Courts/First Amendment

Court Rules Mandatory Drug Price Disclosure Rule Invalid, Stating CMS Lacks Statutory Authority

July 9, 2019 – One day before the Centers for Medicare & Medicaid Services’ (CMS’) final rule requiring drug companies to disclose the wholesale acquisition cost (WAC) or “list price” of their drugs in television ads was due to go into effect, the U.S. District Court for the District of Columbia issued a memorandum opinion stating that CMS “lacks statutory authority under the Social Security Act” to adopt the rule.

The memorandum opinion, issued by U.S. District Court Judge Amit P. Mehta, declares the CMS final rule – issued on May 10 and slated to take effect today — invalid and sets it aside, a victory for the plaintiffs – Merck & Co., Eli Lilly and Co., Amgen Inc. and the Association of National Advertisers Inc.

“This is an unusual and important decision,” stated Jon Bigelow, executive director of the Coalition for Healthcare Communication. “First, rather than simply issuing a stay, the court held the rule invalid due to lack of HHS jurisdiction. Second, the court made clear that the Social Security Act is not an open license for HHS to regulate pharmaceutical marketing.”

“For a regulation to have the force of law, Congress must communicate through legislation, either expressedly or impliedly, its intent for the agency to make rules in that specific area,” the opinion states. “When Congress has not communicated such intent, the agency has no power to act,” the opinion continues,” stating that “neither the Act’s text, structure, nor context evince an intent by Congress to empower HHS to issue a rule that compels drug manufacturers to disclose list prices.”

The opinion stipulates that it does not question the Department of Health and Human Services’ (HHS’) motives in adopting the rule, and indeed states that the rule “very well could be an effective tool in halting the rising cost of prescription drugs. “But no matter how vexing the problem of spiraling drug costs may be, HHS cannot do more than what Congress has authorized.”

The court opinion points out that although the Trump administration’s “Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs” stated it would call on the FDA to evaluate the inclusion of drug list prices in direct-to-consumer (DTC) advertising, “the issuing agency, however, turned out to be [CMS], acting pursuant to its authority under the [SSA].” Additionally, the opinion states that the Rule “feels like agency action in search of a statutory home.”

Although the plaintiffs filed their complaint and a motion to stay the effective date of the final rule stating two primary objections: (1) The Rule exceeds HHS’ authority; and (2) the Rule is compelled speech that violates the First Amendment, the opinion states that in view of its holding that the rule is invalid on statutory grounds, “the court does not reach Plaintiffs’ First Amendment challenge.”

On the authority question, the plaintiffs contend that it is controlled by the two-step inquiry under Chevron U.S.A., Inc. v. Natural Resources Defense Council Inc.; these steps speak to Congress’ intent. The defendants, alternatively, do not even mention Chevron in their justification for the rule and rely on a pre-Chevron decision, Mourning v. Family Publications Services Inc.; this ruling states that the agency may make rules and regulations that “may be necessary to carry out the Provisions of this Act.” The court in the WAC Disclosure Rule opinion “agrees with the Plaintiffs that Chevron controls.”

The opinion states that the basic power given to HHS under the SSA was to “establish rules and regulations for ‘running’ or ‘managing’ the federal public health insurance programs through CMS. HHS seeks to do more than that here.” Further, the opinion states that “Simply put, the delegation of authority that HHS says allows it ‘to speak with the force of law’ on the marketing of prescription drugs is nowhere to be found in the vast statute that is the SSA.”

The court also notes that Congress has enacted specific legislation relating to television advertising of drug products, and it has not yet “addressed the disclosure of drug prices,” and states that “it is not lost on the court that HHS has never before attempted to use the SSA to directly regulate the market for pharmaceuticals.”

Finally, the court states that it is the agency’s “incursion into a brand-new regulatory environment, and the rationale for it, that make the Rule so consequential. To accept the agency’s justification here would swing the doors wide open to any regulation, rule, or policy that might reasonably result in cost savings to the Medicare and Medicaid programs, unless expressly prohibited by Congress.”

The court also appears to be concerned about any precedent that might be set by allowing the Rule to go into effect. “This case is not just about whether HHS can force drug companies to disclose their list prices in the name of lowering costs. Rather, the WAC Disclosure Rule represents a significant shift in HHS’s ability to regulate the health care marketplace,” the opinion states.

Although the court has set aside the CMS final rule, the government can still appeal the opinion.