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Federal Appeals Court Affirms Lower Court Ruling: Drug Pricing Transparency Rule Exceeds HHS’s Regulatory Authority

A panel of federal appellate judges has sided with drugmakers by upholding a lower court ruling from 2019 that struck down a regulation proposed by the Department of Health and Human Services (HHS). In a closely watched case, the United States Court of Appeals for the District of Columbia Circuit issued a decision on June 16, 2020 affirming the district court’s judgement that vacated the HHS Drug Pricing Disclosure Rule. This ruling is yet another example of a court invalidating the Drug Pricing Disclosure Rule, which sought to require drugmakers’ television advertisements to disclose the list prices of their prescription drug products. For more information on this subject, take a look at our previous posts: HHS appeals lower court holding, HHS files Brief for appeal to D.C. Circuit, DC District Court strikes down Drug Pricing Disclosure Rule, and pharmaceutical companies challenge Drug Pricing Disclosure Rule.

The DC Circuit Court explained in the June 16 decision that "[b]ecause there is no reasoned statutory basis for its far-flung reach and misaligned obligations, the Disclosure Rule is invalid and is hereby set aside.” Specifically, the court noted that the Drug Pricing Disclosure Rule strayed from facilitating the actual administration of the HHS Secretary’s duties to the Medicare and Medicaid programs (which was the Department’s argument in support of the rulemaking) for four main reasons:

  1. Disclosure of a prescription drug product’s “list price” is unrelated to the price that either the federal government or Medicare and Medicaid beneficiaries pay for their drugs.
  2. Disclosure of a drug product’s list price is unlikely to inform consumers in making “critical health care decisions related to their treatment with prescription drugs or biological products.” In fact, the court opined that it likely would have the opposite impact: intimidation and confusion caused by the high list prices would deter consumers from contacting physicians about possible drug treatments.
  3. The Drug Pricing Disclosure Rule “regulates advertising directed at the general public and not communications targeted specifically, or even predominantly, to Medicare or Medicaid recipients,” as the Department attempted to argue.
  4. The broad scope of the regulatory authority claimed by HHS stresses the unreasonableness of the Department’s claim that it is merely engaged in general “administration” and would open the door for HHS to assert its authority “as long as [such regulations] ultimately resulted—even indirectly—in reduced Medicare or Medicaid expenditures or increased price competition.”

The court emphasized that based on the plain reading of the governing statute, HHS does not have “the general administrative authority to commend 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.” However, the court concluded that HHS is not foreclosed from regulating pharmaceutical advertisements in the future under a more appropriate exercise of regulatory authorities delegated by Congress. It will be interesting to watch how this appellate decision impacts various political initiatives aiming to reduce high drug prices over the coming months as we get closer to the November 2020 elections.

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Joanne counsels global clients on the regulatory and distribution-related implications when bringing a new FDA-regulated product to market and how to ensure continued compliance after a product is commercialized.