By Howard L. Dorfman, an Adjunct Professor at Seton Hall University School of Law who previously served as general counsel or chief legal officer for several pharmaceutical manufacturers.

Last fall, the Centers for Medicare and Medicaid Services (CMS) proposed a rule requiring Direct-to-Consumer (DTC) television advertisements for prescription drugs and biologic products subject to Medicare or Medicaid reimbursement to include the product’s current list price in the form of its Wholesale Acquisition Cost (WAC). 83 Fed. Reg. 52791 (Oct. 15, 2018). However well-intentioned, the proposal exceeds the authority Congress provided to CMS, violates the First Amendment, and poses significant public-health concerns.

CMS ostensibly developed the disclosure mandate to establish a level of transparency in the prescription-drug arena for the patient-consumer. Premised on the long-held belief that television advertising has a direct impact on patient demand for newer and presumably more expensive therapeutic options—thereby adding to the government’s reimbursement burden—the proposed rule would purportedly inject an element of “comparative shopping” into drug purchases. And in a broader sense, CMS is attempting to achieve what Congress has long pursued: limit DTC advertising. See Thomas Sullivan, Senate Introduces Bill Eliminating the Tax Deduction for DTC Advertising, Policy and Medicine, Mar. 16, 2016; Joe Mont, Senate Bill Would Restrict Pharmaceutical Advertising, Compliance Week, Jan. 11, 2019. Opponents of congressional action have argued that regulation of DTC advertising raises significant constitutional issues and, by intruding in the doctor-patient relationship, would undermine public health. CMS’s proposal similarly suffers from those shortcomings and adds an additional concern: the agency lacks the authority to promulgate such a rule.

On the question of agency authority, CMS in fact acknowledges that any proposed regulation must first have a “valid grant of authority from Congress.” Notice, 83 Fed. Reg. at 52790. Further, the agency concedes that Congress has never expressly granted it the authority to require disclosure of drug prices for prescription-drug ads. CMS instead relies on the more general language of the Social Security Act, which provides “broad rule-making authority” for CMS to promulgate regulations “as may be necessary” to implement provisions of the Act. Id. at 52790-91. CMS argues, in turn, that price disclosure is “necessary” for the efficient operation of the national reimbursement process for prescription drugs.

Even a cursory examination of the legal authority CMS cites to support its power to mandate disclosure, however, clearly reveals the flaws in the proposal’s legal analysis. In FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000), the Supreme Court held that the Food and Drug Administration (FDA) lacked the requisite authority to regulate aspects of tobacco commercialization, including labeling, in the absence of an express grant of specific congressional authority. The need for a clear and unambiguous grant of authority assumes even greater importance in circumstances where the proposed rule would in effect regulate speech. When faced with an analogous situation, the court in Motion Picture Association of America v. FCC, 309 F.3d 796 (D.C. Cir. 2002), found that the FCC could not issue speech regulations based solely on the broad statutory language that provides the agency latitude to issue regulations described as necessary to perform its general activities. An Administrative Procedure Act challenge of the CMS rule based on the agency’s lack of authority would thus likely succeed.

Even assuming arguendo that the agency has the necessary statutory authority to require list-price disclosure, the proposed rule faces a more significant hurdle in the form of the First Amendment. CMS argues that the requirement merely demands disclosure of factual, non-controversial information that helps consumers make a choice. That type of mandate survives the lower level of scrutiny enunciated in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985). The Supreme Court carved out an exception in Zauderer for corrective disclosure rules because the speech at issue there was misleading and created consumer confusion. A DTC ad that fails to inform consumers about the drug’s price is not misleading, and thus a disclosure rule is not needed to alleviate consumer confusion. In fact, as discussed further below, any representation that the WAC is the actual price consumers pay is misleading or false, and thus a potential source of confusion.

Because the Zauderer exception would not extend to the CMS mandate, a court would thus analyze a final rule under the test prescribed by the Supreme Court in Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of New York, 447 U.S. 557 (1980). Central Hudson’s progeny have accorded commercial speech an increasing degree of protection and include a decision involving the commercial use of pharmaceutical prescriptions.  See IMS Health Inc. v. Sorrell, 564 U.S. 552 (2011). The Central Hudson test permits regulation of truthful, non-misleading commercial speech only when (1) the government’s interest is substantial; (2) the regulation directly advances the interest in a material way; and (3) the regulation does not extend beyond that which is required to accomplish the established purpose. Though a court would likely find CMS is advancing a substantial interest, the price-disclosure mandate does not directly advance that interest.

The misleading nature of the required pricing information thoroughly undermines the direct advancement of CMS’s goals of introducing comparative shopping into the choice of treatments and reducing consumer confusion. The drug-pricing process in the United States includes a combination of discounts, independent third-party entities, various financial programs and other factors. Company-sponsored Patient Assistance Programs, co-insurance, and co-pay initiatives, as well as a matrix of public and private insurers, must also be factored into the price. CMS is aware that these complexities render WAC essentially meaningless to the average consumer who, thanks to those discounts and other factors, is highly unlikely to pay the “sticker” price. CMS also knows that if consumers wish to consider the WAC information, that information is publicly available. CMS offers no evidence that patients have in fact sought out the WAC data or that the list price influenced their drug choice.

Finally, in addition to exceeding the agency’s authority and treading on First Amendment rights, CMS’s proposal could deter patient visits to their doctor and chill conversations about treatments. DTC advertising has grown despite FDA’s decades-long effort to curb it. The Food, Drug and Cosmetic Act dictates the type of information to be offered, the manner of presentation, and a “fair balance” between efficacy and potential adverse events—micromanagement that few advertisers would tolerate. Yet, pharmaceutical manufacturers have adapted to those restrictions and disseminate useful product and disease-state information.

The proposed rule’s addition of the price to the TV ads could completely obscure the positive treatment information, redirecting consumers’ attention to what is likely a vastly inflated cost. Perhaps this is CMS’s actual goal—imposing “sticker shock” on consumers that may force manufactures to lower their prices. Consumers who are confused by the price and concerned with the costs would be less likely to seek professional care. Since studies have shown that DTC advertising can motivate patients to access care and potentially have asymptomatic conditions diagnosed, any regulation that could impede such access will have severe consequences for patient care and societal health.

While the stated purposes behind the proposed CMS rule—empowering patients and lowering prescription-drug costs—are laudable goals, the method the agency proposes not only fails to directly address these issues, it violates the First Amendment and the Administrative Procedure Act. Further, exposing consumers to misleading or false pricing information will erode the physician-patient relationship, a vital component of our already challenged healthcare system.