MEMORANDUM OPINION
Amit
P. Mehta United States District Court Judge
I.
INTRODUCTION
In May
of 2019, the U.S. Department of Health and Human Services
(“HHS”) published a final rule that regulates the
marketing of prescription drugs. The rule requires drug
manufacturers to disclose in any television advertisement the
list price-also known as the wholesale acquisition cost-of a
30-day supply of the drug (“WAC Disclosure
Rule”). The cost of prescription drugs has been
increasing for years, and because of its role as health
insurer for millions of Americans through the Medicare and
Medicaid programs, the United States government is the single
largest payor of prescription drugs in the nation. HHS
adopted the WAC Disclosure Rule to “introduce[ ] price
transparency that will help improve the efficiency of the
Medicare and Medicaid programs by reducing wasteful and
abusive increases in drug and biological product list
prices.” HHS pointed to its general power under the
Social Security Act to make rules necessary for the efficient
administration of the Medicare and Medicaid programs as the
source of its authority to issue the Rule. The WAC Disclosure
Rule will go into effect on July 9, 2019.
Plaintiffs
in this case are three drug manufacturers and a marketing
trade association that contend that the WAC Disclosure Rule
is unlawful. Plaintiffs advance two primary arguments. First,
they argue that the Rule exceeds HHS's authority, because
Congress neither expressly nor impliedly granted HHS the
power under the Social Security Act to regulate drug
marketing. Second, they maintain that the WAC Disclosure Rule
is compelled speech that violates the First Amendment.
Plaintiffs have asked the court to halt the WAC Disclosure
Rule before it goes into effect.
Federal
agencies typically enjoy expansive authority from Congress to
formulate rules that have the force of law in areas germane
to the statutes that they implement. But such authority is
not unbounded. For a regulation to have the force of law,
Congress must communicate through legislation, either
expressly or impliedly, its intent for the agency to make
rules in that specific area. When Congress has not
communicated such intent, the agency has no power to act.
The
court finds that HHS lacks the statutory authority under the
Social Security Act to adopt the WAC Disclosure Rule. 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. In view of this holding, the court does not reach
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.
For the
reasons addressed below, the court declares the WAC
Disclosure Rule invalid and sets aside the Rule.
II.
BACKGROUND
A.
The Proposed Rule
In May
2018, the Department of Health and Human Services
(“HHS”) issued a policy statement titled
“Blueprint to Lower Drug Prices and Reduce
Out-of-Pocket Costs” (“the Blueprint”). 83
Fed. Reg. 22, 692 (May 16, 2018). The Blueprint's stated
purpose was to halt rising drug prices and to lower
out-of-pocket expenses that Americans pay for pharmaceutical
products. See Id. at 22, 692. As one possible
action, HHS announced that it would “[c]all on [the
Food and Drug Administration (“FDA”)] to evaluate
the inclusion of list prices in direct-to-consumer
advertising.” Id. at 22, 695.
Direct-to-consumer advertising is one of the most important
ways pharmaceutical manufacturers communicate with consumers
to inform them of new products, raise disease awareness, and
encourage consultation with health care providers. Compl.,
ECF No. 1 [hereinafter Compl.], ¶ 34.
Five
months after issuing the Blueprint, in October 2018, HHS
published a Notice of Proposed Rulemaking titled
“Medicare and Medicaid Programs; Regulation to Require
Drug Pricing Transparency.” 83 Fed. Reg. 52, 789 (Oct.
18, 2018). The Notice announced a Proposed Rule that would
require direct-to-consumer television advertisements for
prescription drug and biological products to include the
“list price” of the product for a 30-day supply,
if the list price is more than $35 and the drug is covered
under the Medicare or Medicaid program. Id. at 52,
789, 52, 799. The “list price” is a price that
manufacturers set for sale to wholesalers before applying
rebates or other price reductions. See Compl. ¶
52. The “list price” is also known in the
industry as the Wholesale Acquisition Cost
(“WAC”). See Id. at ¶¶ 4, 7.
The Proposed Rule would require covered television
advertisements to contain the following statement: “The
list price for a [30-day supply of] [typical course of
treatment with] [name of prescription drug or biological
product] is [insert list price]. If you have health insurance
that covers drugs, your cost may be different.” 83 Fed.
Reg. at 52, 799.
One of
the unexpected features of the Proposed Rule was the HHS
sub-agency that issued it. The Blueprint stated that HHS may
“call on the FDA to evaluate the inclusion of list
prices in direct-to-consumer advertising.” 83 Fed. Reg.
at 22, 695. The issuing agency, however, turned out to be the
Centers for Medicare & Medicaid Services
(“CMS”), acting pursuant to its rulemaking
authority under the Social Security Act (“SSA”).
See Id. at 52, 791-92. HHS acknowledged that
“Congress has not explicitly provided HHS with
authority to compel the disclosure of list prices to the
public.” Id. at 52, 791. Yet, it
“concluded that the proposed rule has a clear nexus to
the Social Security Act.” Id. HHS explained
that “Congress has explicitly directed HHS to operate
Medicare and Medicaid programs efficiently, ” see
id., 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,
see Id. at 52, 791-92.
B.
The Final Rule
On May
10, 2019, HHS announced that it had decided to finalize the
Proposed Rule with minor modifications. See Medicare and
Medicaid Programs; Regulation to Require Drug Pricing
Transparency, 84 Fed. Reg. 20, 732 (May 10, 2019). The
court will refer to the final rule as the “WAC
Disclosure Rule.” Consistent with the Proposed Rule,
the WAC Disclosure Rule requires the disclosure of drug
prices. See Id. Specifically, direct-to-consumer
television advertisements of drugs covered by the Medicare
and Medicaid programs must communicate the list price, or
WAC, for a 30-day supply of the drug, if it costs more than
$35 per month. See Id. HHS set the effective date of
the WAC Disclosure Rule as July 9, 2019. See id.
HHS
adopted the WAC Disclosure Rule over numerous objections
raised by the pharmaceutical industry. See Id. at
20, 735. Two primary objections are the focus of this action.
The
first was that HHS lacks the legal authority to promulgate
the Rule under the SSA. See Id. at 20, 735-36. In
response to this criticism, HHS identified two provisions of
the SSA, Sections 1102 and 1871, as the source of its
rulemaking authority. See Id. at 20, 736. Section
1102(a) provides in pertinent part: 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.” 42 U.S.C. § 1302(a).
Similarly, Section 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.” Id. §
1395hh(a)(1). HHS defended its reliance on these 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.” See 84 Fed. Reg. at 20, 736.
The
second major objection concerned use of the WAC as the
advertised price. The industry asserted that referring to the
WAC risked misleading and confusing consumers, as the WAC
rarely captures the actual out-of-pocket costs that most
Americans pay for drug products due to, among other things,
insurance coverage and patient assistance programs. See
Id. at 20, 739- 42. HHS responded that the WAC was a
recognized benchmark of cost within the industry and
correlated with out-of-pocket expenses, and that its
disclosure would create an opportunity for patients to
discuss the cost of drugs with their physicians. See
Id. at 20, 739. HHS further stated that the second
sentence of the disclosure-advising that if the buyer has
health insurance, the cost of the drug may be different-would
mitigate any confusion. See Id. at 20, 741. It
therefore dismissed the industry's concern. Id.
The
industry's opposition to using the WAC also manifested
itself as a First Amendment argument. See Id. at 20,
743-48. The challengers argued that the WAC Disclosure Rule
was compelled speech that violated the First Amendment.
See Id. at 20, 743-44. The forced disclosure, they
maintained, did not pass muster under the intermediate
scrutiny standard articulated by the Supreme Court in
Central Hudson Gas & Electric Corp. v. Public Service
Commission of New York, 447 U.S. 557 (1980), or the more
relaxed standard used in Zauderer v. Office of
Disciplinary Counsel of the Supreme Court of Ohio, 471
U.S. 626 (1985). See Id. at 20, 744. HHS rejected
these arguments, finding that the WAC Disclosure Rule
satisfied both tests. See id.
B.
Procedural History
1.
This Action and the Motion to Stay
Plaintiffs
in this case are three pharmaceutical companies-Merck &
Co., Inc.; Eli Lilly and Company; and Amgen Inc.-and the
National Association of Advertisers, Inc., a membership
organization focused on “promot[ing] and protect[ing]
the well-being of the marketing community.” Compl.
¶ 21. Plaintiffs filed their Complaint on June 14, 2019,
approximately five weeks after the Final Rule's
publication. See Compl. They named as
defendants HHS; Alex M. Azar II, the Secretary of HHS in his
official ...