In the immediate aftermath of a U.S. Supreme Court Term that featured stirring debates on administrative agencies’ proper place in the Constitution’s separation-of-powers scheme, it’s fitting that Judge Amit P. Mehta invalidated an ultra vires agency action. On July 8 in Merck & Co., Inc. v. U.S. Department of Health and Human Services, he held that a rule mandating drug-price disclosure in TV ads exceeded the implementing agency’s statutory authority. Three pharmaceutical manufacturers and an advertising trade group had challenged the rule on both administrative-law and First Amendment grounds.
We have written previously here about HHS’s idea to require disclosure of drugs’ “sticker price” in TV ads, which the agency floated in a “blueprint” on how government could lower prescription drug prices. Our analysis focused on the Food & Drug Administration’s lack of authority to impose such a rule and the mandate’s violation of drug makers’ and consumers’ speech rights.
We were quite taken aback when HHS announced through the proposed rule that the Center for Medicare and Medicaid Services, not FDA, would implement the mandate under its power to administer the Social Security Act (SSA). CMS openly admitted in the proposal that Congress had never granted it express authority to regulate the advertising of drugs subject to Medicare or Medicaid reimbursement. But the agency claimed that its power to mandate price disclosure fit comfortably within the SSA’s broad language.
HHS argued that because Congress granted it such sweeping authority to carry out the SSA, the court should evaluate the plaintiffs’ Administrative Procedure Act claim under the Supreme Court’s 1973 Mourning v. Family Publication Services, Inc. decision. Judge Mehta was nonplussed, replying (we’re of course paraphrasing here), “thanks, but I’ll use the standard from a more recent Supreme Court decision on Congress’s delegation of rulemaking authority. You didn’t cite it in your reply to plaintiffs’ motion, but it’s called Chevron v. NRDC.”
The opinion goes on to meticulously detail why the government’s claim of authority doesn’t make it past Chevron Step One:
Text of the SSA. The SSA, Judge Mehta explains, grants CMS the authority to “administer” Medicare and Medicaid, which means CMS can promulgate rules for “‘running’ and ‘managing’ the federal public health insurance programs.” Pharmaceutical manufacturers do not play a direct role in carrying out Medicare or Medicaid. Pricing decisions, Judge Mehta reasons, at best “impact program costs in an indirect way.” The SSA’s text thus doesn’t support HHS’s argument of implied authority to mandate price disclosure.
Congress’s Grant of Drug-Advertising Oversight Authority. Congress has addressed direct-to-consumer drug advertising not in the SSA, but in the Food, Drug, and Cosmetic Act (FDCA). The FDCA empowers FDA to draft rules on drug advertising, which the agency has done. Congress also amended the FDCA several times to specify what is and is not appropriate for drug ads. As Judge Mehta states, “Congress knows how to prescribe the content of drug advertising when it chooses to do so.”
Magnitude of the Subject Dictates Need for Specific Delegation. In 2016, “CMS and its beneficiaries spent $238 billion on prescription drugs.” In 2015 “Americans spent $457 billion on prescription drugs.” A rule that moves HHS and CMS into regulating “the marketing of products that comprise ‘a significant portion of the American economy,'” Judge Mehta reasons, cannot be based on general rulemaking authority. He also adds that “HHS has never before attempted to use the SSA to directly regulate the market for pharmaceuticals.”
The Executive Branch as a whole is clearly determined to force down the cost of prescription drugs. But as we’ve argued here previously, many proposed cures risk doing far more harm than good. A misleading price forced into a TV drug ad can distract consumers from vital safety and effectiveness information or reduce treatment utilization, outcomes that could harm patients and increase Medicare and Medicaid costs. In addition, legal arguments that would vastly expand the power of one administrative agency are at odds with the laudable ongoing efforts to reduce government mandates and return respect to the separation of powers.
HHS will no doubt appeal to the D.C. Circuit. Despite the thoroughness of Judge Mehta’s opinion, perhaps the agency could prevail. It would then have to return to Judge Mehta’s court and defend the rule against claims that it was promulgated in an arbitrary and capricious manner and that it violates the First Amendment. The plaintiffs, in our opinion, have solid arguments on both those claims. The wise choice, for HHS, for consumers, and for the rule of law, would be for the agency to withdraw the drug-price mandate and pursue other, lawful, avenues.
Also published by Forbes.com on WLF’s contributor page.