Medicare Takes a Step Toward Pharmaceutical Price Transparency

Yesterday the Centers for Medicare & Medicaid Services took an important step toward resolving the health care financing crises. CMS proposed a rule that would require all direct-to-consumer television advertisements of prescription drugs and biological products to state the "Wholesale Acquisition Cost" of the advertised product. See 83 FR 52789. The WAC is the price charged for the drug or biological by the manufacturer. It's the "list price."

  The proposed rule is intended to empower patients to become more active consumers when they purchase prescription drugs or biologicals that are covered by Medicare or Medicaid. The theory is that knowing the list price of the product will enable the consumer to decide if the cost of the product is justified by its benefit and, if it is, to shop around for the best price for the product. Unfortunately, negotiated prices for drugs, rebates, and health plan design make it nearly impossible to correlate the WAC stated in the television commercial to patient's ultimate cost of the product. Still the information is useful, and the proposed rule is an important step toward reforming the broken marketplace for health care goods and services.

  The WAC is useful in those situations where the medicine is subject to the patient's unmet deductible because in those situations the negotiated prices and rebates usually do not apply.  In those situations, therefore, patients can easily compare the WAC from the television commercial to the price being charged by the pharmacy and make an informed decision.

  In addition to empowering patients, mandatory publication of the WAC as part of the advertisement is an important step toward market reform because studies indicate that manufacturers, wholesalers, and retailers tend to inflate prices less when the public is aware of the WAC.

The background information published with the proposed rule is a good explanation of how the presence of third-party payors in the marketplace stymies consumers' fundamental ability to bargain. You can find it HERE.  We don't need a single-payor, not yet anyway. We need more transparency so that market forces can foster fair competition that offers educated consumers choices.