by Timothy Sandefur
December 17, 2018
The U.S. Department of Health and Human Services (HHS) is considering a regulation that would force drugmakers to say in their advertisements what the prices of their drugs are. That may sound like a good thing—except that the rule is so poorly designed that it will actually have the opposite effect: forcing drugmakers to say things that aren’t true. And that’s not just bad policy—it’s also unconstitutional.
The rule requires drug manufacturers who advertise to consumers to specify the “wholesale acquisition price” for a “typical 30-day regimen” of the medicine. What’s a “wholesale acquisition price”? Nobody really knows. A federal court in Massachusetts ruled in 2008 that it “does not mean a list price; it means the amount that goods actually cost,” and that it includes any discounts or rebates that the consumer might get. But the rule that HHS has proposed defines “wholesale acquisition price” as the acquisition price—and specifically says it does not include any such discounts.
That’s important, because in the incredibly complicated world of drug prices, discounts and rebates play a crucial role. Drugmakers don’t actually set a single wholesale price, nor do they set the price that a wholesaler sells the drug to a retailer. They also don’t set the price that retailers use when they sell it to patients. Instead, between the manufacturer and the patient, there are multiple discounts and rebates that affect the ultimate price that the patient ends up paying. It would be nice if it were simpler—it ought to be a lot simpler—but it isn’t, and for the HHS to disregard this and treat drug prices as though they were like the prices for coffeemakers is foolhardy.
It gets worse: The proposed rule doesn’t require that manufacturers accurately state the “wholesale acquisition price,” but just defines that as whatever “list price” the manufacturer prints “in wholesale price guides or other publications.” That leaves manufacturers free to print any number they wish, and as Charles Silver and David Hyman note in their book Overcharged: Why Americans Pay Too Much for Health Care,drug companies have in the past printed “phony” prices in their publications, enabling them to charge inflated “list prices” to the government. In 1997 and 2003, federal laws made this same mistake when amending the Medicare and Medicaid programs, with the result of causing further chaos and confusion—and, of course, opportunities for questionable marketing tactics—in drug pricing.
Not only does all of this mean that the proposed rule will fail to bring rationality and transparency to drug prices, but that it also violates the Constitution. The Supreme Court has held that government can force businesses to disclose information about their products and services, but only when that information is uncontroversial and true. When the government compels the disclosure of untrue or misleading information, that violates the First Amendment rights of businesses. As the Ninth Circuit put it in one case, a compulsory disclosure that is “literally true but misleading” could “create the possibility of consumer deception,” and that “does not further the free flow of accurate information or add to the ‘value to consumers of the information [commercial] speech provides.’”
It’s ironic, too, that while this poorly drafted measure at least aims at the laudable goal of increasing transparency, other Washington regulators are restricting speech and blocking transparency—through rules that forbid pharmaceutical companies from giving patients truthful information about legal “off-label” uses for medicines. Off-label uses for medicines aren’t just routine and legal, but they’re even paid for by Medicaid and Medicare—but federal regulators continue to forbid drugmakers from truthfully telling doctors that they can prescribe existing medications for these “off-label” uses. Federal courts have already ruled that this prohibition violates the First Amendment, but regulators continue to enforce it—even threatening criminal penalties for communicating this information.
The Goldwater Institute filed a comment opposing the price regulation today, explaining that the proposal is so poorly drafted that it’s unconstitutional, and, although well-intended, would in the end be counterproductive. Regulators should find better ways to bring market-oriented solutions to the complex world of drug pricing. And at a minimum, they should allow drugmakers to tell doctors and patients the truth about their medicines.
Timothy Sandefur is the Vice President for Litigation at the Goldwater Institute.