On June 16, 2020, a unanimous panel of the District of Columbia Circuit Court ruled that a rule finalized by the United States Department of Health and Human Services (HHS) was not properly done. The Rule, finalized May 9, 2019, required pharmaceutical manufacturers to disclose drug prices in their advertisements. The intent behind the Rule was that by requiring the prices to be advertised, pharmaceutical drug costs would be better controlled, despite the fact that stated prices for prescription drugs are not usually the price consumers pay.
Background
Shortly after the Rule was finalized, Merck & Co., Inc., Eli Lilly and Company, and Amgen Inc., along with the Association of National Advertisers, filed a lawsuit challenged the lawfulness of the rule. They alleged that the Rule violated the Administrative Procedure Act (APA) because it (i) exceeded HHS’ statutory authority; (ii) is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law, and (iii) violates the First Amendment. Contemporaneously with their complaint in the United States District Court for the District of Columbia, they filed a motion to stay the Rule pending judicial review and to expedite proceedings on the motion to stay.
In July 2019, the district court granted the motion to stay and entered an order vacating the Rule. In the order, the district court found that HHS did not have the authority to impose the price disclosure requirement. In fact, the district court found that “when viewed as a whole, the [Social Security Act] unambiguously does not delegate to [the Department] the power to promulgate the [Disclosure Rule].” The district court also noted that when Congress authorizes an agency to regulate DTC advertising of pharmaceutical products, it does so directly, saying, “Congress knows how to prescribe the content of drug advertising when it chooses to do so.”
HHS filed a timely notice of appeal on August 21, 2019 to the District of Columbia Circuit Court.
Circuit Court Decision
The Circuit Court similarly analyzed whether the HHS “Secretary properly relied on Sections 1302(a) and 1395hh(a)(1) to enact the price disclosure rule. In doing so, they used the groundwork laid by Chevron U.S.A. Inc v. Natural Resources Defense Counsel and applied ordinary tools of statutory construction to determine “whether Congress has directly spoken to the precise question at issue.” Under Chevron, if Congress – via statute – has resolved it, that is the end of the matter and the statute is enforced as Congress directs. If the statute is ambiguous then, under Chevron “Step Two,” the court will generally uphold the agency’s construction of the statute as long as it is a “reasonable interpretation.”
The Circuit Court references the district court’s decision, noting that it ruled “that the Medicare and Medicaid statutes unambiguously foreclose the Secretary from requiring price disclosures in consumer advertising.” HHS argued, though, that the Rule is “necessary” to the “efficient administration” of the Medicare and Medicaid programs because the “price transparency” introduced by the Rule will “improve the efficiency” of the programs by “reducing wasteful and abusive increases in drug and biological product list prices.”
The Circuit Court disagreed with HHS’ argument, finding that while the Secretary’s “administrative authority is undoubtedly broad,” it is not “boundless.” The opinion states that “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 goes on to say, “Instead, to fall within the Secretary’s regulatory authority, rules must be ‘necessary to the efficient administration of the functions with which [the Secretary] is charged.’” Therefore, the Court states, in order for a regulation to be found “necessary” to the programs’ administration, “the Secretary must demonstrate an actual and discernible nexus between the rule and the conduct or management of Medicare and Medicaid programs. The regulation’s operational focus must also be on those two programs, and the rule’s effect must be more than tangential.”
The panel went on to address the “boundless” power HHS is arguing for, saying,
The Department’s construction of the statute would seem to give it unbridled power to promulgate any regulation with respect to drug manufacturers that would have the arguable effect of driving down drug prices—or even healthcare costs generally—based on nothing more than their potential salutary financial benefits for the Medicare or Medicaid program. This suggests a staggering delegation of power, far removed from ordinary administration. Could the Department dictate salaries at pharmaceutical companies that make or sell products “for which payment is available, directly or indirectly, under” Medicare or Medicaid? Could it superintend pharmaceutical companies’ business operations to cut costs? Surely not. But the Department’s reasoning suggests that such regulations would be fair game as long as they ultimately resulted—even indirectly—in reduced Medicare or Medicaid expenditures or increased price competition.
In closing, the opinion notes that “nothing in this opinion holds that the Secretary is categorically foreclosed from regulating pharmaceutical advertisements” and that such a decision would be left for another day. This decision simply focused on the fact that while “the Secretary’s regulatory authority is broad, it does not allow him to move the goalposts to wherever he kicks the ball.”
Conclusion
While HHS could appeal to the Supreme Court, for now at least, the Disclosure Rule is no longer applicable to pharmaceutical companies.