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.
