By Jeffrey H. Brochin, J.D.
HHS acted unreasonably in construing its regulatory authority to include the imposition of a sweeping disclosure requirement that was "largely untethered" to the actual administration of the Medicare or Medicaid programs.
The D.C. Circuit court of appeals has affirmed the district court’s decision to set aside the HHS’ disclosure rule (84 FR 20732, May 10, 2019) that broadly required drug manufacturers to disclose in their television advertisements the wholesale acquisition cost (WAC)of many prescription drugs and biological products for which payment is available under Medicare or Medicaid. Although HHS is empowered to publish regulations that are deemed necessary to the efficient administration of Medicare and Medicaid programs, no reasoned statutory basis existed for this far-flung reach (Merck & Co. v. HHS, June 16, 2020, Millett, CJ).
Disclosure rule. Following the statutory notice and comment process, CMS published the disclosure rule that required pharmaceutical manufacturers to disclose pricing information in all of their television advertisements for any prescription drugs or biological products distributed in the United States for which payment was available, directly or indirectly, under Medicare or Medicaid. Specifically, television advertisements for covered pharmaceuticals had to include a textual statement disclosing the current list price for a typical 30-day regimen or for a typical course of treatment, the only exception being for drugs with a list price of less than $35 per month for a 30-day supply or typical course of treatment.
On June 14, 2019, several pharmaceutical manufacturers as well as the Association of National Advertisers, Inc., filed suit challenging the lawfulness of the disclosure rule, alleging that it violated the Administrative Procedure Act (APA). The district court agreed and set aside the rule, and the instant appeal followed.
CMS’s rulemaking authority. The appeals court noted that the case involved two provisions of the Social Security Act: 42 U.S.C. §1302(a) and 42 U.S.C. § 1395hh(a)(1) both require the HHS Secretary to establish regulations to allow for the administration of the Medicare and Medicaid programs. The disclosure rule identified these sections as the sources of authority for the obligations it imposed, and in the department’s view, the rule fell within those provisions because it would improve the efficient administration of the Medicare and Medicaid programs by improving drug price transparency and informing consumer decision-making, both of which can increase price competition and slow the growth of federal spending on prescription drugs.
Administration, running, and managing. The district court held that both §1302(a) and §1395hh(a)(1) authorize the Secretary only to undertake the administration of the Medicare and Medicaid statutes, and that those general grants of authority are limited to establishing rules and regulations for running or managing the federal public health insurance programs. The district court concluded that the rule exceeded that authority by regulating market actors (such as pharmaceutical manufacturers) that were not direct participants in the Medicare or Medicaid programs. The court further found that the rule regulated primary conduct several steps removed from the heart of HHS’ authority under the Social Security Act.
Necessary to efficient administration. The appeals court agreed with the district court’s reasoning, adding that for a regulation to be necessary to the programs’ administration, HHS 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.
By contrast, the disclosure rule regulated advertising directed at the general public and not communications targeted specifically, or even predominantly, to Medicare or Medicaid recipients. That further increased the distance between the disclosure rule and any actual administration of those programs. Standing alone, that factor might not have foreclosed HHS’ interpretation of its authority, but it opened another fissure between the required disclosure and the programs’ administration, particularly when combined with the marginal relevance of the wholesale acquisition cost in the first place.
Based on the foregoing, the appeals court concluded that no reasonable reading of HHS’ general administrative authority allowed the Secretary to command the disclosure to the public at large of pricing information that bore at best, a tenuous, confusing, and potentially harmful relationship to the Medicare and Medicaid programs. Accordingly, it affirmed the decision of the district court setting aside the disclosure rule.
The case is No.: 19-5222.
Attorneys: Richard Paul Bress (Latham & Watkins LLP) for Merck & Co., Inc. and Eli Lilly and Co. Robert Phillip Charrow for U.S. Department of Health and Human Services and Centers for Medicare and Medicaid Services.
Companies: Merck & Co., Inc.; Eli Lilly and Co.; U.S. Department of Health and Human Services; Centers for Medicare and Medicaid Services
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