Rule to Require Drug Prices in TV Ads Found Invalid

July 9, 2019By Serra J. Schlanger

On July 8, 2019, U.S. District Court Judge Amit P. Mehta struck down a recently finalized Centers for Medicare & Medicaid Services (CMS) rulethat would have required drug pricing disclosures to be included in television advertisements for certain prescription drugs and biological products (the “Price Disclosure Rule”) (see our overview of the Rule here).  Judge Mehta’s decisioncame the day before the Price Disclosure Rule was set to take effect.

As we previously reported (here), three pharmaceutical companies (Merck, Eli Lily, and Amgen) and a trade association (the Association of National Advertisers) filed a lawsuit in June challenging the validity of the Price Disclosure Rule.  The companies argued that the Department of Health and Human Services (HHS) exceeded its authority in promulgating the Price Disclosure Rule, and that the Price Disclosure Rule is compelled speech that violates the First Amendment.  HHS had argued that two provisions of the Social Security Act (SSA) gave CMS authority to adopt the Price Disclosure Rule.

Though acknowledging that HHS may have a valid motive for issuing the Price Disclosure Rule, Judge Mehta found that HHS lacks the statutory authority to do so.  When the Price Disclosure Rule was issued, HHS acknowledged that the SSA did not expressly grant HHS the authority to “compel the disclosure of list prices to the public.”  As such, the Court analyzed whether Congress implicitly delegated such authority to HHS.  The Court looked to the language of the SSA and concluded that, although the SSA grants HHS general rulemaking authority related to the administration of the Medicare and Medicaid programs, that authority does not extend to regulating the marketing of prescription drugs, particularly because pharmaceutical manufacturers are “market actors that are not direct participants in the Medicare or Medicaid programs.”

The Court explained that HHS has never previously attempted to use the SSA to directly regulate the market for pharmaceuticals.  The Court recognized that Congress has previously legislated on the advertising of pharmaceutical products under the Federal Food, Drug, and Cosmetic Act (FDCA).  The Court also pointed to HHS’ “Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs”, which stated that HHS may “[c]all on the FDA to evaluate the inclusion of list prices in direct-to-consumer advertising.”  The Court reasoned that “HHS at first believed that the FDA, presumably under the FDCA, would be the proper sub-agency through which to promulgate the [Price] Disclosure Rule, as opposed to CMS under the SSA.”  The Court ultimately determined that the Price Disclosure Rule was “far afield” of HHS’ rulemaking authority under the SSA.  As such, the Court concluded that HHS had exceeded its authority and the Price Disclosure Rule was deemed invalid and set aside.  Due to this disposition, the Court did not address the First Amendment argument.

We will continue to monitor this case and other efforts to address drug pricing.