The Trump administration has a proposal that would force drug manufacturers to disclose a medicine's sticker, or “list,” price in television advertisements. The change is helpful in theory. After all, consumers should have all relevant product information before making a purchase.
But, the proposed rule would do more harm than good. Prescription drug prices are highly complicated. Insurance generally covers most of a medication's cost, leaving patients with a fixed co-pay — perhaps $20 — or a fixed percentage of a drug's cost — say 25 percent. Plus, manufacturers frequently offer discounts, rebates, and co-pay assistance programs.
So, it's impossible for pharmaceutical companies to pick one price that accurately reflects the amount different consumers would pay. Forcing manufacturers to display list prices in advertisements would only confuse patients and could dissuade them from asking their doctors about life-enhancing drugs.
Just consider how silly it'd be to impose this requirement on another industry — say, soft drink manufacturers. A consumer may purchase soda in a 12 oz. can, a mega 64-oz. bottle, or by the cup in a theater. One theater might charge a relatively high $3 for a jumbo cup, while another might offer free soda with the purchase of any large snack.
This disclosure requirement is even more unworkable in the pharmaceutical industry, where multiple entities — insurers, pharmacies, doctors, and patients — all pay different prices for products.
Insurance companies do not pay the full list price of the drug. Instead, they hire middlemen to negotiate major discounts with manufacturers. Last year, manufacturers doled out some $150 billion in discounts and rebates. Insurers use part of these discounts to reduce premiums. And they pocket a portion of the rebates for themselves.
Forcing manufacturers to state a single, misleading price makes little sense. It will spread misinformation. The administration would be wise to scrap this proposal.