Prescription Drug Ads Will Now Include Prices. Will It Help Lower Costs?

The Department of Health and Human Services finalized a new rule about prescription drugs earlier this month. Getty Images

Television ads for prescription drugs already include a list of side effects, ranging from mild ones like diarrhea to more severe ones like death.

They’ll soon have another piece of information to help consumers make smart choices about their medications — the list price of the drug.

A new rule finalized earlier this month by the Department of Health and Human Services (HHS) requires TV ads to include the list price — if it’s equal to or greater than $35 for a month’s supply or the usual course of therapy.

HHS hopes this greater price transparency will lead to increased competition among drug companies and ultimately lower prices for consumers.

“Equipped with information on prescription drug prices, patients will be better able to make informed decisions and demand value from pharmaceutical companies,” said Seema Verma, administrator for the Centers for Medicare & Medicaid Services, in a news release.

Many people with health insurance, though, don’t pay the full list price. So experts question how much of an impact this will have on the price of prescription drugs.

Will price transparency help consumers?

Sara Ellison, PhD, an economist at MIT, said “a regulation like this is unlikely to do any harm. But it’s also not likely to have a big effect.”

The reason for this, said Ellison, is that the pharmaceutical market operates very differently from other consumer product markets — like electronics or home appliances.

If two people go to a store to buy a laptop or a refrigerator, they will usually pay a similar price. One person may find a better deal, but it’s not drastically lower.

With prescription drugs, what you pay out of pocket depends on many factors — whether you have health insurance, what your copayments and deductibles are, whether the drug is included on your plan’s formulary, and if there’s a pharmacy benefit manager (PBM) involved.

Flashing the list price for a couple of seconds at the end of a TV ad may also end up confusing people even more about drug prices.

“Whether showing the list prices will actually provide valuable information is unclear,” said Sunita Desai, PhD, a health economist at NYU Wagner, “because it’s obviously not going to reflect what the price would be for every patient, including their out-of-pocket price.”

One thing is (almost) clear: a person without health insurance would pay the full list price for a medication — unless they qualify for a discount program.

People with different insurances might pay nothing. Or they might pay a small copay each month. Or they might pay the full list price until they hit their plan’s deductible.

A 2017 report by the drug industry’s lobbying group — called the Pharmaceutical Research and Manufacturers of America (or PhRMA) — says that one-fifth of patients pay the full list price for their medications.

However, this doesn’t take into account people who skip medications — entirely or cutting back on their dose — due to high cost.

Will the ads make consumers better shoppers?

HHS said one of the goals of the new rule is to help consumers “make informed decisions” by giving them more information about the cost of their medication.

But consumers’ decisions are only as good as the information that’s available to them.

Pharmaceutical company Johnson & Johnson has tried to get ahead of the new rule by including the list price of its blood thinner Xarelto in TV ads.

In addition to the $448 list price, the ads also mention that the out-of-pocket price for most consumers ranges from $0 to $47.

However, according to the Xarelto website, this only includes 75 percent of U.S. patients. The other quarter could be paying close to the full list price.

If you don’t know which group you fall into, it’s difficult to make an “informed decision.”

Even when consumers are given more accurate price information, they don’t always act on it.

“Based on what we know already from other settings in healthcare where price transparency has been introduced, it probably won’t really change patients’ behavior,” said Desai.

A small number of people may ask their doctor to prescribe a cheaper generic when they see the high list price for a brand name drug.

Patients always have this option, although not every brand name has a suitable generic alternative.

Many people, though, will go along with their doctor’s recommendation — generic or brand name — especially if their insurance covers the medication.

Of course, some patients may insist that their doctor prescribe a medication they saw an ad for, regardless of its cost or whether the drug is the best option for them.

Critics say this is one of the problems of direct-to-consumer prescription drug TV ads, which are only allowed in the United States and New Zealand.

Desai said there are better ways to help patients make cost decisions.

“Other interventions that make it easier for patients to know in advance how much they will have to pay are probably going to be much more effective,” she said.

This might include involving physicians in discussions about price. Or offering them financial incentives to switch to a cheaper, but equally effective, generic alternative.

Will ads lead to lower drug prices?

The ultimate goal of the new rule is to lead to less expensive prescription drugs. But even that’s uncertain.

“Any move toward greater price transparency is a step in the right direction,” said Desai. “But it’s unclear whether it would have a substantial impact on drug prices.”

Ellison said the rule is really about putting political pressure on pharmaceutical companies to rein in their prices, rather than providing useful information for any particular consumer.

Others say it’s also a way for the current presidential administration to show that they’re trying to tackle drug prices — an issue many voters are concerned about.

The new rule may be good political theater. But don’t expect flashing the list price of a medication at the end of a TV ad to fix this complicated situation.

“There is evidence to suggest that political pressure does cause the pharmaceutical manufacturers to moderate their prices somewhat,” said Ellison. “But there’s not a lot of evidence that these effects are huge.”