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Lo-res_155597284-STelevised advertisements for prescription drugs provide a lot of information: the conditions they are designed to treat, the methods for taking them, and the vast list of side effects they might induce. Their informational character is part of why drug companies receive tax deductions for the cost of airing these advertisements. But a key piece of information has been missing from virtually every ad ever broadcast, namely, the price that consumers must pay to obtain and continue taking these drugs.

That lack of information appears likely to change, as U.S. government officials increasingly signal their intentions to do more to address prescription drug costs. One option for doing so is to ensure that consumers know the prices of the prescription drugs being advertised.

In a proactive move, Johnson & Johnson has started identifying the cost for its drug Xarelto, a market leading blood thinner. In new advertisements, the monthly list price of $448 will appear in the last few moments, along with a message that insurance and financial assistance reduce these charges to between $0 and $47 monthly for approximately 75 percent of the people who take the popular drug. A displayed web address also directs viewers to a Xarelto website with more detailed price information. After starting with this prescription, Johnson & Johnson plans similar communications for other drugs, such as Tremfya, which treats plaque psoriasis, and Stelara, a treatment for Crohn’s disease.

Whereas Johnson & Johnson has taken the lead, other pharmaceutical industry actors balk at the prospect of providing cost information, for several reasons. In particular, they note that consumers rarely pay list prices. If they have insurance coverage, the amount they actually pay tends to be much lower. In addition, many pharmaceutical firms offer financial assistance to help low income consumers afford necessary medications. Thus, providing the list price could have negative effects on consumer welfare, if people who need the drugs mistakenly assume they will be too expensive and thus never seek out a prescription.

Such arguments do little to convince consumer advocates and members of Congress who believe that failing to disclose prices hinders consumers’ ability to make informed decisions. Furthermore, because they do not reveal the relatively higher prices charged for branded drugs, compared with generic alternatives, these advertisements might discourage consumers from considering the cheaper generics.

Another potential benefit of requiring advertisements to disclose prices would be the possible impetus it might give drug companies to lower their prices. That is, if consumers are clearly aware of the prices being charged, they might do more to demand lower costs, whereas today, they suffer from a lack of information and thus cannot coordinate their price-related demands of the pharmaceutical firms.

Discussion Questions:

  1. Which argument to you find more convincing: Adding prices to drug ads increases or lowers consumer welfare? Defend your answer.
  2. Why have drug companies been able to keep their prices hidden for so long? What traits of this industry allow them to do so?

 

Source: Peter Loftus, “Johnson & Johnson to Air First TV Ad for Drug that Discloses its Price,” The Wall Street Journal, March 28, 2019