Pharmaceutical Manufacturers Argue Price Disclosure Rule Will Mislead Consumers

The pharmaceutical industry has filed a lawsuit challenging a recently finalized rule from the Centers for Medicare & Medicaid Services (CMS) which requires drug pricing disclosures in television advertisements for certain prescription drugs and biological products (the Final Rule).  In an effort to block the rule from going into effect on July 9, 2019, Merck, Eli Lilly, Amgen, and the Association of National Advertisers, Inc., filed a lawsuit on June 14, 2019 in the D.C. District Court seeking a declaratory judgment that the Final Rule is invalid under the First Amendment and the Administrative Procedure Act.

The Final Rule

By way of background, the Final Rule requires that any advertisement on TV for most prescription drugs or biological products for which reimbursement is available under Medicare or Medicaid must include the following statement:

The list price for a [30-day supply of] [typical course of treatment with] [name of prescription drug or biological product] is [insert price]. If you have health insurance that covers drugs, your cost may be different.

The “list price” to be inserted is the Wholesale Acquisition Cost, or WAC, which is defined as the manufacturer’s published list price for the most recent month available, not including discounts or rebates.  For a more detailed overview of the Final Rule, see our previous post here.

The Lawsuit

The Complaint argues that the required disclosure, rather than achieving increased drug pricing transparency, will instead lead to consumer confusion and may discourage patients from seeking valuable information regarding treatment options.  This is because the WAC price differs significantly from the actual out-of-pocket expense incurred by patients, which can vary based on insurance coverage, deductibles, and copay requirements.  According to the Complaint, HHS is willing to “discourage patients from using beneficial medications,” as a means to reduce Medicare and Medicaid expenditures on pharmaceutical products.

The promulgation of this Final Rule, plaintiffs argue, exceeds HHS’s statutory authority and violates their First Amendment rights.  Specifically, plaintiffs note that HHS originally looked to the Food and Drug Administration to adopt a price disclosure requirement under the Federal Food, Drug, and Cosmetic Act (FDCA).  When it became clear the FDCA does not authorize price disclosure mandates, HHS invoked its rule-making powers under the Social Security Act.  Plaintiffs argue that Congress never intended for HHS to have the authority to regulate drug pricing disclosures and, in doing so, HHS is attempting to “sidestep the limitations of the statute that actually governs this specific area.”  Complaint at 26.

With respect to the First Amendment, plaintiffs point to the “heavy burden” the government must bear in justifying compelled speech in the commercial arena by showing that the regulation “directly and materially advances a substantial government interest that could not be served just as well by means that do not regulate speech to the same degree.”  Id.at 28.  HHS cannot meet this burden, plaintiffs argue, because the Final Rule, in fact, frustrates a substantial government interest by essentially misleading consumers about their out-of-pocket costs.  Id.at 28-29.

Also on June 14, 2019, plaintiffs filed a Motion for Stay Pending Judicial Review, seeking to stay the effective date of the rule pending the resolution of the lawsuit challenging its validity, as well as a Motion to Expedite judicial review.  The Court approved an expedited briefing schedule and set the matter for hearing on July 2, 2019 at 2:00pm.  In the briefing schedule, the Court indicated its intent to issue a decision by July 8, 2019, one day prior to the effective date of the Final Rule.

We will continue to report on the updates and outcomes of this lawsuit.