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.