To the surprise of almost nobody, the Centers for Medicare & Medicaid Services finalized their proposed direct-to-consumer advertising regulation the other day.  That’s the one that would require a statement of the promoted drug’s “list price” in all DTC advertising.  We’ve already discussed why we thought the regulation was on shaky ground in terms of CMS’s authority to issue it, and in terms of the First Amendment.  The final rule doesn’t seem to have changed anything in terms of the former, so we won’t re-examine the authority question, except to note one thing – Congress could fix that problem at any time through legislation expressly granting CMS the authority it currently seems to lack.

As to the First Amendment, we find risible the government’s position that “list price” isn’t “controversial” in the context of prescription drug pricing.  Here’s the regulation’s definition:

Wholesale acquisition cost.  Wholesale acquisition cost means, with respect to a drug or biological, the manufacturer’s list price for the drug or biological to wholesalers or direct purchasers in the United States, not including prompt pay or other discounts, rebates or reductions in price, for the most recent month for which the information is available, as reported in wholesale price guides or other publications of drug or biological pricing data.

(Emphasis added).  This definition is facially controversial, since it demands that the advertiser “not includ[e] prompt pay or other discounts, rebates or reductions in price.”  In blunt terms, the advertiser is being expected to mislead most, if not all, of its target audience by using a product price that is too high, since most of us drug consumers benefit from “discounts, rebates or reductions in price.”  The folks currently running CMS may not like it, but most Americans still have health insurance.  Most tellingly, CMS concedes the point, admitting that “where the consumer may be insured” s/he “therefore will be paying substantially less than the list price.”

This regulation is odd in other respects than government mandated lying (we will refrain from further political comment).  In terms of enforcement, it’s essentially toothless.  Here’s the only “compliance” provision:

 403.1204 Compliance.

(a) Identification of non-compliant products.  The Secretary shall maintain a public list that will include the drugs and biological products identified by the Secretary to be advertised in violation of this subpart.

CMS will put you on a list.  Big whoop.  And even that’s not hard to avoid.  We can see it now – a DTC advertisement that ends with:

List Price:

Any Single

Price Would Be

Misleading

See our website, www.howmuchwillyoureallypay.com for full pricing and cost details.

On the referenced website, the advertiser provides every bit of actual pricing information available, perhaps offering customers assistance in navigating the healthcare system to obtain particular prices.  In a bit of delicious irony, to help consumers get the best prices, the advertiser could even choose to assist with Obamacare sign ups.  After all, if CMS can now require DTC drug advertisements to state one thing, then a different administration’s CMS could mandate that such advertisements assist the public in participating in the very programs that CMS administers.  Sauce for the goose….

The CMS rule also suggests that private Lanham Act actions could assist enforcement.  Good luck trying to convince anyone that the hypothetical above (and many other possibilities) is “misleading” so as to create liability under that statute.  It’s likely more accurate than what CMS is seeking, and in any event it’s sufficiently accurate that competitors aren’t going to waste attorney fees on Lanham Act litigation with little chance of success.

As product liability litigators, however, we are most interested in anything that preempts state-law tort suits.  This regulation comes with an express preemption clause:

(b) State or local requirements.  No State or political subdivision of any State may establish or continue in effect any requirement that depends in whole or in part on any pricing statement required by this subpart.

403.1204(b).  We’ve seen that before.  It’s patterned on 21 U.S.C. §360k(a), the preemption clause for the Medical Device Amendments.  Thus, this preemption language includes state tort suits, and being express, is not subject to any presumption against preemption.  Recognizing the above caveat concerning CMS having any authority at all in this area, if it does, then many decisions have held that administrative regulations also have the same preemptive effect as statutes.  E.g., Geier v. American Honda Motor Co., 529 U.S. 861, 872 (2000).

So the preemption clause provides that any state-law tort claim is preempted if it “depends in whole or in part on any pricing statement required by this subpart.”  We refer back to the definition of “wholesale acquisition cost” (“WAC”) we quoted above.  Under this preemption clause, it doesn’t matter what context – private tort suit, private consumer fraud suit, or state enforcement action – if a claims “depends” even a little bit on anything having to do with WAC, then preemption should whack the action.  We think the preemption clause is sufficiently broadly worded to encompass both how WAC is calculated and how it is disseminated.

To sum up, we think:

  • CMS probably doesn’t have authority to do this.
  • If it does, this exercise probably violates the First Amendment.
  • If it’s constitutional, it’s damn near toothless.
  • But, in any event, it gives us defense lawyers another preemption clause to assert.