June 17, 2019 – The Trump administration’s final rule mandating that drug companies include the wholesale acquisition cost (WAC) in direct-to-consumer (DTC) television ads for many drugs “exceeds [the Department of Health and Human Services’ (HHS’)] statutory authority, violates the First Amendment, and should therefore be set aside,” according to a lawsuit filed Friday, less than a month before the rule is slated to take effect.

If the rule is not set aside, it will force companies “to include a statement in their [DTC] television advertisements that they believe will mislead patients,” states the complaint filed by Merck & Co. Inc., Eli Lilly and Co., Amgen Inc. and the Association of National Advertisers Inc. (ANA) in the U.S. District Court for the District of Columbia.

Further, the plaintiffs assert that the May 10, 2019, final rule issued by the Centers for Medicare & Medicaid Services (CMS) will “frustrate” the administration’s objective of providing Americans with accurate information about prescription drugs “by misleading patients about their out-of-pocket costs … in a manner that even HHS admits may ‘confuse[]’ and ‘intimidate[]’ patients, ‘discourage patients from using beneficial medications, reduce access and potentially increase total cost of care.’”

“The CMS rule will do nothing to lower prescription drug prices, and represents phony transparency, mandating that misleading information be included in television advertisements. Moreover, as this lawsuit makes clear, the rule’s infringement of First Amendment protections would set a harmful precedent,” stated Jon Bigelow, executive director of the Coalition for Healthcare Communication.

At the Coalition’s recent Rising Leaders Conference on Healthcare Policy, Dan Jaffe, Group EVP for Government Relations at the ANA, reminded attendees that the First Amendment argument here is extremely important.

“The First Amendment is your protection; no one should think that if you lose this fight that it’s the last fight you are going to lose in this area. … I think it’s very clear that the rule threatens a radical expansion of government mandatory disclosure law. It would blow several major holes in the First Amendment protections for advertising,” Jaffe said, “and would create broad precedents that sweep far beyond prescription drug advertising.”

One of the complaint’s primary arguments echoes the point made in many of the 147 comments (including the comment submitted by the Coalition for Healthcare Communication) submitted to CMS in December 2018 on the proposed version of the rule: The WAC does not represent the actual price that most patients will pay for their drugs because it doesn’t take into account rebates, discounts or other price adjustments, nor does it recognize the insurance coverage that most Americans have to defray their prescription drug costs.

The WAC or “list price” is not a suggested sales price for drugs, as the name might indicate, and instead is a price far greater than what most people will pay at the pharmacy, the plaintiffs contend. “Far from promoting transparency and improved decision-making … the rule would instead force pharmaceutical companies to mislead tens of millions of Americans about the price they would actually pay for important medicines that might improve their health or even save their lives,” the complaint states.

Indeed, the FDA has concluded the Federal Food, Drug & Cosmetic Act prohibits the publication of price information “when publication of that information would tend to mislead consumers.” The rule also undercuts the benefit of DTC drug advertising, which the FDA has recognized as increasing the awareness of conditions and treatments, according to the plaintiffs.

The lawsuit claims that the CMS final rule violates the Administrative Procedure Act because:

• The statutory provisions that HHS invokes – Sections 1102(a) and 1871(a) of the Social Security Act – do not give HHS authority to regulate [DTC] advertising of pharmaceutical products in the manner set forth in the rule. “It is unthinkable that Congress would have hidden such an immense grant of power in vague, general provisions of the Social Security Act,” the complaint states. “When Congress intends to give an administrative agency authority to regulate an entire sector of the economy, it speaks clearly on the subject.”
• HHS does not cite any evidence that the compelled WAC disclosure rule will increase the efficiency of the Medicare and Medicaid programs – “and indeed, concedes that it lacks such evidence.” Jaffe commented at the Rising Leaders Conference that in his view, this rule “is one of the worst-justified rules I can remember coming out of HHS or the FDA. They looked at one study for a drug that cost $15,000 a year and then suggested that people would have a better estimate of what they would be paying [as a result of the WAC disclosure] … I don’t think that in any way meets the government’s burden and I’m almost 100-percent certain that the government will lose.”
• HHS cannot carry its burden to demonstrate that the final rule “comports with the Free Speech Clause of the First Amendment” of the U.S. Constitution. “HHS’s burden in this respect is substantial,” the complaint states, in that it must show – with evidence – that the rule would be effective in meeting CMS’ goals. “And HHS has, remarkably, conceded that it cannot do so.” Further, although HHS has argued that the rule’s compelled speech requirement should be entitled to more deferential treatment under Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, which covers government-mandated disclosures, the complaint states among other arguments that the Zauderer standard assumes that any compelled speech be “purely factual and uncontroversial” and because the WAC is actually misleading, that standard does not apply.

Jaffe told Rising Leaders attendees in May that the mandatory disclosure, such as the one called for in the CMS rule, is “the Achilles heel of advertising. This is where the government is going to go because they are blocked in other areas. If we win here, we will really have protected the advertising interests of all groups for many years to come.”