The Trump administration recently unveiled 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 in reality, 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.
What singular price would Coca-Cola report in every television advertisement? No matter which price it announces, some customers will feel misled.
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.
Such pricing discrepancies are further complicated by government programs. Consider the 340B program. This program requires manufacturers to sell medicines at a steep discount to qualifying hospitals and their pharmacies. Should TV ads state this price as well?
Presumably, the administration's proposal isn't meant to reveal the prices that large insurers or government programs pay for medicines. It's intended to tell patients how much they can expect to pay at the pharmacy counter.
But there are problems here, too.
The cost of a drug varies greatly from patient to patient and heavily depends on the patient's insurance coverage and specific co-pays. It also could depend on whether a patient has met his deductible. Once again, there is no single price for a manufacturer to report.
Forcing manufacturers to state a single, misleading price makes little sense. It will spread misinformation. The administration would be wise to scrap this proposal.
Wayne Winegarden is the senior fellow in business and economics at the Pacific Research Institute and the Principal of Capitol Economic Advisors.
