We saw recently that Centers for Medicare & Medicaid Services (“CMS”) has sent its proposed “Regulation To Require Drug Pricing Transparency” to the Office of Management & Budget (“OMB”). We’d heard about this proposed regulation, of course, but we hadn’t gotten around to reading it. We finally took the time.
Many readers probably already know, but for those who don’t, CMS is proposing “to require direct-to-consumer (DTC) television advertisements of prescription drugs and biological products for which payment is available through or under Medicare or Medicaid to include the Wholesale Acquisition Cost (WAC, or “list price”) of that drug or biological product.” 82 Fed. Reg. at 52789. That’s practically every drug that exists, since most if not all drugs are “available through” Medicare/Medicaid.
Whether that’s a good thing or not, the source of the proposal is definitely unusual. We’re accustomed to the FDA regulating drug advertising, and sometimes the Federal Trade Commission, but CMS? One reason might be that the FTC wouldn’t do this, since the WAC is usually out of whack with actual consumer prices, due to all the discounts and other advantages that insurers receive. E.g., 16 C.F.R. §233.3(d) (where “the list price is significantly in excess of the highest price at which substantial sales in the trade area are made, there is a clear and serious danger of the consumer being misled”); Giant Food Inc. v. FTC, 322 F.2d 977, 982 (D.C. Cir. 1963) (“references to manufacturer’s list price” are “deceptive” when not reflecting the actual price paid).
Thus, either this WAC information in a DTC ad will flash by in a couple of seconds and be meaningless, or the disclosures mandated by the proposed regulation will take up so much time that they will never fly under the compelled speech First Amendment doctrine that we discussed in more detail here and here. The American Beverage case that we discussed held that a government-required statement taking up 20% of available advertising was “unduly burdensome.” 916 F.3d at 757. Twenty percent of a thirty second ad is six seconds.
It’s always a good thing to check out the “legal authority” offered for the regulation. What power did Congress grant CMS over drug advertising? Well, here’s what the agency cites in terms of statutory authority:
This proposed rule is issued pursuant to sections 1102 and 1871 of the Social Security Act. Section 1102(a) of the Social Security Act authorizes the Secretary to issue “such rules and regulations, not inconsistent with this Act, as may be necessary to the efficient administration of the functions . . . under this Act[,].” . . . Section 1871(a) . . . instructs “[t]he Secretary [to] prescribe such regulations as may be necessary to carry out the administration of the insurance programs under this title.
82 Fed. Reg. at 52790. That’s nice, but nothing in there even mentions drug pricing, let alone provides authority over drug advertising.
We’ve been down this road before. CMS’s reliance on this sort of vague and generic “necessary and proper”-type statutory language to thrust itself into an area it has never regulated is strongly reminiscent of the FDA’s tobacco overreach (eventually addressed by statute) that the Supreme Court shot down in FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000) (“B&W”). For decades, the FDA had stayed well away from regulating tobacco products, until in 1996 it decided it would regulate them as “combination products” – relying on the general language defining “drugs” and “devices.” Id. at 126. Just as nothing in CMS’s organic statute mentions “advertising,” nothing in the statutory language the FDA relied upon mentioned “tobacco.”
Even granting the FDA deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), 529 U.S. at 132, the Supreme Court in B&W could not stomach this degree of administrative overreach. The Court thoroughly evaluated: (1) how the FDA was statutorily required to conduct risk/benefit balancing, id. at 130-43; (2) where Congress had statutorily assigned regulatory responsibility for tobacco products, id. at 143-51; and (3) that the FDA had decades to assert authority over tobacco products but had failed to do so. Id. at 151-56. The Court concluded:
[W]e are confident that Congress could not have intended to delegate a decision of such economic and political significance to an agency in so cryptic a fashion. To find that the FDA has the authority to regulate tobacco products, one must . . . ignore the plain implication of Congress’ subsequent tobacco-specific legislation. . . . [N]o matter how “important, conspicuous, and controversial” the issue . . . an administrative agency’s power to regulate in the public interest must always be grounded in a valid grant of authority from Congress. And in our anxiety to effectuate the congressional purpose of protecting the public, we must take care not to extend the scope of the statute beyond the point where Congress indicated it would stop. . . . [I]t is plain that Congress has not given the FDA the authority that it seeks to exercise here.
529 U.S. at 160-61 (citations and quotation marks omitted).
We’re not experts in Medicare and Medicaid, so we did what we could do, which is to scour CMS’s Federal Register publication for the kind of things that B&W stated are necessary to support administrative authority. The relevant portion of the proposed rule, 83 Fed. Reg. at 52790-91, contains no indication that at any time since these programs were created over fifty years ago, Congress had authorized the agency to regulate drug advertising or otherwise require drug companies to disclose their pricing to the public. We found only the same kind of general references to “broad” rulemaking powers and how “necessary” the proposed regulation is. Id. Tucked in the middle, however, is a telling admission:
Congress has not explicitly provided HHS with authority to compel the disclosure of list prices to the public.
Id. at 52791 (emphasis added).
Far from providing the kind of record that B&W held was necessary to justify “a sharp break with [an agency’s] prior interpretation of” its authority under its organic statute, 529 U.S. at 156, CMS essentially admits that such evidence does not exist. What CMS did do is cut and paste from disparate Medicare/Medicaid-related statutes that pertain in some way to list prices, 83 Fed. Reg. at 52791 – but nowhere in any of those sections is the grant of authority that the agency needs. None of those sections address either drug advertising or public pricing disclosure. Medicare/Medicaid have been around for fifty years. If the best CMS can do is rely upon a provision or two concerning other forms of price disclosure having nothing to do with advertising, we think it will be B&Wed, and rightly so. CMS seeks to arrogate to itself an expansive new power to regulate drug advertising that Congress has never given it, but – as in B&W – instead conferred on a different agency, the FDA. In particular Congress sought to reduce drug pricing by enacting the Hatch-Waxman Act, Pub. L. No. 98-417, 98 Stat. 1585 40, and the Biologics Price Competition & Innovation Act, Pub. L. No. 111-148, 124 Stat. 119, to name two. Tellingly, the FDA administers both of those acts, with CMS out in the cold. Perhaps CMS is acting in an ultra vires fashion by “seek[ing] to diminish [a] second statute’s scope in favor of a more expansive interpretation of its own – effectively bootstrap[ping] itself into an area in which it has no jurisdiction.” Epic Systems Corp. v. Lewis, 138 S. Ct. 1612, 1629 (2018) (citation and internal quotations omitted).
All told, we think that the inevitable litigation that will follow any finalization of the CMS DTC advertising proposal does not bode well for the agency. CMS “has no expertise in crafting …policy” in this area and thus would not be entitled to much deference from the courts. King v. Burwell, 135 S. Ct. 2480, 2489 (2015). There are undoubtedly lots of Chevron-related deference points that could be made here. We’re not going to make them. We know that at least one member of the Court, Justice Gorsuch, would be only too happy to abolish the entire complex edifice of Chevron, Auer, et cetera deference. Any agency seeking to preserve administrative deference would be extremely foolish to allow a Chevron question to come before the Court on this flimsy a record, and with gross agency overreach readily apparent.