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Merck & Co., Inc. v. United States Department of Health and Human Services

United States District Court, District of Columbia

July 8, 2019

MERCK & CO., INC., et al., Plaintiffs,


          Amit P. Mehta United States District Court Judge


         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.


         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 ...

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