Federal Judge: Drug Price Advertising Rule Is Illegal

July 15, 2019
By Timothy Sandefur

A federal judge in Washington, D.C., last week declared that the Trump administration broke the law when it tried to force drug manufacturers to declare the “wholesale acquisition cost” of their medicines in their advertisements to consumers. The administration claimed this requirement would ensure greater transparency in the market for medicines and would encourage drugmakers to lower prices.

But, as the Goldwater Institute pointed out in a comment opposing the regulation, the rule was both unconstitutional and counterproductive. There actually is no such thing as a “wholesale acquisition cost” for a medicine. The prices patients actually pay result from so many different factors—including discounts and rebates—that forcing drugmakers to specify any single price number in their ads would have actually forced them to make untrue statements, which would mislead customers. And the Constitution forbids the government from compelling businesses to say untrue things about their products.

D.C. federal district judge Amit Mehta didn’t address the constitutional question in his ruling, however. Instead, he found that regulators had no authority to issue the rule because the Social Security Act doesn’t give them that power. That Act allows the Secretary of Health and Human Services to “make and publish such rules and regulations…as may be necessary to the efficient administration of the functions” of the Medicare and Medicaid programs, and that’s a pretty broad power—but Judge Mehta ruled that it could not authorize the advertising mandate at issue because the rule applies to businesses “that are not direct participants in the Medicare or Medicaid programs.” In other words, it applied to pharmaceutical companies, rather than to healthcare providers or insurance companies, and pharmaceutical companies aren’t paid by Medicare and Medicaid. Obviously, their prices are affected by those programs, but that doesn’t give Trump administration regulators carte blanche over them.

In fact, Judge Mehta found, Congress never “intended for the Secretary to possess the far-reaching power to regulate the marketing of prescription drugs.” In a meticulous 27-page ruling, he showed that the Department of Health and Human Services was trying “to arrogate to itself the power to regulate drug marketing,” which Congress never gave it. In fact, Congress has sometimes forced drug companies to include certain information in their ads—such as the contents of a medicine or its likely side effects—but it’s never done that with regard to drug prices. And if Congress never took that step, that’s probably because it chose not to.

What’s more, history shows that the Department never thought it had this kind of power before. “HHS has never before attempted to use the [Social Security Act] to directly regulate the market for pharmaceuticals,” wrote Judge Mehta. “Sure, there is a first time for everything. But when, as here, an agency claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy, courts should greet its announcement with a measure of skepticism.”

Judge Mehta’s ruling is not a final decision; in fact, he merely blocked implementation of the rule until he can decide the case. But he made pretty clear that he thinks the rule exceeds the Department’s authority, and that made it unnecessary for him to address the rule’s unconstitutionality. And that marks an important step in resisting the Trump administration’s expansion of regulatory power. Better still, it protects both drugmakers and medical patients against well-intended, but deeply misguided meddling.

Timothy Sandefur is the Vice President for Litigation at the Goldwater Institute.