By Jeffrey H. Brochin, J.D.
HHS lacked the authority under the Social Security Act to adopt the WAC Disclosure Rule, which was set to go into effect on July 9, 2019.
A federal district court granted the motion to stay filed by three pharmaceutical companies and a trade organization that challenged HHS’ rule requiring drug manufacturers to disclose in any television advertisement the list price—also known as the wholesale acquisition cost (WAC)—of certain drugs. The rule would have applied if the list price of a 30-day supply of the advertised drug is more than $35 and the drug is covered under the Medicare or Medicaid programs. Known as the WAC Disclosure Rule, the court held that HHS lacked the statutory authority under the Social Security Act (SSA) to adopt the rule (Merck & Co., Inc. v. HHS, July 8, 2019, Mehta, A.).
Blueprint to lower drug prices. In May 2018, HHS issued a policy statement with a purpose to halt rising drug prices and to lower out-of-pocket expenses that Americans pay for pharmaceutical products. Five months after issuing the blueprint, HHS announced a proposed rule (83 FR 52789) that would require that direct-to-consumer television advertisements for prescription drug and biological products include the "list price" of the product for a 30-day supply, if the list price was more than $35 and the drug was covered under the Medicare or Medicaid program. Direct-to-consumer advertising is one way pharmaceutical manufacturers communicate with consumers to inform them of new products, raise disease awareness, and encourage consultation with health care providers. The WAC is the price that manufacturers set for sale to wholesalers before applying rebates or other price reductions.
Mandate to operate efficiently. The blueprint provided that HHS could utilize the FDA to evaluate the inclusion of list prices in direct-to-consumer advertising, and tasked CMS to carry out the functions. HHS acknowledged that Congress had not explicitly provided HHS with the authority to compel the disclosure of list prices to the public. However, HHS stated that Congress had explicitly directed HHS to operate Medicare and Medicaid programs efficiently, and that the Proposed Rule was designed to advance that directive by lowering the costs that public health insurance programs pay for prescription drug benefits. On May 10, 2019, HHS adopted the final WAC Disclosure Rule (84 FR 20732) over numerous objections raised by the pharmaceutical industry, and the instant lawsuit followed.
Statutory authority challenge. The main objection raised by the movants was that HHS lacked the legal authority to promulgate the rule under the SSA. In response, HHS identified two provisions of the SSA as the source of its rulemaking authority, including a provision that provides that the Secretary of HHS shall make and publish such rules and regulations as may be necessary to the efficient administration of the functions with which he or she is charged under that chapter. Similarly, §1871(a) states that the Secretary of HHS "shall prescribe such regulations as may be necessary to carry out the administration of the insurance programs under this subchapter." HHS defended its reliance on those general rulemaking provisions on the ground that the WAC Disclosure Rule’s objective was to lower drug costs, thereby promoting the efficient administration of Medicare and Medicaid.
No Congressional intent for the rule. The court noted that it did not question HHS’ motives in adopting the WAC Disclosure Rule, nor did it take any view on the wisdom of requiring drug companies to disclose prices, as the policy very well could be an effective tool in halting the rising cost of prescription drugs. However, despite how vexing the problem of spiraling drug costs is, HHS could not do more than what Congress authorized it to do. Accordingly, the court found that HHS lacked the statutory authority under the SSA tp adopt the WAC Disclosure Rule. Neither the Act’s text, structure, nor context evinced an intent by Congress to empower HHS to issue a rule compelling drug manufacturers to disclose list prices, and the WAC Disclosure Rule was therefore ruled invalid.
The case is No. 1:19-cv-01738-APM.
Attorneys: Benjamin W. Snyder (Latham & Watkins LLP) for Merck & Co., Inc., Eli Lilly and Co. and Amgen Inc. Joseph Evan Borson, U.S. Department of Justice, for the U.S. Department of Health and Human Services.
Companies: Merck & Co., Inc.; Eli Lilly and Co.; Amgen Inc.
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