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Judges question HHS authority to force drugmakers to disclose prices in TV ads

A three-judge panel at a federal appeals court questioned whether the authority Congress granted to the U.S. Department of Health and Human Services to efficiently administer government health insurance programs gave the agency the ability to force drugmakers to disclose their list prices in TV ads.

Even if HHS has that authority, the three judges from the U.S. Court of Appeals for the District of Columbia Circuit in Washington questioned whether putting the manufacturers' list prices — the wholesale acquisition cost — in commercials directed at consumers would do more harm than good by creating confusion.

SNL ImageThe U.S. Court of Appeals for the District of Columbia Circuit in Washington.
Source: AP Photo

In Jan. 13 oral arguments before the court, the Trump administration's lawyer, Ethan Davis, principal deputy assistant attorney general at the U.S. Department of Justice, admitted that the list price is "rarely paid" by Americans, particularly those with private health insurance or beneficiaries in the federal government's Medicare and Medicaid programs.

"It would be impossible" for companies to disclose the prices paid by all Americans, given the "complex" multipayer system the U.S. employs, Davis said.

But disclosing the list price would allow consumers to have an "anchor point" to gauge how much they may end up paying out of pocket, he told the court.

Right now, consumers and doctors largely lack that information, Davis said.

"The very problem here is that no one does know what the price of these drugs are, so it leads to over-prescriptions," he said.

But the three judges at the D.C. Circuit questioned how requiring drugmakers to disclose in TV ads prices most Americans would not pay falls within HHS' mandate from Congress for the "efficient administration of the functions" with which it is charged in administering the Medicare and Medicaid programs.

Struggling to lower drug prices

Hours before the Trump administration's final rule requiring brand-name drugmakers to include certain list prices in TV ads was to take effect on July 9, 2019, a federal district judge vacated it, saying HHS had exceeded its authority.

The rule would have forced companies to disclose in TV commercials the list prices for a 30-day supply of any medicine costing over $35 that is covered by Medicare and Medicaid.

In his July 8, 2019, ruling, Judge Amit Mehta of the U.S. District Court for the District of Columbia sided with Merck & Co. Inc., Amgen Inc. and Eli Lilly and Co.

The three drugmakers had also argued that the requirement violated their freedom of speech under the U.S. Constitution. But because the court held that the rule was invalid, it did not reach a decision on the free-speech challenge.

In August 2019, the Trump administration said it would appeal Mehta's ruling.

The administration has struggled to fulfill President Donald Trump's 2016 campaign promise to lower U.S. drug prices.

Days after Mehta's ruling, Trump abandoned a proposal to ban rebates paid by drugmakers under secret deals to middlemen, like pharmacy benefit managers and health insurers — an idea that had been promoted by the White House as a key part of the administration's strategy to lower U.S. prices.

Another proposal that seeks to base the costs of injectable medicines covered by Medicare on what is paid in foreign nations has lingered at the White House Office of Management and Budget since June 2019. The administration also recently shifted the focus of the proposal from developing an international pricing index model to a "favored nations" approach, which would require drugmakers to offer the U.S. government the lowest prices paid by other developed nations for prescription medicines.

HHS' plan to import drugs from Canada and other foreign nations could take years to implement.

Transparency's impact

At the D.C. Circuit, Davis argued that it was a "well accepted economic principle that price transparency leads to more efficient markets."

SNL ImageHHS Secretary Alex Azar
Source: AP Photo

But Judge Patricia Millett questioned whether there were any economists who concluded that being transparent about prices that are not paid — drugmakers' list prices — improves market efficiency.

Davis likened disclosing list prices to the automobile industry putting the manufacturer suggested retail price, or MSRP — the sticker price — in TV commercials for new cars.

Prescription medicines "may be a more complicated market than automobiles but the principle is the same," Davis said, adding that few Americans end up paying the MSRP.

He cited a January 2019 study in JAMA Internal Medicine, which found that when a consumer sees a high price associated with a particular drug, the person loses interest in that product.

"A consumer who sees an ad for an extremely high-cost drug but doesn't know the price is far more likely to go ask the doctor to prescribe that drug and doctors don't know the price either," Davis said.

But the lawyer for the three drugmakers, Richard Bress, a partner in the Washington office of Latham and Watkins LLP, said HHS had misinterpreted the JAMA study and argued that disclosing list prices in TV ads would "mislead, confuse and intimidate the people who receive them."

That outcome would be "dangerous," he said.

What HHS Secretary Alex Azar is trying to do with the TV ad rule, Bress told the court, is "regulate the conduct of drug companies in the marketplace" — an authority he said Congress did not grant to the agency.

"What the secretary is claiming is the ability to introduce an expansive and enormous expansion of regulatory power," Bress said.

Had Congress wanted to grant such power, it would have explicitly said so, but it did not, he said.