DC District Court Sides With Pharma Over WAC Rule

The U.S. federal government’s pressure on drug makers has ratcheted up considerably over the past few years and included a rule that would have forced pharmaceutical manufacturers to list the wholesale acquisition cost of their products in any direct-to-consumer ads. That effort on the part of the Trump administration came up short in a lawsuit heard recently in the U.S. District Court for the District of Columbia in a decision that went against the administration before the question of compelled commercial speech was even considered.

The Department of Health and Human Services and the Centers for Medicare & Medicaid Services said in the pricing disclosure final rule that the intent of the rule was to give Medicare beneficiaries “relevant information” about the cost of drugs so as to enable beneficiaries to minimize their out-of-pocket spending. The scope of the final rule included prescription drugs and biotech products as covered by both the Medicare and Medicaid programs, although the rule also acknowledged that manufacturers were at liberty to advise viewers that their final costs might differ from the wholesale acquisition cost (WAC).

Conversely, the litigants, which included the Association of National Advertisers and three pharmaceutical companies, argued that listing WACs in ads would not only confuse the drug price question for beneficiaries of both programs, but indeed that HHS had anticipated that the rule would actually mislead beneficiaries.

The court said in its decision that the plaintiffs put forth two arguments, the first of which was that the federal government had exceeded its authority in that the statute neither expressly nor implicitly granted the federal government the power to mandate such disclosures under the Social Security Act. Judge Amit Mehta said that given that the federal government had failed to pass this first hurdle, there was no need to review the question of the First Amendment challenge posed by the plaintiffs, which they had said revolved around the HHS’s failure to demonstrate that it could not achieve its ultimate objective by other means. The rule was set to go into force July 9, but the decision was published July 8, thus foreclosing any chance to enforce the rule.

Mehta indicated that attorneys for the federal government declined to cite Chevron U.S.A., Inc. v. Natural Defenses Resource Council, Inc., a defense that revolves around the proposition that when Congress speaks lucidly to the executive branch, some deference is owed to the executive branch’s efforts to act on that legislative imperative. Instead, attorneys for the federal government are said to have cited Mourning v. Family Publications Services, Inc., which provides a rather broader mechanism that is said to support the validity of regulatory actions so long as those actions can be construed to be “reasonably related” to the directing portion of the statute. Mehta would have none of it, however, indicating that Mourning is at best secondary to Chevron and ultimately insufficient to carry the government’s argument.

One of the problems with the executive branch’s argument in Mehta’s view was that the rule would have regulated the conduct of parties that are not direct participants in either the Medicare or the Medicaid programs. He stated further that the government’s argument that the statute allows the government to act in effort to “minimize unreasonable expenditures” falls flat because the statute does not empower the federal government to regulate the health care market itself or any actors therein as a means of reducing costs.

The predicament faced by CMS and HHS here is somewhat reminiscent of the fate of the least costly alternative policy under the twin cases of Hays v. Leavitt and Hays v. Sebelius, neither of which went the way the federal government had hoped. In that conflict, the Chevron defense was raised, albeit to little useful effect. Precisely where this latest outcome leaves the administration in its effort to tamp down on drug prices is difficult to forecast, but it might be noted that the FDA was for a number of years presumed to be the federal government agency in the best position to act on drug prices. Indeed, members of FDA advisory panels have proposed that costs should factor into their votes in support of or against an applicant product, but the FDA has never explicitly demonstrated any appetite for such authority, with or without the support of federal advisory committees.

A First Amendment First: Drug Prices in Ads

Most of the controversy surrounding the commercial speech question for FDA-regulated products has to do with government efforts to restrict speech, but the question of pricing transparency for pharmaceuticals is turning that question on its head. The idea has been floating around in Washington for some time now, but the issue has picked up pace recently via a provision in budget legislation that would set aside money for development of regulations.

The Department of Health and Human Services had floated the idea of prescription drug transparency in May under the Trump administration’s American Patients First proposal, and the FDA has convened a working group that will study the idea, even though there are questions as to the legality of such a requirement. Ironically, the FDA’s June 2018 payer communication draft guidance for drugs and devices stipulates that health care economic information should not be provided to prescribing physicians or to patients/consumers, seemingly putting the agency in something of a bind.

One of the more interesting plays in this dramatic series is a letter from five members of the U.S. Senate to several pharma CEOs, such as the  May 18 letter to the Pfizer CEO, Ian Read. The letter calls on the recipient to voluntarily disclose the prices for prescription drugs in DTC ads, but the signers are all members of the Democratic Party. However, Republican Chuck Grassley of Iowa teamed up with Democrat Dick Durbin of Illinois to insert the language that would fund the work needed to draft the related regulations, all as part of the recent spending bill for HHS and two other departments.

The Senate and the House of Representatives have yet to hash out the differences in their respective approaches to H.R. 6157, but some time will pass before any regulations are developed for this purpose, even if the bill is signed into law with this provision intact. The problem with that kind of information is obvious: The list price is not the price paid by those who are enrolled in some sort of health plan or a stand-alone prescription drug program, but that cost comparison might not be worth much if it does not include a comparison of the relative efficacy of the products available for that condition. That’s a fair amount of work for the practicing physician, let alone a patient who is entirely unprepared by virtue of training and/or experience to undertake such an analysis, particularly when the patient faces the crisis of a potentially lethal condition.

Several have questioned whether such a regulation could withstand the inevitable lawsuit, and one legal touchstone for this predicament may be the 1985 Supreme Court case of Zauderer v. Office of Disciplinary Counsel, which raises the question of whether the requirement is both unduly burdensome and “reasonably related” to the prevention of any deception of consumers. There are several other legal mechanisms by which this notion will be tested, but it is certain that any such regulations will be vigorously tested by one or more legal means.

Praise for PTO’s Iancu

The fate of the software patent in the age of Alice v. CLS Bank has been the subject of a number of desultory essays, but to hear it described by a member of the patent bar, the current director of the U.S. Patent and Trademark Office has reversed some of the Alice-in-Wonderland effects of Alice. This is of course an especially critical development in the age of digital medicine, which is one of several great hopes for medicine in this still-young century.

Patent attorney Rich Beem of Chicago writes at Patently-O that the February 2018 decision by the Federal Circuit in Berkheimer v. HP Inc. held that a claim cannot be invalidated for purported routineness or conventionality unless the challenger presents evidence to that effect. Beem assisted Intelligent Medical Objects of Northbrook, Il., regarding a patent that was rejected by a patent examiner and by the Patent Trial and Appeal Board, following which Breem’s firm filed for a hearing at the Federal Circuit in May. The PTO, Breem said, filed an unopposed motion to vacate the outcome at the PTAB hearing for the IMO patent, but this was not the only time in recent months in which the PTO moved to vacate a PTAB determination in the paradigm of Berkheimer.

Beem noted that PTO had issued guidance in April to address the outcome in Berkheimer, which he said makes clear that software patents cannot be rejected without evidence to support the grounds for that rejection. More PTO guidance and more examples of case law are en route, Beem said, but he applauded PTO director Andrei Iancu for the latter’s “recent acknowledgment of legal errors in final rejections” that had been appealed to the Federal Circuit. Still, Beem said, “skillful drafting and prosecution go a long way” toward securing patents for software that will prove critical to cybersecurity and to the flows of medical data that are an essential for development of modern pharmaceuticals and medical devices.