Requiring Price Info in Drug Ads May Strain Agency Authority

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By Dana A. Elfin

The Medicare agency may be overstepping its authority in proposing to require drug companies to include drug pricing information in television ads, health and constitutional lawyers say.

Under the Trump administration’s proposal announced Oct. 15, companies would have to include the manufacturers’ wholesale acquisition cost, or list price, in any television ads. The rule still needs vetting under public comment before it’s finalized.

The proposed rule would apply to virtually all drugs covered by Medicare and Medicaid, according to officials at the Department of Health and Human Services. It would affect a broad swath of companies including Amgen Inc., GlaxoSmithKline Plc, and Pfizer Inc., because all of them sell drugs covered under those federal programs.

“I’m skeptical of HHS’ arguments that [the Center for Medicare and Medicaid Services] has the authority to issue this reg,” Rachel Sachs, associate professor of law at Washington University in St. Louis, told Bloomberg Law.

“Given that FDA has explicit authority here and CMS’ authority is tied specifically to Medicare/Medicaid, regs that try to regulate marketing more broadly need greater justification,” she said.

Subject to Legal Attack

Even if the CMS does have the statutory authority, the proposal itself is subject to attack on multiple legal fronts.

“Any such proposal will face two legal hurdles,” Cory L. Andrews, senior litigation counsel at the Washington Legal Foundation, told Bloomberg Law. WLF is a public interest law firm and policy center. Andrews has authored more than 75 briefs in the U.S. Supreme Court at petition and merits stages.

“First, nothing in the Food Drug and Cosmetic Act or the FDA’s implementing regulations contemplates the mandatory disclosure of drug list prices in print or broadcast ads,” Andrews said. The FD&CA is the statute under which the Food and Drug Administration operates.

No reasonable interpretation of the law or the existing rules supports mandatory list-price disclosures, he said. “This is not a ‘gap’ in the law that the HHS can fill.”

Second, a list-price disclosure mandate would single out consumer advertisements just because of the category of goods they are promoting—pharmaceutical products—not because they are false or misleading, Andrews said.

This kind of content-based discrimination of truthful speech, even if it is commercial in nature, is generally subject to strict scrutiny, he said.

Very few speech regulations can survive the strict scrutiny test used to judge whether they violate the First Amendment, he said. Strict scrutiny is the most stringent standard of judicial review U.S. courts use. Under the test, the regulation is only constitutional if the government can show it’s needed to achieve a compelling state interest.

Stephen J. Ubl, president of the Pharmaceutical Research and Manufacturers of America, said, “There are substantial statutory and constitutional concerns” with the proposal. PhRMA is the brand-name drug industry’s lobbying group.

An HHS official hadn’t seen PhRMA’s stated concerns but said, “There is no First Amendment issue that I can ascertain.”

Write It Carefully

Constitutional and administrative lawyer Jonathan Emord of Emord & Associates P.C. told Bloomberg Law the regulation could be written in a way that passes muster under the First Amendment.

“The courts have upheld disclosure requirements against ‘compelled speech’ challenges when the mandated disclosure does nothing more than require revelation of purely factual information (e.g., ingredient labeling, expiration dating, and price information),” Emord said.

David C. Vladeck, a law professor at Georgetown University, predicted the government would prevail if the regulation is challenged. As long as the government is mandating the disclosure of truthful, accurate speech as part of its regulation of a market, the government is likely to win, he said. Vladeck has written about government speech and the First Amendment.

“I think that the drug industry is engaged in wishful thinking,” he said.

Would Prices Change?

But even if the regulation is implemented, it might not work. "[I]t’s notable that HHS proposes no real governmental enforcement mechanism,” Sachs said.

In addition, the administration’s arguments that the regulation’s transparency will actually lower drug prices or spending are questionable, she said.

But Vladeck said it’s better than nothing and could clear up some confusion.

"[T]he fact that drug pricing is so opaque and confusing to consumers is a good reason to try to make the process as transparent and stable as possible,” he said.

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