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Merck & Co., Inc. v. United States Department of Health and Human Services, 962 F.3d 531, 447 U.S.App.D.C. 271, Med & Med GD (CCH) P 306,802

Facts

In May 2019, the Centers for Medicare and Medicaid Services published a rule requiring drug manufacturers to disclose the wholesale acquisition cost of many prescription drugs in their television advertisements. This rule was challenged by several pharmaceutical manufacturers, who argued that it violated the Administrative Procedure Act and exceeded the Department's statutory authority. The district court granted a motion to stay the rule and vacated it, concluding that the Department lacked the authority to impose such a sweeping disclosure requirement.

On June 14, 2019, pharmaceutical manufacturers Merck & Co., Inc., Eli Lilly and Company, and Amgen Inc., as well as the Association of National Advertisers, Inc., (collectively, 'Manufacturers') filed suit challenging the lawfulness of the Disclosure Rule.

Issue

Did the Secretary of Health and Human Services exceed his authority under the Social Security Act by enacting the Disclosure Rule requiring drug manufacturers to disclose wholesale acquisition costs in advertisements?

The first question presented—and the only one we need to resolve—is whether the Secretary properly relied on Sections 1302(a) and 1395hh(a)(1) to enact the Disclosure Rule.

Rule

The Secretary is authorized to make rules necessary for the efficient administration of Medicare and Medicaid programs, but such rules must have a direct and discernible connection to the administration of those programs.

42 U.S.C. § 1302(a) empowers the Secretary of Health and Human Services to 'make and publish such rules and regulations, not inconsistent with [the Social Security Act], as may be necessary to the efficient administration of the functions with which [the Secretary] is charged' under the Medicare and Medicaid statutes.

Analysis

The court found that the Disclosure Rule did not have a meaningful relationship to the prices paid by Medicare and Medicaid beneficiaries, as the wholesale acquisition cost often does not reflect the actual costs incurred by consumers. The court emphasized that the rule's broad application to all consumers, rather than specifically targeting Medicare or Medicaid recipients, further distanced it from the Secretary's regulatory authority. Additionally, the potential for consumer confusion and the lack of a clear connection to the administration of the programs were significant factors in the court's reasoning.

The Disclosure Rule strays far off the path of administration for four reasons.

Conclusion

The court affirmed the district court's ruling that the Disclosure Rule exceeded the Secretary's statutory authority and was therefore invalid.

For the foregoing reasons, we affirm the district court's judgment vacating the Rule.

Who won?

The drug manufacturers prevailed in the case because the court determined that the Disclosure Rule was beyond the authority granted to HHS under the Social Security Act.

We affirm. The Department acted unreasonably in construing its regulatory authority to include the imposition of a sweeping disclosure requirement that is largely untethered to the actual administration of the Medicare or Medicaid programs.

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