Decision of the U.S. District Court for the District of Columbia: i) confirming that the Department of Health & Human Services has no statutory authority to compel pharmaceutical manufacturers to publish list prices for their products in marketing and promotional activities, and ii) invalidating the final rule compelling this requirement.
On May 8, 2019, HHS adopted a final rule requiring drug manufacturers to disclose the “list price” or “wholesale acquisition cost or WAC” of a 30-day supply of drug in direct-to-consumer advertising, if the list price is more than $35 and the drug is covered under Medicare or Medicaid. The stated purpose of the WAC Disclosure Rule was to provide consumers with relevant information about the price of prescription drugs and to reduce wasteful and abusive increases in the price of these products. The WAC Disclosure Rule directed manufacturers to include specific, scripted statements about the list price of their drug products in direct-to-consumer television advertisements. It was scheduled to go into effect on July 9, 2019.
The pharmaceutical industry opposed the WAC Disclosure Rule. In its objections, the industry claimed that HHS did not have legal statutory authority to implement the WAC Disclosure Rule under the Social Security Act. The industry also objected to the WAC Disclosure Rule on the basis that inclusion of list price in direct-to-consumer advertising would mislead and confuse consumers, because the list price does not capture the actual out-of-pocket costs paid by most consumers and does not account for insurance coverage and patient assistance programs. Last, the industry claimed that the WAC Disclosure Rule compelled speech that violated the First Amendment.
Even though HHS admitted in the final rule preamble that the new requirement might “discourage patients from using beneficial medications, reduce access, and potentially increase total cost of care,” it rejected industry objections and moved forward with implementation of the WAC Disclosure Rule.
On June 14, 2019, Merck, Eli Lilly, Amgen and the Association of National Advertisers sued HHS seeking a Motion to Stay the effective date of the WAC Disclosure Rule, based on two theories — first, that the Final Rule is not a valid exercise of HHS’ rule-making authority under the SSA, and second, that the Final Rule compels speech in violation of the First Amendment.
In its opinion, the court readily acknowledged that the SSA contained no explicit delegation of authority allowing HHS to regulate the televised marketing of drugs. Absent an express grant of authority, the court looked for whether there was any “implicit” delegation of authority that would have allowed HHS to promulgate the WAC Disclosure Rule.
The court reviewed the text of the SSA and noted that Congress had granted broad authority to HHS to establish rules and regulations for running or managing the federal public health insurance programs through the Centers for Medicare & Medicaid Services. However, in adopting the WAC Disclosure Rule, HHS was attempting to regulate the conduct of parties that are not direct participants in federal health care programs, as well as to regulate the health care market and market actors that are not direct participants in government insurance programs. In doing so, HHS exceeded its statutory authority.
The court also affirmed that Congress already had the power to regulate prescription drug advertising and has specifically done so legislatively through the Federal Food, Drug, and Cosmetic Act. It opined that Congress could not have envisioned such an expansion of HHS’ regulatory authority when it granted HHS the power to issue regulations necessary to carry out the “efficient administration” of the Medicare and Medicaid programs.
Based on the analysis, the court found that HHS had exceeded its authority under the SSA and vacated the Final Rule.
Because the court found that there was no statutory basis for the WAC Disclosure Rule, it did not address the question of whether the rule violated the First Amendment.