Drug Price Transparency: What You Need to Know

Key Takeaways

This Drug-Price Transparency for Consumers Act of 2023 was enacted to establish increased transparency and enhance the reporting requirements for pharmaceutical manufacturers.
State prescription drug price transparency laws allow policymakers in the state to understand drug pricing and payment systems.
Consumers will be better able to understand their out-of-pocket costs once they learn about the wholesale acquisition cost (WAC) of the product, which is the list price of the medication set at the drug manufacturer’s discretion.

Rising prescription drug costs can adversely affect people’s health if they are unable to afford the medications prescribed to them. Prescription drug costs in the United States are some of the highest among peer nations. It is common for drug manufacturers to use advertising to boost demand and drive up the prices consumers are willing to pay for their products. Studies have shown that patients are more likely to request brand-name drugs they have seen advertised, even when lower-priced generics are available.

In 2020, the most commonly advertised medication in the U.S. came at a total cost of over $6,000 for a month’s supply. According to the Department of Health and Human Services, more than 50% of Medicare and Medicaid Services drug spending is on advertised drugs.

Interestingly, the United States is only one of two developed nations (the other being New Zealand) where direct-to-consumer advertising of prescription pharmaceuticals is legal. It is estimated that the average American sees 9 drug advertisements a day. All these factors underline the need for drug price transparency in the United States. A transparency program can give consumers an increased ability to make informed decisions about which medications they choose to take. Please continue reading to learn more.

What is the Drug Price Transparency Act of 2023?

This Drug-Price Transparency for Consumers Act of 2023 was enacted to establish increased transparency and enhance the reporting requirements for pharmaceutical manufacturers. It requires that direct-to-consumer advertisements for drugs and biologicals include an appropriate disclosure of drug price information.

The U.S. Congress feels the current state of affairs lacks information about drug pricing among consumers in the country. This includes the list price of a drug that serves as a point of comparison when judging the drug pricing of comparable products at pharmacies.

A 2019 study published by the American Medical Association found that healthcare consumers significantly underestimate their out-of-pocket costs for certain high-cost drugs. Consumers will be better able to understand their out-of-pocket costs once they learn about the wholesale acquisition cost (WAC) of the product.

The WAC is the list price of the medication and can be set at the drug manufacturer’s discretion. The government, therefore, wants to ensure that consumers fully understand the list price of a drug that they are encouraged to purchase through advertisements and make informed purchasing decisions.

The drug price transparency program or law will help consumers decide if they can afford the full course of treatment with a particular drug. This will help them make an informed decision before they buy the product. The goal of the Drug Price Transparency Act of 2023 is to provide consumers with drug pricing information so that they can choose lower-cost alternatives when available, all other things being equal.

What is state price transparency?

State prescription drug price transparency laws allow policymakers in the state to understand drug pricing and payment systems. This enables them to pass laws for reporting entities, formulate effective policies to counteract high drug prices, and use the pricing data collected in an annual report to implement policy solutions.

How many states have drug price transparency laws?

Vermont was the first state to pass a state drug price transparency law in 2016. Since then, a dozen more states have passed prescription drug price transparency laws, including California, Connecticut, Florida, Maine, Minnesota, Nevada, New Jersey, North Dakota, Oregon, Louisiana, Texas, and Utah.

What is the New York Drug Price Transparency Law?

The New York State Senate has approved legislation to eliminate cost-sharing for insulin, reduce the cost of other prescription medications, and promote health equity among residents of the state. This legislation will also help to establish a wholesale drug import program and limit the ability of drug manufacturers to prevent competing generics from coming to the market. Additionally, it includes certain rules for establishing step therapy protocols so that patients are not required to first try and fail inappropriate medications. Read about “Generic vs. Brand Name Drugs: What’s the Difference?”

What factors affect prescription drug prices?

Factors that influence prescription drug prices in the U.S. are complicated and varied, including Interactions between the marketing power of pharmaceutical manufacturers, prescription drug coverage under health plans, the lack of drug cost transparency, and the lack of effective incentives to control drug pricing. Some of the factors that affect prescription drug prices include:

High cost of drugs due to expenditure by drug manufacturers on research and development, marketing, and supply chain logistics
Patent laws that give exclusive rights to pharmaceutical manufacturers for new medications for a specified period of time
Price increases over time due to the lack of competition in drug pricing once the period of market exclusivity ends, resulting in higher prices of generic prescription drugs.
Insurance plans that place a significant burden on patients with cost-sharing provisions for prescription drugs
Lack of transparency in drug prices by prescription drug manufacturers, pharmacy benefit managers (PBMs), pharmacy service administrative organizations, and health insurers.
Unavailability of patient assistance programs and rebates to offer patients drug cost savings on prescriptions.
Lack of additional information about medication choices, such as lower-cost generic alternatives or biosimilar products.