The Senate recently passed an amendment to a larger health care bill that requires drug prices be disclosed in DTC Ads. The Durbin amendment was adopted with bipartisan support. It really just gives HHS a million dollars to study a way to require the disclosure. What is clear is this idea has strong support from President Trump, Congress, HHS Secretary Azar, and the American Medical Association. So, like it or not, the drug advertisers may be forced to add some price information to ads.
On the surface, that list price disclosure seems reasonable. We see MSRP in car ads, so we know whether it is a premium or economy car. Not that we don’t know that already but it is not unreasonable. For cars, we know we will likely pay somewhat less than MSRP but we do know the range a Mercedes will cost us. Congress thinks consumers deserve to know the price of drugs they see advertised. To Congress that seems like it would help consumers decide if this advertised drug should be considered.
Drug pricing is not like car pricing. Consumers pay much less than the list price and sometimes pay nothing for the $50000 drug for cancer. Admittedly, drug pricing is a Byzantine process that confounds most of us. Each insurance company, PBM, and government payer negotiates prices. Each consumer depending on their insurance pays a different price no way near the list price. Sometimes the consumer would pay out of pocket more for their OTC cough medicine than the $50000 cancer drug.
So how should drug companies disclose drug prices? If the list price is not anywhere near what consumers pay, then how does disclosing it help them? It does not. It helps insurance companies in making DTC more difficult for drug companies to execute. The knowledgeable legislators know that if they force drug makers to talk about price that may discourage them from doing DTC Ads for expensive drugs. Drug makers advertising the $100000 cancer drug may decide that DTC is not worth trying to explain the complexities of drug pricing or face the barrage of criticism for having a sticker shock price.
I think this is the real reason for this amendment. Embarrassing drug companies they hope will put a chill on DTC for cancer drugs, biologics for arthritis, Crohn’s, and other new premium drugs. Of course, all drugs will face a guidance on how pricing needs to be discussed. Somehow FDA will make disclosure a time consuming step in a DTC ad. That will add 10-15 seconds to the ad and may make them difficult to execute. Their hope is to get drug companies to stop doing DTC.
So the good news is it will take FDA a while to study and draft guidance for disclosing price. This lag may allow the powerful advertising lobby to show how impractical this disclosure requirement will be. My guess is we may have some compromise that speaks in terms of ranges of price. That is something like “most patients will pay much less than the price listed depending on your insurance coverage.” Or, drug makers may be able to say “the average price paid by consumers is x.”
It may be illegal to require drug makers to disclose price under commercial free speech grounds. I am sure the advertising lobby will argue this inhibits commercial speech. They would have a strong case based on precedent.
My advice to the agencies is to be ready to deal with adding some price statement but I am sure it will be a few years before FDA can figure out how best to do this. They research everything they do and that will take a long time to study. DTC price disclosure sounds great but is just a bad idea that will not help patients.
Some state delegations are pushing the AMA to adopt a position to push drug makers to include the retail price in their ads. They feel full disclosure will inform consumers that some drugs are very expensive up front. The physicians pushing this idea feel drug makers will be held more accountable by the public if they disclosed prices in their ads.
Clearly these advocates hope that forcing drug makers to disclose price in ads will create pressure on drug makers to keep prices in check. The question I have is, is disclosing price a net positive or negative at the stage of awareness advertising? Consumers are entitled to know prices of what they are being prescribed. Does upfront price disclosure help them make a better decision or just add confusion?
In a world where the advertised price is what you pay, then disclosing it makes sense. In the drug world, however, consumers do not pay retail prices. There are many net prices to consumer depending on insurance, co-pays, formulary position, and discounts offered by drug makers. The retail price is only relevant if the consumer pays it. I understand that many expensive drugs are not a viable option unless the consumer has good reimbursement. That viability is rarely known by the consumer until they take that prescription in to be filled.
Advertising price generally will not be a net positive for consumers. An expensive drug that says it costs $100k a year may scare consumers away from asking about it even though it may in fact cost them nothing. A $20 a month drug may sound cheap but a consumer may be paying full price for it because of coverage. The only intent of this potential AMA policy is to embarrass drug makers of very high price drugs. Pressuring drug makers on price is fair game for insurance companies, PBMs, and government payers. Retail price disclosure will only cause angst and confusion among consumers.
I also have concerns that consumers are not experts on price/value of drugs. Does curing Hep C for $80,000 cost less than liver transplant, or long hospitalization? Does paying $100,000 for an extra year of life make sense for a cancer patient? These decisions are complex and required an informed factual basis. It makes sense to have independent medical third parties do research on drug price/value and have consumers and doctors made aware of those analyses. I can even support ads being required to have a web site posted that has those analyses.
I understand doctors are frustrated with drug prices. I also know some drug companies have gone too far in aggressive pricing. The solution is in self-restraint, tough negotiations by payers, and well done research on cost/benefit of drugs. Advertising retail price will not help consumers and in fact may discourage them from seeking treatment because they assume they cannot afford the drug.
Contrary to popular belief that soaring drug prices translates to growing wealth for manufacturers, the royalties within the insulin market are going directly to the middlemen. Also known as pharmacy-benefit managers (PBMs), their purpose in the market is to negotiate rebates and fees based on list prices. In light of the recent price increase of Mylan’s EpiPen, angry consumers are voicing their opinions about the high list prices of everyday drugs.
Since 2011, there have been significant insulin price increases from big manufacturers such as Sanofi, Eli Lilly and Novo Nordisk. Harvard professor Aaron Kesselheim suggests that this can in part be attributed to the growing number of patients under high-deductible plans, shifting the cost from the insurer to the consumer.
However, the revenue acquired by the drug maker after discounts has stayed the same, or in some cases even fallen. Reason being, pharmaceutical companies compete to remain on the preferred drug list by offering deeper and deeper discounts. In exchange for their spot on the list, PBMs demand higher rebates, making it difficult for companies to turn a growing profit.
Steve Miller, CMO of Express Scripts, the largest PBM in the U.S., acknowledges that “certain patients get caught in the middle of this, and we have got to figure out how to put guard rails around that,” such as setting a maximum pharmacy price”.
To read more about insulin pricing and reimbursement from the Wall Street Journal, click here.
Everyone has an opinion on drug ads. From skits on Saturday Night Live, to the halls of Congress we hear critics mock DTC. Last week I criticized the 9/12 Ad Age story citing terror tactics used by drug marketers. The managing editor, Ken Wheaton, of Ad Age decided to write a follow up column telling pharmaceutical marketers to take a chill pill because he was surprised how they defended their ads in their “terror” story. Ad Age decided to double down in their criticism of drug marketers.
Mr. Wheaton says drug companies are jacking up ad prices to pay for the advertising. This is why these anecdotal stories are so off base. Mr. Wheaton has decided that it is obvious that DTC raises drug prices. Why? Because he says it must be so from his experience. He may be very knowledgeable about general advertising as his title would suggest. He is dead wrong that drug advertising causes high prices. The facts do not support his views. Drug marketers spent a bit over $5 billion on DTC in 2015. That is only about 1.5% of sales. Drug companies do not set their prices based on ad budgets. That might be true in advertising driven consumer brands where ad budgets make up 30% or higher of sales but not where multi billion dollar brands are spending a $50-100 million.
Mr. Wheaton makes some fair points that the drug industry has a reputation problem. He is certainly on point that drug makers must be aware of the negative impact high prices have on this industry image. They have not helped themselves with the recent EpiPen pricing hearings or Martin Shkreli smirking during his hearing day in Washington. Drug companies have the unenviable task of justifying higher prices in the United States versus price controlled developed countries. The American consumer does not like paying more but they also want drug innovation. While the media and political critics doubt the claim that cutting prices will reduce innovation, the economics of the drug business say otherwise. If drug prices were cut 30% to match Europe and Canada, that is coming right out of the bottom line. I challenge any business to reduce its profit in its biggest market by 30% and not affect R&D.
Advertising, however, is not the cause of the pricing issue. Drug companies have had this problem pre and post DTC advertising. Drug ads have become a convenient symbol for criticism of the entire industry. Drug companies do weigh the pros and cons of advertising in terms of causing criticism versus the projected sales increase. What is disturbing is Mr. Wheaton making the unsupported statement that only drug marketers and their marketing partners support their right to advertise. Where is his data that says that? Many consumers would be happy to see drug ads banned, and those folks may even be greater in number than those who want to see drug ads remain on air. Clearly it is not a unanimous view and I suspect many consumers against drug ads feel that way because they think that DTC ads raise their prices.
Mr. Wheaton recommends drug makers stop their ads. Does he feel the same about ads for other products often criticized? What about fast foods, violent video games, beer, explicit music, unproven health supplements, and many others often criticized for causing harm? Mr. Wheaton has taken drug marketers to task for lawfully trying to build awareness of their highly regulated products where every word in their ads is reviewed by FDA. There is no doubt that drug ads are meant to sell product. Drug makers are in the profit business. Profit leads to investment. Advertising allows new competitors to compete with the category leaders.
In a world of no DTC, drug makers will still price as high as the market will bear. That is the same strategy used by every business including what Ad Age charges their advertisers. Mr. Wheaton is very convinced in his anecdotal and observational argument. Ad Age’s Mr. Wheaton is wrong about the facts, however, and in his cynicism about the value of drug ads.
The drug companies made Hillary’s enemies list earlier this year along with Iran, the Republicans, and the NRA. She now has a plan to ensure drug prices do not rise higher than whatever she thinks is fair. The essence of her plan is to allow government to decide whether a drug price increase is justified. She had earlier announced her desire to end the tax deduction for drug marketing. I have included a good summary of the full plan from Street.com.
While some drug companies have had extraordinary price increases, it is a rare event. EpiPen has made the news recently for a 500% increase. They have responded to the criticism by offering extensive reductions for those people who cannot afford it and saying they will launch a generic. Free market criticism led to free market price reductions. We did not need a government overseer to decide what price is fair.
Ms. Clinton feels like her $250,000 per speech fee is a fair price for her wisdom. She charges public universities that price even though it is a canned presentation. Somehow she believes in free market pricing for herself but not for drug companies. Bill and Hillary both give that aww shucks answer that they just take what is offered them and how amazing it is that people are willing to pay them so much. Her cost of production for that 30 minute canned speech is $0 but she likes to get what the traffic will bear. A drug company that takes years and a billion dollars of R&D to find a winning drug must be made to justify its price to a group of bureaucrats in her new plan.
I admit some drug companies have had surprisingly large price increases on some drugs. The solution is obvious. Free markets will generate competition for alternatives to these drugs. EpiPen will see competition enter the market just because the market is so profitable. The real danger of Ms. Clinton’s “plan” is at what point do the price controls stop. Once the government is allowed to decide what is a justified price for a few selected drugs eventually we will evolve to full price controls for all branded drugs.
There are many politicians who want exactly that. They want drug full price controls and government run health care. As I have said on many occasions, higher U.S. drug prices provide incentives for innovation. Regulating prices will lead to less R&D. That means the next time a new virus or anti-biotic resistant bacteria emerge we will be fighting them with outdated drugs.
Maybe government will take over the R&D function but government innovation is usually an oxymoron. Our government data is hacked routinely, our VA health care is a mess, and our TSA often seems to have trouble spotting a pistol in a carry on bag. So I’ll trust private industry to innovate better than the government. I know Bernie Sanders and Michael Moore envy more advanced health care countries like Cuba where everything is regulated. After all, we know Havana is now the capital of new drug development and medical technology.
Hillary Clinton never misses an opportunity to take on the politically popular foe. I fully admit drug companies are ripe targets and often their own worst enemy. Drug companies must do more to have a consumer oriented pricing strategy. Her “plan”, however, is nothing more than political pandering and will do much more harm than good. She or Bill could of course buy 1000 EpiPens for each $250,000 speech and donate those to needy Americans. Now that sounds like a good plan.
Let me cite a headline in a recent 5/27 Associated Press story. “Superbug resistant to last-resort antibiotic found in the United States.” For the naïve critics who want to hammer drug companies who do you think will develop new antibiotics? Will it be the same caliber folks who run the TSA? The Post Office? The Veterans Administration? There are good people in government for sure but they are not wizards when it comes to finding new drugs.
I am afraid that Hillary and Bernie are going to need their hated drug industry to stop us from dying from a bacterial infection from a routine scrape, cut, or infection. I think most Americans have this media driven view that heroes working for government discover cures. Television and movies are filled with CDC or university scientists who discover cures to stop pandemics. Well my friends a Brad Pitt character is not going to save you from Zika or a new plague. The heroes will be named Pfizer, Glaxo, Merck and Sanofi. Of course those working there are never the movie heroes.
Government is very bad at solving problems. They could not develop a web site to enroll Obamacare patients. Do you really think they will save your butt from resistant bacteria? So I gladly support high profits for incentives to develop new antibiotics and vaccines. Incentives work Bernie. You may think drug profits are outlandish but your Medicare for all will guarantee we strip incentives away for break through drugs. It sounds nice to have cheap drugs for all until we get a superbug that none of those price controlled drugs can kill.
Bernie will say we can create some new government funded research organization to do drug development without the dastardly profit motive. With the bureaucratic operation we have seen in government, it is likely that organization will be slow, inefficient, and attract the least talented scientists.
Next time a candidate says drug companies make too much money think again. They actually will keep you alive. You know who makes outlandish profits? How about Hillary charging a university $225,000 for a canned speech. How about George Clooney getting $20 million for a movie role? But drugs are different they say. They are needed to save lives and should be cheap. Yes, they do save lives and that is why we should be happy to provide fantastic incentives to keep us alive.
The nice thing about free market pricing is that in the next pandemic drug companies will supply the good old USA first. The price controlled economies will get what they pay for and will have to wait in line for new cures. Americans may complain about drug prices but will be thankful their money provides incentives to drug companies to keep investing in cures.
FDA is proposing a study which I call “less is more.” The study is long overdue. They are concerned that too many risks are being presented in television ads and perhaps this confuses consumers. The basic lesson of advertising is to focus on the main point or compelling benefit if you want people to remember it. That lesson also applies to risk.
Consumers deserve to know about any significant risk of a drug they are taking or may take. Current DTC ads are risk heavy and loading ads with the many potential risks and side effects obscure what really are the most important. So if something minor happens to one in ten thousand people, is that worthy of being mentioned?
I have always been an advocate of presenting the odds of serious risk. FDA needs to provide guidance in consumer terms. If I have several friends who got a side effect, then that is worth mentioning. If I have to dig in the medical literature to find the one person having a side effect it is not. FDA is considering doing what any reasonable person would do. That is, discuss risk in the context of its frequency and seriousness.
We do not require auto makers to say you may die driving their car. We do not require airlines to discuss the risk of a crash. Yet drugs seem to be treated as something deserving of the mention of anything that may happen if taken. It is about time consumers were given some better information. If it kills one in a five hundred thousand do I really need to be told that in an ad?
I hope this study can provide some data that will help. This falls in the category of better late than never. There is, of course, a lot of general literature on advertising recall, and perhaps FDA could make sensible conclusions based on the existing vast history on advertising concepts. That would say consumers watching ads can remember very little, so less is more.
I know FDA is filled with bright people so I assume they know this concept. What is frustrating is their pace in advancing sensible regulation. By the time they finish this study it will be twenty years since television ads were presented to consumers. If consumers are risk confused now, they were in 1997 as well. FDA has told me numerous times how busy they are, so it is no surprise they are just getting to this study. It is a sad commentary, however, on their staffing and/or their priorities.
I guess we must be thankful FDA took some regulatory liberties and allowed the 60 second ad in 1997. So despite the nearly two decades it took to get here, the study is important for industry and its customers.
Bob Ehrlich, CEO, DTC Perspectives