------------------------------------------------------------------------------------------------
Adjusted
BLS occupation title Occupation Mean hourly hourly wage ($/
code wage ($/hr) hr)
----------------------------------------------------------------------------------------------------------------
Office and Administrative Support Occupations................... 43-0000 $17.91 $35.82
Marketing and Sales Managers.................................... 11-2020 66.52 133.04
Lawyers......................................................... 23-1011 67.25 134.50
----------------------------------------------------------------------------------------------------------------

B. Information Collection Requirements Regarding Pricing Information
(Sec. 403.1202)

Section 403.1202 requires that advertisements for certain
prescription drug or biological products on television (including
broadcast, cable, streaming, and satellite), contain a statement or
statements indicating the Wholesale Acquisition Cost (referred to as
the list price) 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 presentation of this information must appear
in a specific format. As stated in this final rule, the notification
must be presented 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.''
We estimate that 25 pharmaceutical companies will run an estimated
300 distinct pharmaceutical advertisements that appear on television
each quarter and will be affected by this rule. For these
advertisements, we estimate that administrative support staff and
marketing managers will need to verify the prescribed language and that
the correct price appears in each advertisement each quarter.
We estimate that this will require 10 minutes and $5.97 ($35.82/hr
x .167) per advertisement for administrative support staff. We also
estimate five minutes and $11.09 ($133.04/hr x .083) per advertisement
for marketing managers, for a total of 15 minutes (0.25 hours) and
$17.06 ($5.97 + $11.09) per advertisement per quarter or 300 hours per
year across all pharmaceutical companies running affected televised
advertisements ((300 ads/quarter) x (4 quarters/year) x (.25 hours/
ad)). As a result, using wage information provided in Table 2, we
estimate costs of $20,472 (1,200 ads x $17.06/ad) per year in each year
following publication of the final rule after adjusting for overhead
and benefits.
We are in the process of obtaining OMB approval for the
aforementioned information collection requirements. Subsequent to the
proposed rule, we published a separate 60-day Federal Register notice
announcing the proposed information collection activity and soliciting
comments. The 60-day notice published on April 8, 2019 (84 FR 13929)
and also instructs the public on how to obtain copies of the
information collection request (ICR) for review and comment. We will
also publish a separate 30-day notice to announce the formal submission
the ICR to OMB. At that time, the public will have an additional
opportunity to review and submit comments on the ICR. These
requirements are not effective until they have been approved by the
OMB.

IV. Regulatory Impact Analysis

A. Statement of Need

This final rule aims to improve the quality, accessibility and
affordability of the Medicare and Medicaid programs and to improve the
CMS customer experience by providing transparency into drug prices with
the goal of reducing the price to beneficiaries of certain prescription
drugs and biological products. Currently, consumers have incomplete
information regarding the cost of pharmaceutical products. As a result,
they lack important information needed to inform their decisions, which
likely leads to inefficient utilization of prescription drugs or
biological product. This rule requires disclosure of prices to the
general public for prescription drug and biological products advertised
on television. This may improve awareness and allow the general public
to respond, potentially increasing the efficiency of prescription drug
or biological product utilization. While we expect this rule to put
downward pressure on the list prices of drugs, we cannot quantify the
level of this impact because there is not data or examples that we can
use.

B. Overall Impact

We acknowledge that examination of the impact of this final rule is
required by Executive Order 12866 on Regulatory Planning and Review
(September 30, 1993), Executive Order 13563 on Improving Regulation and
Regulatory Review (January 18, 2011), the (RFA) (September 19, 1980,
Pub. L. 96-354), Section 1102(b) of the Social Security Act, Section
202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (March 22, 1995;
Pub. L., Public Law 104-4), Executive Order 13132 on Federalism (August
4, 1999), the Congressional Review Act (5 U.S.C. 804(2)), and Executive
Order 13771 on Reducing Regulation and Controlling Regulatory Costs
(January 30, 2017).
The Regulatory Flexibility Analysis (RFA), as amended, requires
agencies to analyze options for regulatory relief of small entities, if
a rule has a significant impact on a substantial number of small
entities. For purposes of the RFA, small entities include small
businesses, nonprofit organizations, and small governmental
jurisdictions. HHS considers a rule to have a significant economic
impact on a substantial number of small entities if at least five
percent of small entities experience an impact of more than three
percent of revenue. As discussed in the impact analysis, we calculate
the administrative costs (excluding opportunity costs of screen time
newly dedicated to displaying pricing information) of the changes per
affected business over 2020-2024. The estimated average administrative
costs of the rule per business peak in 2020 at approximately $2,900,
and are approximately $1,300 in subsequent years. We note that
relatively large entities are likely to experience proportionally
higher costs. As discussed below, total administrative costs of the
rule are estimated to be $5.2 million in 2020 and $2.4 million in
subsequent years. According to the U.S. Census, 1,775 pharmaceutical
and medicine manufacturing firms operating in the U.S. in 2015 had
annual payroll of $23.2 billion. Since the estimated administrative
costs of this proposed rule are a tiny fraction of payroll for covered
entities, the Department concludes that the rule will not have a
significant economic impact on a substantial number of small entities
and the Secretary so certifies.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory analysis for any rule or regulation under Title XVIII, Title
XIX, or Part B of the Act that may have significant impact on the
operations of a substantial number

[[Page 20755]]

of small rural hospitals. We are not preparing an analysis for section
1102(b) of the Act because the Secretary certifies that this rule will
not have a significant impact on the operations of a substantial number
of small rural hospitals.
Section 202 of UMRA also requires that agencies assess anticipated
costs and benefits before issuing any rule whose mandates require
spending that may result in expenditures in any one year of $100
million in 1995 dollars, updated annually for inflation. In 2018, that
threshold is approximately $154 million. This rule is not anticipated
to have an effect on State, local, or tribal governments, in the
aggregate, of $154 million or more. Going forward, we believe that this
rule will not impose mandates on the private sector that would result
in an expenditure that exceeds the UMRA ceiling.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirements or costs on
state and local governments, preempts state law, or otherwise has
Federalism implications. Since reviewing this rule does not impose any
substantial costs on state or local governments, under the requirements
threshold criteria of Executive Order 13132 are not applicable, we have
determined that this rule would not significantly affect the rights,
roles, and responsibilities of State or local governments.
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). The
Office of Management and Budget has determined that this is an
economically significant regulatory action. In accordance with the
provisions of Executive Order 12866, this rule was reviewed by the
Office of Management and Budget.
This final rule is considered an Executive Order 13771 (January 30,
2017) regulatory action. We estimated that it will impose $2.45 million
in annualized costs at a seven percent discount rate, discounted to a
2016 equivalent, over a perpetual time horizon.
Comment: One commenter stated that the proposed rule's impact
analysis was flawed because it did not show that consumers lack
adequate information about list prices for prescription drugs or
biological products and overlooked costs to consumers and
manufacturers. The commenter recommended that CMS more clearly identify
a market failure that would be addressed by the rule; more thoroughly
assess the rule's costs; more thoroughly review available literature on
the effects of mandatory price disclosure in pharmaceutical markets;
and conduct its own studies of the rule's potential effects on consumer
and manufacturer behavior.
Response: We disagree that consumers currently have adequate
information on list prices for prescription drugs or biological
products, because they do not have readily available access to
prescription drug or biological product prices. Though some variation
of drug prices are available online, we have shown that consumers are
not currently effectively using these online resources to find this
information or identify health insurance products and treatments that
are most cost effective for the patient.\47\ We have also shown that
including the price in DTC changes patient behavior, showing that
making the information easily available provides valuable information
that patients would use for decision making.\48\ Finally, we have seen
that 88 percent of Americans (i.e., consumers) want the prices to be
listed in DTC advertisements, showing that even though the prices may
be available through other sources, such as online, it is important to
them to have the prices listed on advertisements to have the valuable
information readily accessible.\49\ We believe that we have identified
a market failure and assessed the rule's cost. We believe that it is
unnecessary to pilot the intervention in this rule because a recent
study previews the potential impact of the rule. Furthermore, one
pharmaceutical company conducted their own research and ultimately
decided to proceed on their own in the absence of regulation. It is
unclear how a small-scale pilot would provide additional information
that would support changing the policy. As discussed above, studies
have shown patient responses to list prices being included in DTC
television advertisements and shown that many effects (including
adverse effects) can be mitigated through disclaimers such as the one
included in this rule. Additionally, manufacturers are free to add
additional statements to their advertisements addressing these
concerns.
---------------------------------------------------------------------------

\47\ Zhou C and Zhang Y. The vast majority of Medicare Part D
beneficiaries still don't choose the cheapest plans that meet their
medication needs. Health Aff. 2012 Oct;31(10):2259-65.
\48\ Garrett JB, Tayler WB, Bai G, et al. Consumer Responses to
Price Disclosure in Direct-to-Consumer Pharmaceutical Advertising.
JAMA Intern Med. 2019;179(3):435-437. (``2019 JAMA Study'').
\49\ Kirzinger A, Lopes L, We B, and Brodie M. KFF Health
Tracking Poll--February 2019: Prescription Drugs. Kaiser Family
Foundation. 2019 March 01. https://www.kff.org/8c7d090/.
---------------------------------------------------------------------------

C. Anticipated Effects

This rule will affect the operations of prescription drug or
biological product manufacturers. According to the U.S. Census, there
were 1,775 pharmaceutical and medicine manufacturing firms operating in
the U.S. in 2015.\50\ We estimate that this rule will require
individuals employed by these entities to spend time in order to comply
with these regulations. We estimate the hourly wages of individuals
affected by this rule using the May 2017 National Occupational
Employment and Wage Estimates provided by the U.S. Bureau of Labor
Statistics. We assume that the total dollar value of labor, which
includes wages, benefits, and overhead, is equal to 200 percent of the
wage rate. We note that, throughout, estimates are presented in 2016
dollars. We use the wages of Lawyers as a proxy for legal staff, the
wages of Marketing and Sales Managers as a proxy for marketing
management staff, and Office and Administrative Support Occupations as
a proxy for administrative support staff. Estimated hourly rates for
all relevant categories are included in Table 3 below.
---------------------------------------------------------------------------

\50\ U.S. Census. 2015 SUSB Annual Data Tables by Establishment
Industry. https://www.census.gov/data/tables/2015/econ/susb/2015-susb-annual.html.

Table 3--Hourly Wages
------------------------------------------------------------------------

------------------------------------------------------------------------
Marketing and Sales Managers................................ $66.52
Lawyers..................................................... 67.25
Office and Administrative Support Occupations............... 17.91
------------------------------------------------------------------------

1. Direct Staff Costs of Implementation
We expect that the costs associated with the initial review by all
companies of the policy, an ongoing review by all companies to ensure
that they are in compliance with the policy, and the individual review
of commercials for companies that produce DTC television
advertisements.
(a) Initial Review After Publication
In order to comply with the regulatory changes adopted in this
rule, affected businesses would first need to review the rule. We
estimate that this would require an average of two hours for affected
businesses to review, divided evenly between marketing managers and

[[Page 20756]]

lawyers, in the first year following publication of the final rule. As
a result, using wage information provided in Table 2, this implies
costs of $474,884 in the first year following publication of a final
rule after adjusting for overhead and benefits.\51\
---------------------------------------------------------------------------

\51\ 1,755 firms x (1 hour of legal work x 200% x $67.25 + 1
hour of marketing work x 200% x $66.52) = $474,884.
---------------------------------------------------------------------------

(b) Initial and Ongoing Compliance
After reviewing the rule, prescription drug or biological product
manufacturers will review their marketing strategies in the context of
these new requirements, and determine how to respond. For some affected
entities, this may mean substantially changing their advertising
paradigm or pricing strategy. For others, much more modest changes are
likely needed. We estimate that this would result in affected
businesses spending an average of 20 hours reviewing their policies and
determining how to respond, with 5 hours spent by lawyers and 15 hours
spent by marketing managers, in the first year following publication of
the final rule. In subsequent years, we estimate this would result in
marketing managers at affected businesses spending an average of 10
hours implementing policy changes. As a result, using wage information
provided in Table 2, we estimate costs of $4.74 million in the first
year \52\ and $2.36 million in subsequent years \53\ following
publication of this final rule after adjusting for overhead and
benefits.
---------------------------------------------------------------------------

\52\ 1,775 firms x (5 hours of legal work x 200% x $67.25 + 15
hours of marketing work x 200% x $66.52) = $4,735,878.
\53\ 1,775 firms x (10 hours of marketing work x 200% x $66.52)
= $2,361,460.
---------------------------------------------------------------------------

(c) Direct Advertisement Review
We estimate that 25 pharmaceutical companies will run an estimated
300 distinct pharmaceutical advertisements that appear on television
each quarter and will be affected by this rule. For these
advertisements, we estimate that administrative support staff and
marketing managers will need to verify the prescribed language and that
the correct price appears in each advertisement each quarter. We
estimate that this will require 10 minutes and $5.97 ($35.82/hr x .167)
per advertisement for administrative support staff. We also estimate
five minutes and $11.09 ($133.04/hr x .083) per advertisement for
marketing managers, for a total of 15 minutes (0.25 hours) and $17.06
($5.97 + $11.09) per advertisement per quarter or 300 hours per year
across all pharmaceutical companies running affected televised
advertisements ((300 ads/quarter) x (4 quarters/year) x (.25 hours/
ad)). As a result, using wage information provided in Table 2, we
estimate costs of $20,472 (1200 ads x $17.06/ad) per year in each year
following publication of the final rule after adjusting for overhead
and benefits.
2. Direct Costs for Changes to Advertisements
We may also want to consider the opportunity costs for the space in
the advertisement that includes the list price that could have been
used for other purposes. A reasonable estimate is that compliance
requires 1percent of the screen space and four seconds of a 75-second
commercial. That means that the opportunity cost attributable could be
approximately $2.24 million = (1% x 4/75 x $4.2 billion DTC television
advertising spending). We note that current DTC television
advertisements currently use space to refer patients to their website
for additional information, and that same space can include that
website and include the list price as a reference (i.e., the
advertisements could provide this information in the space that is
already dedicated to referring patients to additional information).
In markets for prescription drugs and biological products,
consumers often need to make decisions with incomplete information
about prices. As a result, consumers are unable to make decisions that
best suit their needs. This rule may improve price transparency for
consumers in order to ensure that their decisions better align with
their preferences and their budget, potentially improving the
allocation of resources in the prescription drug market. On the other
hand, consumers, intimidated and confused by high list prices, may be
deterred from contacting their physicians about drugs or medical
conditions. Consumers might believe they are being asked to pay the
list price rather than a co-pay or co-insurance and wonder why they are
paying so much when they already paid a premium for their drug plan.
This could discourage patients from using beneficial medications,
reduce access, and potentially increase total cost of care. We lack
data to quantify these effects.
In addition, we believe that this rule may provide a moderating
force to counteract prescription drug or biological product price
increases. This rule will provide direct evidence of prescription drug
or biological product prices to the general public, potentially
improving awareness and allowing the general public to signal in some
cases that prescription drug or biological product prices have risen
beyond their willingness to pay. We believe that this, in turn, may
further improve the rule's effect on the efficient utilization of
prescription drugs or biological products. We lack data to quantify
these effects.
We believe that this rule may also have impacts along other
dimensions. In particular, it may affect the number of televised DTC
advertisements, the rate at which televised DTC advertisements are
updated, prices for prescription drugs or biological products, the set
of pharmaceutical products available for sale, and utilization of
various prescription drugs or biological products. A possibility not
reflected in the quantitative estimates above is that drug companies
would find the cost of revising their advertisements to be
prohibitively expensive (for example, if they change their WACs so
frequently that there is extensive monitoring and revision necessary to
ensure that advertisements airing on a particular day match the WAC for
that day). In this case, DTC television advertising would be reduced.
However, we think this is unlikely as prices are usually changed on a
twice-a-year cycle, and manufacturers may already frequently revise
their advertisements to align with quarterly marketing plans. We
requested comment, but did not get any comments, on the following
questions:
What is the frequency with which WACs are changed?
What would be the effect of this potential advertising
reduction on patient behavior, including as regards the information
they seek out from their medical providers?
How might patient outcomes vary depending on advertising
choices among competitor drug companies? For example, if only some
producers of drugs that treat a particular condition cease advertising
on television, are patients likely to switch between drug brands--from
the no-longer-advertised to the advertised? If all producers of drugs
for a condition cease advertising on television, to what extent are
patients likely to switch to other forms of treatment--such as
surgery--or to forgo treatment?
To what extent will drug companies, in order to increase
the feasibility of continuing to advertise on television, reduce the
frequency of changing their WACs? What would be the consequences for
drug supply chains and the prices experienced by patients and other
payors?
Furthermore, the Department recognizes that some studies indicate
DTC advertising increases disease awareness, and that if this rule
decreases disease awareness such that

[[Page 20757]]

untreated illness occurs, there may be other impacts. We lack data to
quantify the effects of this rule along these dimensions.
Comment: One commenter suggested that the RIA overlooks the costs
to pharmaceutical industry due to potential lost sales.
Response: We disagree with this comment because there is no clear
evidence that posting the list price will adversely affect sales. As
discussed in Section II.C., including a disclaimer that the drug could
be available at a lower price, such as the wording we include in this
rule, mitigate patient concerns about price. This rule makes the
patient a more informed consumer. At the same time, the information is
not expected to cause patients to forgo treatment. Instead, patients
may select the lowest cost alternative, so the revenue is still going
into the industry as a whole. It may be a transfer from high cost drugs
to their marginally lower cost alternatives. Additionally, as discussed
above, it is difficult to predict exactly how the industry will
respond, but one potential is that their list prices are lowered closer
to their net price, so while the list price would go down, it would not
necessarily affect the revenue going into the industry.
Comment: One commenter suggested that we overlooked potential costs
to consumers based on their behavior changes, such as choosing to forgo
treatment.
Response: We disagree with this comment for the same reason we
disagree with the above comment. The 2019 JAMA Study showed that
including a stipulation that the medication could be available at a
lower price mitigates potential adverse, unintended consequences,\54\
so we do not expect patients to choose to forego treatment. Instead, we
expect them to become informed consumers that engage in shared-decision
making with their providers, which may allow them to select the lowest
cost alternative based on their specific situation. This can reduce the
cost to the patient while increasing revenue to some manufacturers in
reducing the revenue to others.
---------------------------------------------------------------------------

\54\ Garrett JB, Tayler WB, Bai G, et. al. Consumer Responses to
Price Disclosure in Direct-to-Consumer Pharmaceutical Advertising.
JAMA Intern Med. 2019;179(3):435-437. (``JAMA 2019 Study'').
---------------------------------------------------------------------------

D. Alternatives Considered

We carefully considered the alternative of maintaining the status
quo and not pursuing regulatory action. However, we believe that the
price transparency is fundamental to ensuring that prescription drug
and biological product markets function properly. This rule may improve
price transparency in order for consumers to make better decisions. As
a result, we have determined that the benefits of the rule justify the
costs imposed on industry, and as a result we chose to pursue this
regulatory action.
We also carefully considered requiring the disclosure of
alternative or additional prices, which better reflect the actual costs
paid by patients and payors. If an alternative definition were used for
list price, the burden imposed by the rule would likely be higher. For
example, manufacturers set the Wholesale Acquisition Cost, also known
as list price, for their products. The Department recognizes that other
prices may be paid by distributors, pharmacies, patients, and others in
the supply chain. Because these other prices vary by contracts
established by payors or others, only the WAC is certain to be known by
the manufacturer when creating DTC advertisements. As such, it would be
harder for manufacturers to report prices other than Wholesale
Acquisition Cost. We believe that requiring the disclosure of WAC
minimizes administrative burden among feasible alternatives and
balances the need to provide information to the general public.

E. Accounting Statement

Table 3--Accounting Table of Benefits and Costs of All Proposed Changes
----------------------------------------------------------------------------------------------------------------
Present value over 2020-2024 Annualized value over 2020-
by discount rate (millions of 2024 by discount rate
2016 dollars) (millions of 2016 dollars)
---------------------------------------------------------------
3 Percent 7 Percent 3 Percent 7 Percent
----------------------------------------------------------------------------------------------------------------
Benefits:
Quantified Benefits......................... 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Non-quantified Benefits.........................................................................................
Improved transparency for prescription drug and biological product prices.......................................
----------------------------------------------------------------------------------------------------------------
Costs:
Quantified Costs............................ 25.6 23.1 6.1 6.8
----------------------------------------------------------------------------------------------------------------
Non-quantified Costs Due to Lack of Data........................................................................
Costs based on resulting changes in drug prices.................................................................
Costs based on potential changes in manufacturer behavior based on perceived value of DTC advertising...........
Costs based potential changes in patient and provide behavior...................................................
----------------------------------------------------------------------------------------------------------------

List of Subjects in 42 CFR Part 403

Grant programs-health, Health insurance, Hospitals,
Intergovernmental relations, Medicare, Reporting and recordkeeping
requirements.

For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 403--SPECIAL PROGRAMS AND PROJECTS

0
1. The authority citation for part 403 is revised to read as follows:

Authority: 42 U.S.C. 1302, and 1395hh.

0
2. Subpart L is added to read as follows:
Subpart L--Requirements for Direct-to-Consumer Television
Advertisements of Drugs and Biological Products To Include the List
Price of That Advertised Product
Sec.
403.1200 Scope.
403.1201 Definitions.
403.1202 Pricing information.
403.1203 Specific presentation requirements.
403.1204 Compliance.

[[Page 20758]]

Subpart L--Requirements for Direct-to-Consumer Television
Advertisements of Drugs and Biological Products To Include the List
Price of That Advertised Product

Sec. 403.1200 Scope.

(a) Covered pharmaceuticals. Except as specified in paragraph (b)
of this section, this subpart applies to advertisements for a
prescription drug or biological product distributed in the United
States for which payment is available, directly or indirectly, under
titles XVIII or XIX of the Social Security Act.
(b) Excepted pharmaceuticals. An advertisement for any prescription
drug or biological product that has a list price, as defined in Sec.
403.1201, less than $35 per month for a 30-day supply or typical course
of treatment shall be exempt from the requirements of this subpart.

Sec. 403.1201 Definitions.

For the purposes of this subpart, the following definitions apply:
(a) Biological product. Biological product means any biological
product, as that term is defined in Public Health Service Act (``PHS
Act'') section 351(i), that is licensed by the Food and Drug
Administration pursuant to section 351 and is subject to the
requirements of Federal Food, Drug, and Cosmetic Act (FDCA) section
503(b)(1).
(b) Prescription drug. Prescription drug means any drug, as defined
in the FDCA section 201(g), that has been approved by the Food and Drug
Administration pursuant to FDCA section 505 and is subject to the
requirements of FDCA section 503(b)(1).
(c) List price. List price means the wholesale acquisition cost, as
defined in paragraph (d) of this section.
(d) Wholesale acquisition cost. Wholesale acquisition cost means,
with respect to a prescription drug or biological product, the
manufacturer's list price for the prescription drug or biological
product to wholesalers or direct purchasers in the United States, not
including prompt pay or other discounts, rebates or reductions in
price, for the most recent month for which the information is
available, as reported in wholesale price guides or other publications
of drug or biological product pricing data.

Sec. 403.1202 Pricing information.

Any advertisement for any prescription drug or biological product
on television (including broadcast, cable, streaming, or satellite)
must contain a textual statement indicating the current list price 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, 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.'' Where the
price is related to the typical course of treatment and that typical
course of treatment varies depending on the indication for which a
prescription drug or biological product is prescribed, the list price
to be used is the one for the typical course of treatment associated
with the primary indication addressed in the advertisement.

Sec. 403.1203 Specific presentation requirements.

The textual statement described in Sec. 403.1202 shall be
presented 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.

Sec. 403.1204 Compliance.

(a) Identification of non-compliant products. The Secretary will
maintain a public list that will include the prescription drugs and
biological products identified by the Secretary to be advertised in
violation of this subpart.
(b) State or local requirements. No State or political subdivision
of any State may establish or continue in effect any requirement
concerning the disclosure in a television advertisement of the pricing
of a prescription drug or biological product which is different from,
or in addition to, any requirement imposed by this subpart.

Dated: April 25, 2019.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.

Dated: April 26, 2019.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2019-09655 Filed 5-8-19; 8:45 am]
BILLING CODE 4120-01-P