Administrative law is having a moment. Next year is the 75th anniversary of the Administrative Procedure Act (“APA”). We have mixed feelings about attending the party. The games will be saddled with unclear and unevenly applied rules. Instead of goody bags, we will be forced to disgorge treasure on the way out. But if there will be cake….
Enough constituencies now feel aggrieved by agency overreach so that current judicial nominees face probing questions about their positions on Chevron and Auer deference. The former is about deferring to agency interpretations of ambiguous statutes, while the latter is about deferring to agency interpretations of their own ambiguous regulations. Newsflash: many, many of the statutes and regulations are ambiguous. Deference to those interpretations arguably produces unpredictable, unfair, and essentially undemocratic results. Two of our former law professors, Cass Sunstein (he of the “nudge” theory that government should poke and prod us toward better conduct) and Richard Epstein (he of the spectacular underestimation of coronavirus cases) have engaged in a vigorous debate about whether the modern administrative state has become a vehicle for roughing us up and picking our pockets via rules that lack coherence, consistency, and clarity. Sunstein, along with Adrian Vermeule, authored “The Morality of Administrative Law” in the Harvard Law Review in 2018. That article has been expanded into a book, Law and Leviathan: Redeeming the Administrative State, due out in September. Epstein jumped into the fray last year with his book, The Dubious Morality of Modern Administrative Law. The titles give you a decent idea where the authors come out on the issue.
We do not practice much administrative law, and are heartily glad of that. Bless those wretched gnomes who wrestle with the Fed. Reg. on a daily basis. Lives of quiet desperation, indeed. The closest we come is when we must wade into FDA regulations arguably affecting tort claims against our clients’ drug and device products. Most of the time, it is the plaintiffs who try to open the valve and drown us with supposed regulatory violations. Less often, we might try to douse the case with the benign fact of agency clearance or approval, or sprinkle on a helpful FDA guidance. One way or the other, we are all likely to get a little wet, in a regulatory sense. (These damp references call to mind one example of the danger of deferring to agencies: given recent summer storms, there is a nontrivial chance that some agency will gather our front porch within the definition of “navigable waters.”)
Two weeks ago, in an update post, Bexis discussed Merck & Co. v. Department of Health and Human Services, 2020 WL 3244013 (June 16, 2020), in which the court shut down an agency regulation that went too far. The Department of Health and Human Services’ Centers for Medicare and Medicaid Services published a rule (“the Disclosure Rule”) that required drug manufacturers to disclose in their television advertisements the wholesale acquisition cost of many prescription drugs and biological products for which payment is available under Medicare or Medicaid. It was a silly rule, because almost all the time the price disclosed would bear little resemblance to the price beneficiaries actually pay. The drug manufacturers challenged the Disclosure Rule as being not merely silly, but unreasonable and untethered to the actual administration of the Medicare or Medicaid programs. They also mentioned First Amendment implications – and why not? The district court agreed with the manufacturers, declared the Disclosure Rule invalid, and set it aside.
HHS appealed to the D.C. Circuit, arguing that the Disclosure Rule was supported by provisions in the Social Security Act empowering the agency to promulgate rules necessary to “efficient administration.” The manufacturers (with support from the kind of amici you like to have on the same side – Chamber of Commerce, Washington Legal Foundation, Cato Institute, etc.) argued that the Disclosure Rule violated the APA because it exceeded agency authority, was arbitrary and capricious,and ran afoul of the First Amendment. The key issue on appeal was whether the Disclosure Rule really was administrative. HHS said it was, because it would improve drug price transparency, inform consumer decision-making, and increase price competition.
The D.C. Circuit, even following Chevron deference (or was it a mere gesture?), rejected the HHS’s efforts to save the Disclosure Rule. First, because the disclosed price bears “little relationship” to what consumers actually pay, it is hard to see how price transparency or price competition would be served. And by “hard” we mean impossible. Second, “‘Maybe’ informing consumers about a price that Medicaid and Medicare customers will almost never pay, and that they are unlikely to understand, unlashes the disclosure from its claimed administrative mooring.” Worse, HHS was forced to admit that the disclosure could backfire and dissuade consumers from asking for beneficial medications. Third, the Disclosure Rule regulated advertising directed at the general public, not specifically to Medicare and Medicaid recipients. It was overly broad. Fourth, and most fundamentally, HHS construed the Social Security Act to give it “unbridled power to promulgate any regulation with respect to drug manufacturers that would have the arguable effect of driving down drug prices – or even healthcare costs generally – based on nothing more than their potential salutary financial benefits for the Medicare or Medicaid program. This suggests a staggering delegation of power, far removed from ordinary administration.”
In fact, the Disclosure Rule was not “administration” at all; it was social engineering. The D.C. Circuit wondered whether HHS could “dictate salaries at pharmaceutical companies that make or sell products ‘for which payment is available, directly or indirectly, under’ Medicare or Medicaid, 84 Fed. Reg. at 20,758? Could it superintend pharmaceutical companies’ business operations to cut costs? Surely not.”
(At this point, we wondered whether HHS could cut the rates of outside law firms working for pharmaceutical companies. Surely, surely, surely not.)
The D.C. Circuit did not categorically foreclose regulation of pharmaceutical ads. It left that broad issue “for another day.” For this day, the D.C. Circuit held that “no reasonable reading” of HHS’s general administrative authority allows the agency to “command the disclosure to the public at large of pricing information that bears at best a tenuous, confusing, and potentially harmful relationship to the Medicare and Medicaid programs. Although the Secretary’s regulatory authority is broad, it does not allow him to move the goalposts to wherever he kicks the ball.”
There’s a lot wrapped up in that conclusion. To a certain extent, it illustrates Epstein’s concern that modern administrative law makes courts too intrusive on facts and too deferential on law. The analysis of the Disclosure Rule’s unreasonableness and counterproductive results seems accurate enough, but one could see why courts should tread carefully in substituting their ‘expertise’ for the agency’s. But the real force of the opinion lies in the legal conclusion that the regulation was simply ultra vires. That is, perhaps, a bolder, braver conclusion, but also one that seems increasingly necessary.
By the way, Bexis was too modest to point out that he had pretty much predicted this result here.