Court Stays Rule Requiring Price Disclosures in DTC TV Ads

J.W. Schomisch
July 9, 2019 at 08:41 AM EST
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A federal district court found the Department of Health and Human Services (HHS) “lacks the statutory authority under the Social Security Act (SSA)” to require drug manufacturers to disclose wholesale acquisition cost (WAC) prices in direct-to-consumer television ads.

“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 Rule is therefore invalid,” the U.S. District Court for the District of Columbia said July 8 in granting three drug companies' Motion to Stay (Merck & Co., Inc., et al, v. U.S. Department of Health and Human Services, et al, (19-cv-01738 (APM), July 8, 2019).

In May, the Centers for Medicare & Medicaid Services (CMS) released the final rule that required DTC television advertisements of prescription drugs and biological products for which payment is available through or under Medicare or Medicaid to include the WAC or list price of that drug or biological product.

In June three drug companies – Amgen, Merck and Eli Lilly – and the Association of National Advertisers sued the federal government to stop the requirement. The lawsuit contends the rule “exceeds HHS’s statutory authority, violates the First Amendment, and should therefore be set aside.”

In its ruling, the court said it did not reach the Plaintiffs’ First Amendment challenge. “To be clear, the court does not question HHS’s motives in adopting the WAC Disclosure Rule. Nor does it take any view on the wisdom of requiring drug companies to disclose prices. That policy 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 responsibility rests with Congress to act in the first instance.”

“There is no dispute here as to whether the SSA expressly grants HHS the authority to compel pharmaceutical companies to disclose the wholesale price of a marketed drug in television advertisements. It does not. The SSA contains no explicit delegation of authority to HHS to regulate the televised marketing of drugs,” the ruling said. Absent an express grant of authority to regulate, the court must determine whether Congress ‘would [have] expect[ed] [HHS] to be able to speak with the force of law’ when it promulgated the WAC Disclosure Rule.”

“To figure out whether such an implicit delegation exists … courts must rely on the ‘traditional tools of statutory construction,’ including ‘the statute’s text, legislative history, and structure, … as well as its purpose. … But those are not the only available tools,” the court noted. “Additional factors include “the interstitial nature of the legal question, the related expertise of the agency, the importance of the question to administration of the statute, the complexity of that administration, and the careful consideration the agency has given the question over a long period of time.” Finally, “the subject matter of the relevant provision – for instance, its distance from the agency’s ordinary statutory duties or its falling within the scope of another agency’s authority – has also proved relevant.”  

 “In the end, the court must decide ‘whether Congress delegated authority to the agency to provide interpretations of, or to enact rules pursuant to, the statute at issue.’ Having applied the tools of statutory interpretation here, the court finds that HHS’s adoption of the WAC Disclosure Rule exceeds the rulemaking authority that Congress granted the agency under the SSA.”

What Does the Statute Say?

The court noted HHS identified Sections 1102 and 1871 of the SSA as the source of its rulemaking authority.

Section 1102(a) provides that “the Secretary of HHS shall make and publish such rules and regulations, not inconsistent with this chapter, as may be necessary to the efficient administration of the functions with which [he] is charged under this chapter, as may be necessary to the efficient administration of the functions with which” the Secretary is charged by the statute, including the Medicare and Medicaid programs. In addition, “the Secretary shall prescribe such regulations as may be necessary to carry out the administration of the insurance programs.”

“These are broad grants of rulemaking authority,” the court said. “About that there is no real dispute. But the words used by Congress matter.”

The court noted the companies focused on the word “necessary’ in the provisions, but the court said “the more important word, in the court’s view, however, is ‘administration.’”

The court said that through the statute Congress give the Secretary the power “to establish rules and regulations for ‘running’ or ‘managing’ the federal public health insurance programs,” but that “HHS seeks to do more than that here. It has adopted a rule that regulates the conduct of market actors that are not direct participants in the Medicare or Medicaid programs.”

And while their pricing decisions “affect the cost of pharmaceutical benefits offered under the Medicare and Medicaid programs, those decisions impact program costs in an indirect way. The plain statutory text simply does not support the notion – at least not in a way that is textually self-evident – that Congress intended for the Secretary to possess the far-reaching power to regulate the marketing of prescription drugs.”

HHS also argued “[b]oth Titles XVIII and XIX of the Social Security Act reflect the importance of administering the Medicare and Medicaid programs in a manner that minimizes unreasonable expenditures.”

“HHS contends that these provisions show that, because Congress gave the agency power to make rules designed to control costs, the WAC Disclosure Rule fits comfortably within the agency’s authority,” the court said. “But a close inspection of these provisions tells a different story.”

For instance, Sections 1842(b)(8) and (b)(9) require HHS to promulgate regulations describing the factors that it will use in determining reimbursement requests that are “grossly excessive” or “grossly deficient” and thus not “inherently reasonable,” and to consult with health care providers who submit such requests. In addition, Section 1860D-4(c)(3) directs HHS to require prescription drug plan sponsors to dispense covered Part D drugs in a manner that reduces waste associated with 30-day fills and Section 1860D-4(c)(5)(H) commands HHS to establish rules and procedures to identify at-risk beneficiaries who are using prescription drugs “outside normal patterns,” which “may indicate fraudulent, medically unnecessary, or unsafe use.”

Section 1866(j)(2)(A) concerns procedures for enrolling and screening new providers and suppliers and Sections 1893(g), 1902(a)(64), and 1936(b)(2) are all directed to programs or practices designed to prevent and combat fraud, waste, and abuse.

“Other parts of the SSA that expressly address the ‘administration’ of the programs are to the same effect,” the court said. “What these provisions have in common is this: each contains a congressional directive that concerns the day-to-day running and operation of Medicare and Medicaid as public health insurance programs, and each is directed in some way to a program participant or the program itself. None authorize HHS, in the name of attempting to reduce the costs, to regulate the health care market itself or market actors that are not direct participants in the insurance programs. 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 concluded. “Thus, when viewed as a whole, the SSA unambiguously does not delegate to HHS the power to promulgate the WAC Disclosure Rule.”

HHS also contended Congress’s delegation of general rulemaking power under the SSA, combined with the absence of a clear statutory restriction, demonstrated that Congress intended for the agency to regulate broadly on subjects affecting the costs of the Medicare and Medicaid programs.

However, “an agency’s general rulemaking authority plus statutory silence does not, however, equal congressional authorization,” the court said. “Congress empowered HHS to ‘administer’ the public health insurance programs. That grant of rulemaking authority does not sweep so broadly as to authorize HHS to regulate the marketing of prescription drugs. Nor does the absence of an express limitation of authority establish HHS’s capacity to act,” the ruling said.

“There is nothing in the SSA that reflects congressional intent to vest in HHS the power to compel pharmaceutical companies to disclose the WAC in direct-to-consumer television advertising. Therefore, the SSA’s absence of an express limitation does not enable HHS to arrogate to itself the power to regulate drug marketing as a means of improving the efficiency of public health insurance programs,” the court said.

The court also found that “there is no statutory basis in the SSA that empowers HHS to regulate the television marketing of prescription drugs.”

“The mere absence of an express statutory restriction is not a blank check to regulate on any subject matter that might conceivably advance a legislative purpose. The means chosen by Congress to effectuate legislation matters,” the court said. “There is nothing in the text or structure of the SSA that conveys Congress’s intent to permit HHS to accomplish the efficient administration of the Medicare and Medicaid programs through the compelled disclosure of wholesale drug prices in television advertisements. Therefore, HHS cannot rely upon the mere absence of the kind of statutory structural feature … to establish congressional intent to allow it to make rules in the area of drug marketing. An agency cannot appropriate the power to regulate simply because Congress has not explicitly taken that power away.”

Congress Uses FDCA To Regulate Drug Ads

The court noted since Congress enacted the SSA in 1935, it “has legislated on the subject of direct-to-consumer advertising of pharmaceutical products multiple time under a different statute – the Food, Drug, and cosmetic Act (FDCA). … Under the FDCA, Congress has vested in HHS the power to regulate drug advertising to ensure that direct-to-consumer advertisements are truthful and communicate relevant information concerning a drug’s benefits and risks.”

Subsequently, Congress has amended the FDCA to: impose content requirements for prescription drug advertisements; require advertisements to contain the established name of the drug, the drug’s ingredients, and other information in brief summary related to side effects, contraindications, and effectiveness; mandate published DTC prescription drug ads contain contact information for the FDA so consumers can report adverse side effects; and prescribe the minimum content for television advertisements of a particularly toxic category of drugs that must be administered by physicians.

“As these amendments to the FDCA demonstrate, Congress knows how to prescribe the content of drug advertising when it chooses to do so,” the court concluded.

In addition, “Congress has directly addressed the subject of television drug advertising and pre-review of such advertisements. Yet, for decades Congress has not addressed the disclosure of drug prices,” the court said.

“Congress deliberately and precisely legislated in the area of drug marketing under the FDCA. Such purposeful action demonstrates that Congress knows how to speak on that subject when it wants to. It is therefore telling that the SSA contains no provisions concerning drug marketing.”

The court also found that “it is clear that the WAC Disclosure Rule moves HHS and CMS into regulating the marketing of products that comprise a significant portion” of the U.S. economy. “Common sense dictates that Congress would not have authorized such a dramatic seizure of regulatory power based solely on general rulemaking authority und the SSA.”

“Further, it is not lost on the court that HHS has never before attempted to use the SSA to directly regulate the market for pharmaceuticals. Sure, there is a first time for everything,” however, it appears that “HHS did not discover its purported authority to regulate drug marketing under the SSA until soon before HHS proposed the WAC Disclosure Rule in October 2018.”

The court noted the administration’s Blueprint for reducing drug prices in May 2018 called on “the FDA to evaluate the inclusion of list prices in direct-to-consumer advertising,” yet five months later “CMS became the issuing sub-agency. It thus would seem that HHS at first believed that the FDA, presumably under the FDCA, would be the proper sub-agency through which to promulgate the WAC Disclosure Rue, as opposed to CMS under the SSA,” the court said. “The WAC Disclosure Rule feels like agency action in search of a statutory home.”

HHS also contended the rule would only impose an “exceedingly modest” cost to industry.

“To be sure, the costs imposed by the WAC Disclosure Rule amount to a rounding error for the pharmaceutical industry. But that argument misses the point. It is the agency’s incursion into a brand-new regulatory environment, and the rationale for it, that make the Rule so consequential,” the court said.

“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. Indeed, the agency identifies no limiting principle, aside from an express statutory withholding of authority. So, 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. Congress surely did not envision such an expansion of regulatory authority when it granted HHS the power to issue regulations necessary to carry out the ‘efficient administration’ of the Medicare and Medicaid programs,” the court concluded.

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