Federal Judge Strikes Down New Drug Price Transparency Rule

A federal judge recently ruled in favor of a group of pharmaceutical companies challenging a new drug price transparency rule from HHS that required manufacturers to disclose wholesale acquisition cost on television advertisements.

But Judge Amit P. Mehta’s decision for striking down the rule - set to go into effect on July 9 - had less to do with the pharmaceutical companies and more of an emphasis on the power of the HHS to enact the rule.

 “It is the agency’s incursion into a brand-new regulatory environment, and the rationale for it, that make the rule so consequential,” Mehta wrote in his memorandum. “This case is not just about whether HHS can force drug companies to disclose their list prices in the name of lowering costs. Rather, the WAC Disclosure Rule represents a significant shift in HHS’s ability to regulate the health care marketplace. Congress surely did not envision such an expansion of regulatory authority when it granted HHS the power to issue regulations necessary to carry out the ‘efficient administration’ of the Medicare and Medicaid programs.”

The new drug price transparency rule mandated that if a prescription drug or biological product costs over $35 for a 30 day supply and is covered by Medicaid or Medicare, then pharmaceutical companies must issue a direct-to-consumer televised advertising of the drug’s list price. 

The pharmaceutical companies, however, argued in court that the rule violated their First Amendment rights by compelling them to disclose information. They also contended that publishing drug manufacturer costs would not benefit the majority of consumers because the wholesale acquisition cost is not the final price after patients use their insurance plans. 

However, the court was more convinced by the argument that HHS had no authority to enact and enforce the drug price transparency rule as the department did not have explicit direction from Congress to do so.

From the beginning, HHS was conscious of the impending dispute over its authority in the matter, stating in the original, proposed rule: “Congress has not explicitly provided HHS with authority to compel the disclosure of list prices to the public… [However,] Congress has explicitly directed HHS to operate Medicare and Medicaid programs efficiently.”

But Mehta found that the rule did not relate to HHS’ ability to operate the programs efficiently in the way that Congress intended.

HHS plans to return to the Department of Justice to discuss moving forward, HHS spokeswoman Caitlin Oakley told The Hill.

The rule was one of several recent legislative acts regarding healthcare and drug price transparency. As the healthcare industry and federal government seek relief from soaring drug prices and healthcare spending, policymakers are attacking the issue from all angles, requiring transparency from not only pharmaceutical companies but also payers and pharmacy benefits managers (PBMs).

For example, last month’s executive order established a 90-day timeline for HHS to develop a proposed rule that will require providers, insurance issuers, and self-insured group health plans to give patients access to out-of-pocket cost information before they receive care.

In May, Senate Finance Committee ranking member Ron Wyden (D-OR) also introduced a new bill--the Health Care Price Check Act of 2019--to impel every private and public payer to offer tools that allow patients to access pricing information and provider quality. Private insurers, Medicare, Medicare Advantage, and Medicare Part D plans would have to furnish an online tool and toll-free phone line for this purpose. 

While some payers have already implemented systems like this, the bill would make price transparency a requirement of all insurers and health plans.

The federal government is pushing forward with healthcare and drug price transparency efforts and the recent decision to strike down the rule does not signal a departure from or resistance to this trend toward greater transparency, Judge Mehta emphasized.

 “To be clear, the court does not question HHS’s motives in adopting the WAC disclosure rule,” he wrote in the memorandum. “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 AARP, however, believes that the ruling will set back the efforts to reduce drug pricing. 

July 10, 2019 - “Today’s ruling is a step backward in the battle against skyrocketing drug prices and providing more information to consumers,” Nancy LeaMond, AARP executive vice president and chief advocacy and engagement officer, said in a press release. “Americans should be trusted to evaluate drug price information and discuss any concerns with their health care providers. Despite drug industry efforts to derail needed steps to provide price transparency of its products, AARP stands with the president, Congress, and state governors and legislators as they work on bipartisan ways to lower high drug prices.”