June 17, 2020 – The U.S. Court of Appeals for the D.C. Circuit yesterday affirmed the U.S. District Court for the District of Columbia opinion that set aside the Center for Medicare and Medicaid Services (CMS) rule calling for drug manufacturers to disclose drug list prices in direct-to-consumer television ads. In the June 16 opinion, U.S. Circuit Judge Patricia Millett states on behalf of the three-judge panel that the Department of Health and Human Services (HHS) “acted unreasonably” in using its authority to “include the imposition of a sweeping disclosure requirement that is largely untethered to the actual administration of the Medicare or Medicaid programs.”

This opinion is a victory for drug manufacturers, who had challenged the CMS rule (first proposed by HHS in October 2018 as part of President Donald J. Trump’s blueprint to lower drug prices) on statutory and constitutional grounds. In affirming the lower court’s July 2019 opinion in the lawsuit filed by the Association of National Advertisers, Merck, Eli Lilly, and Amgen, the appellate court found that “there is no reasoned statutory basis for [CMS’] far-flung reach and misaligned obligations.” Further, in an apparent rebuke of HHS Secretary Alex Azar, Judge Millett concluded that “Although the Secretary’s authority is broad, it does not allow him to move the goalposts to wherever he kicks the ball.”

”While the proposed regulation was claimed to be promoting ‘transparency’ of drug costs, it actually was a very flawed proposal that would have required advertisers to use a highly misleading metric for drug prices, would have deterred patients from important conversations with their clinicians, would not have lowered prices, and would have set a dangerous precedent limiting First Amendment prohibitions on ‘compelled speech,’” said Jon Bigelow, executive director of the Coalition for Healthcare Communication. “It is gratifying to see such a clear court decision.”

Specifically, the D.C. Circuit Court was seeking to resolve the question of whether HHS properly relied on two provisions of the Social Security Act to enact the price disclosure rule, using the two-part test under Chevron U.S.A. Inc. v. Natural Resources Defense Council. Although HHS asserted that the rule is “necessary” to the “efficient administration” of the Medicare and Medicaid programs because it will “incentivize manufacturers” to lower drug prices and provide consumers with information that empowers their decision-making, the court states that “neither of these arguments holds up.”

“To qualify as administering the Medicare or Medicaid statutes, a program of such intrusive regulation must do more than identify a hoped-for trickle-down effect on the regulated programs,” the opinion states. Indeed, in addressing the HHS assertion that the price disclosure rule is necessary for the administration of the Medicare and Medicaid programs, the court states that “the further a regulation strays from facilitating the ‘administration’ of the Secretary’s duties, the less likely it is to fall within the statutory grant of authority.”

This rule “strays far off the path of administration for four reasons,” Millett’s opinion states:

• Disclosure of a drug’s list price “bears little meaningful relationship to the price that either the federal government or Medicare and Medicaid beneficiaries pay for drugs.
• The Secretary’s claim that disclosure of the list price “may inform” consumers is not directly related to the administration of the Medicare and Medicaid programs (and could result in consumers not contacting their healthcare providers about their conditions or not taking beneficial medications).
• The rule regulates advertising “directed at the general public and not communications targeted specifically, or even predominantly, to Medicare or Medicaid recipients.”
• The “sweeping ‘nature and scope of the authority being named by’” HHS “underscores the unreasonableness of the Department’s claim that it is just engaged in general ‘administration.’”

Judge Millett also states that HHS’ construction of the statute “would seem to give it unbridled power” to issue regulations for the drug industry. “This suggests a staggering delegation of power, far removed from ordinary administration,” according to the opinion.

The appellate court does state that “nothing in this opinion holds that the Secretary is categorically foreclosed from regulating pharmaceutical advertisements,” but adds that the court holds only “that no reasonable reading of the Department’s general administrative authority allows the Secretary to command the disclosure to the public at large of pricing information that bears at best a tenuous, confusing, and potentially harmful relationship to the Medicare and Medicaid programs.”