Why did the Trump administration last Monday propose requiring pharmaceutical companies to disclose their prices in television advertisements? A cynic might believe the rule comes at least in part because the drug industry opposes it.
Now, I carry no water for Big Pharma. For instance, I opposed their effort earlier this year to repeal an important restraint on Medicare spending. But this particular element of the administration’s drug pricing plan appears to work in a similar manner as some of the president’s tweets—to dominate headlines through rhetoric, rather than through substantive policy changes.
Applies Only to Television
The regulatory proposal the administration released last Monday contains several interesting elements. First, the rule applies only to advertisements on television, “including broadcast, cable, streaming, or satellite.” It does not apply to, among other things, radio advertisements, online websites, billboards, ads in newspapers or magazines, flyers, or any other forms of marketing.
The rule “seek[s] comment as to whether we should apply this regulation to other media formats,” but admits that the administration initially “concluded that the purpose of this regulation is best served by limiting the requirements” to television. However, five companies alone accounted for more than half of all drug advertisements in the past year. Among those five companies, the advertisements promoted 19 pharmaceuticals—meaning that new disclosure regime would apply to very few drugs.
If the “purpose of this regulation” is to affect pharmaceutical pricing, then confining disclosures only to television advertisements would by definition have a limited impact. If, however, the “purpose of this regulation” is primarily political—to force drug companies into a prolonged and public legal fight on First Amendment grounds, or to allow the administration to point to disclosures in the most prominent form of media to say, “We’re doing something on drug costs!”—then the rule will accomplish its purpose.
Rule Lacks Data to Support Its Theory
On three separate occasions, in the rule’s Regulatory Impact Analysis—the portion of the rule intended to demonstrate that the regulation’s benefits outweigh its costs—the administration admits it has very few hard facts: “We lack data to quantify these effects, and seek public comment on these impacts.”
In other words, the administration thinks the proposal will lead to lower prices—discourage drug companies from raising prices, prompt consumers to select more affordable medications, or a combination of the two—but it has no evidence to prove this theory. The proposal could also have the opposite effects.
It could encourage people to consume more expensive medicines (particularly if their insurance pays for it), because individuals may think costlier drugs are “better.” Or it could discourage companies from advertising on television at all, which could reduce drug consumption and affect people’s health (or reduce health spending while having no effect on individuals’ health).
Conservative think-tanks skewered several Obamacare rules released in 2010 for the poor quality and unreasonable assumptions in their Regulatory Impact Analyses. Although released by a different administration of a different party, this proposed regulation looks little different.
Contradictions on Forced Speech?
Finally, the rule refers on several occasions to the Supreme Court’s ruling earlier this year in a case involving California crisis pregnancy centers. That case, National Institute of Family and Life Advocates v. Becerra, overturned a California state law requiring reproductive health clinics, including pro-life crisis pregnancy centers, to provide information on abortion to patients.
The rule attempts to delineate the differences between the California law, which the court held dictated the content of speech in the forced disclosures, and the drug pricing proposal, which in the administration’s view only requires disclosing straightforward and factual information.
The need for that distinction arises because the pharmaceutical industry will likely challenge the rule on First Amendment grounds as an infringement on their free speech rights. However, a pro-life administration attempting to force drug companies to disclose pricing information, while protecting crisis pregnancy centers from other forced disclosures, presents some interesting political optics.
A Political ‘Shiny Object’
Ironically enough, most of the administration’s actions regarding its prescription drug pricing platform have proven effective. Food and Drug Administration Commissioner Scott Gottlieb has helped speed the approval of generic drugs to market, particularly in cases where no other competitors exist, to help stabilize the marketplace.
Other proposals to change incentives within Medicare and Medicaid also could bring down prices. These proposals won’t have an immediate effect—as would Democratic blunt-force proposals to expand price controls—but collectively, they will have an impact over time.
The thoughtful approach the administration has taken to most of its drug pricing platform stands in contrast to its announcement on television disclosures. The chest-thumping from Health and Human Services Secretary Alex Azar, not one known for such rhetoric, speaks to the policy’s political nature. The proposal has all the makings of a political “shiny object,” designed largely to attract attention—“See how we’re taking action on drug prices? You can see them on TV now!”—while having little meaningful impact.
This administration can do better than that. Indeed, they already have. They should leave the political stunts to the president’s Twitter account, and get back to work on more important, and more substantive, proposals.