Merck & Co., Inc. v. HHS ( 2020 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 13, 2020 Decided June 16, 2020
No. 19-5222
MERCK & CO., INC., ET AL.,
APPELLEES
v.
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN
SERVICES, ET AL.,
APPELLANTS
Appeal from the United States District Court
for the District of Columbia
(No. 1:19-cv-01738)
Ethan P. Davis, Principal Deputy Assistant Attorney
General, U.S. Department of Justice, argued the cause for
appellants. With him on the briefs were Scott R. McIntosh and
Joshua Revesz, Attorneys, U.S. Department of Justice, and
Robert P. Charrow, General Counsel, U.S. Department of
Health and Human Services.
Barbara Jones, William Alvarado Rivera, Kelly Bagby,
and Maame Gyamfi were on the brief for amici curiae AARP
and AARP Foundation in support of appellants and reversal.
Richard P. Bress argued the cause for appellees. With him
on the brief were Daniel Meron, Caroline A. Flynn, Gregory
2
B. in den Berken, Robert Corn-Revere, Ronald G. London, and
Annie M. Wilson.
Cory L. Andrews was on the brief for amicus curiae
Washington Legal Foundation, et al. supporting appellees and
affirmance.
Jeffrey S. Bucholtz, Joel McElvain, and Daryl L. Joseffer
were on the brief for amicus curiae Chamber of Commerce of
the United States of America in support of appellees and
affirmance. Steven P. Lehotsky entered an appearance.
Kevin King, Rick Chessen, and Jared S. Sher were on the
brief for amicus curiae NCTA – The Internet & Television
Association in support of appellees and affirmance.
Stephen B. Kinnaird and Jerianne Timmerman were on the
brief for amicus curiae National Association of Broadcasters
in support of appellees and affirmance.
Sean Marotta and Ilya Shapiro were on the brief for
amicus curiae the Cato Institute in support of appellees and
affirmance.
Timothy Sandefur and Jonathan Riches were on the brief
for amicus curiae Goldwater Institute in support of appellees
and affirmance.
Before: HENDERSON and MILLETT, Circuit Judges, and
EDWARDS, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge MILLETT.
MILLETT, Circuit Judge: In May 2019, the United States
Department of Health and Human Services’ Centers for
3
Medicare and Medicaid Services published a rule that broadly
requires drug manufacturers to disclose in their television
advertisements the wholesale acquisition cost of many
prescription drugs and biological products for which payment
is available under Medicare or Medicaid. See Regulation to
Require Drug Pricing Transparency, 84 Fed. Reg. 20,732
(May 10, 2019) (“Disclosure Rule” or “Rule”). In the
overwhelming majority of cases, the price that the Disclosure
Rule compels manufacturers to disclose bears little
resemblance to the price beneficiaries actually pay under the
Medicare and Medicaid programs.
A number of drug manufacturers challenged the rule on
statutory and constitutional grounds, and they prevailed in
district court. 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. Because there is no reasoned statutory basis for its
far-flung reach and misaligned obligations, the Disclosure Rule
is invalid and is hereby set aside.
I
A
The Social Security Act, 42 U.S.C. §§ 301–1397mm,
created the Medicare and Medicaid programs. See id. §§ 1395–
1395lll (Title XVIII of the Social Security Act); id. §§ 1396–
1396w-5 (Title XIX of the Social Security Act). Medicare is
“a nationwide, federally funded health insurance program for
the elderly and individuals with disabilities.” Anna Jacques
Hosp. v. Burwell, 797 F.3d 1155, 1156 (D.C. Cir. 2015).
Medicaid “is a federal subsidy program that underwrites
participating States’ provision of medical services to ‘families
with dependent children and [to] aged, blind, or disabled
4
individuals, whose income and resources are insufficient to
meet the costs of necessary medical services.’” Salazar ex rel.
Salazar v. District of Columbia, 896 F.3d 489, 492 (D.C. Cir.
2018) (quoting Armstrong v. Exceptional Child Ctr., Inc., 135
S. Ct. 1378, 1382 (2015)).
The Centers for Medicare and Medicaid Services
(“Centers”) administer Medicare and “the federal side” of
Medicaid, Ipsen Biopharmaceuticals, Inc. v. Azar, 943 F.3d
953, 954 (D.C. Cir. 2019). See Anna Jacques Hosp., 797 F.3d
at 1157.
This case involves two provisions of the Social Security
Act.
First, as relevant here, 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. 42 U.S.C.
§ 1302(a).
Second, 42 U.S.C. § 1395hh(a)(1) provides that the
“Secretary shall prescribe such regulations as may be necessary
to carry out the administration of the [Medicare] insurance
programs[.]” 42 U.S.C. § 1395hh(a)(1).
B
After undertaking the notice and comment process, the
Centers published the Disclosure Rule in May 2019. See 84
Fed. Reg. 20,732 (May 10, 2019). The Rule requires
pharmaceutical manufacturers to disclose pricing information
in all of their television advertisements for any prescription
drugs or biological products “distributed in the United States
5
for which payment is available, directly or indirectly,” under
Medicare or Medicaid. Id. at 20,732, 20,758 (codified at 42
C.F.R. § 403.1200 (2019)); see id. at 20,735. Specifically,
television advertisements for covered pharmaceuticals must
include a textual statement disclosing “the current list price for
a typical 30-day regimen or for a typical course of treatment[.]”
Id. at 20,758 (codified at 42 C.F.R. § 403.1202). The only
exception is for drugs with a list price of “less than $35 per
month for a 30-day supply or typical course of treatment[.]” Id.
at 20,732, 20,758 (codified at 42 C.F.R. § 403.1200).1
The Rule defines “[l]ist price” as “the wholesale
acquisition cost” for the pharmaceutical. 84 Fed. Reg. at
20,758 (codified at 42 C.F.R. § 403.1201(c)). “Wholesale
acquisition cost” is, in turn, defined as “the manufacturer’s list
price for the prescription drug or biological product to
wholesalers or direct purchasers[,] * * * not including prompt
pay or other discounts, rebates or reductions in price[.]” Id.
(codified at 42 C.F.R. § 403.1201(d)). The Rule acknowledges
that the price manufacturers must disclose “may be different”
from what consumers actually pay. Id. (codified at 42 C.F.R.
§ 403.1202).
The Disclosure Rule identifies 42 U.S.C. §§ 1302 and
1395hh as the sources of authority for the obligations it
imposes. 84 Fed. Reg. at 20,757. In the Department’s view,
the Rule falls within those provisions because it “will improve
the efficient administration of the Medicare and Medicaid
programs by improving drug price transparency and informing
1
The Disclosure Rule requires that the advertisements state in
full: “The list price for a [30-day supply of] [typical course of
treatment with] [name of prescription drug or biological product] is
[insert list price]. If you have health insurance that covers drugs,
your cost may be different.” 84 Fed. Reg. at 20,758 (codified at 42
C.F.R. § 403.1202) (brackets in original).
6
consumer decision-making, both of which can increase price
competition and slow the growth of federal spending on
prescription drugs.” See id. at 20,732.
C
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. They alleged that the Rule violates the
Administrative Procedure Act (“APA”), 5 U.S.C. §§ 551 et
seq., because it (i) exceeds the Department’s statutory
authority, (ii) is arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law, and (iii) violates the First
Amendment. The same day they filed their complaint, the
Manufacturers moved to stay the Rule pending judicial review
and to expedite proceedings on the motion to stay. The district
court promptly granted the motion to expedite and held a
hearing two weeks later.
On July 8, 2019, the day before the Rule was to go into
effect, the district court granted the motion to stay based on the
merits of the statutory APA arguments and entered an order
vacating the Rule. See Merck & Co. v. HHS, 385 F. Supp. 3d
81, 98 (D.D.C. 2019).
The district court ruled that neither Section 1302(a) nor
Section 1395hh(a)(1) authorized the Department to impose the
challenged disclosure requirement. Merck, 385 F. Supp. 3d at
90–98. Quite the opposite, the district court concluded that,
“when viewed as a whole, the [Social Security Act]
unambiguously does not delegate to [the Department] the
power to promulgate the [Disclosure Rule].” Id. at 92.
 7
The district court held that both Sections 1302(a) and
1395hh(a)(1) authorize the Secretary only to undertake the
“administration” of the Medicare and Medicaid statutes.
Merck, 385 F. Supp. 3d at 90. The court reasoned that those
general grants of authority were limited “to establish[ing] rules
and regulations for ‘running’ or ‘managing’ the federal public
health insurance programs[.]” Id. The court concluded that the
Rule exceeded that authority by regulating market actors (i.e.,
pharmaceutical manufacturers) “that are not direct participants
in the Medicare or Medicaid programs.” Id. at 90–91; see also
id. at 94 (finding that the Rule “regulates primary conduct
several steps removed from the heartland of [the Department’s]
authority under the Social Security Act”) (internal quotation
marks omitted).
The district court added that, usually when Congress
authorizes an agency to regulate direct-to-consumer
advertising of pharmaceutical products, it says so directly. In
the court’s view, “Congress knows how to prescribe the content
of drug advertising when it chooses to do so,” and it did not use
such language in Section 1302(a) or Section 1395hh(a)(1).
Merck, 385 F. Supp. 3d at 95–96.
Finally, the district court emphasized that the Disclosure
Rule “moves [the Department] into regulating the marketing of
products that comprise ‘a significant portion of the American
economy[,]’” and that Congress would not have authorized
such sweeping and substantial regulatory power in a statutory
provision that merely grants general administrative authority.
Merck, 385 F. Supp. 3d at 97 (quoting FDA v. Brown &
Williamson Tobacco Corp., 529 U.S. 120, 159 (2000)).
Otherwise, the district court concluded, the Department could
promulgate any rule “that might reasonably result in cost
savings to the Medicare and Medicaid programs[.]” Id. at 98.
 8
Having concluded that the Disclosure Rule exceeds the
Department’s statutory authority under the Social Security Act,
the district court declined to reach the Manufacturers’ other
challenges. Merck, 385 F. Supp. 3d at 84, 98.
The Department timely filed a notice of appeal on
August 21, 2019.
II
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. See Louisiana Public Serv. Comm’n v. FCC, 476 U.S.
355, 374 (1986) (“[A]n agency * * * has no power to act[] * * *
unless and until Congress confers power upon it.”).
In answering that question, we review the district court’s
interpretation of the Medicare and Medicaid statutes de novo.
See Loving v. IRS, 742 F.3d 1013, 1016 (D.C. Cir. 2014). We
approach that statutory interpretation task through the lens of
Chevron U.S.A. Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837 (1984). That means that, at what is known
as Chevron Step One, we apply ordinary tools of statutory
construction to determine “whether Congress has directly
spoken to the precise question at issue.” City of Arlington v.
FCC, 569 U.S. 290, 296 (2013) (internal quotation marks
omitted). If the statute resolves it, that is the end of the matter.
We enforce the statute as Congress directs. Id. (Courts “must
give effect to [this] unambiguously expressed intent[.]”). If,
however, the statute is ambiguous on the question at hand, we
proceed to Chevron Step Two. There, we will generally uphold
the agency’s construction of the statute so long as it is a
“reasonable interpretation.” See id.
9
The Department acknowledges that Chevron governs this
case, but then argues that its regulation must be upheld if it is
“reasonably related to the purposes of the enabling
legislation[.]” Department Br. 22 (quoting Thorpe v. Housing
Authority of the City of Durham, 393 U.S. 268, 280–281
(1969)); see also Mourning v. Family Publications Serv., Inc.,
411 U.S. 356, 369 (1973) (Where the empowering provision of
a statute authorizes an agency to make “such rules and
regulations as may be necessary to carry out the provisions of
th[e] Act,” the Court will generally uphold regulations that are
“reasonably related to the purposes of the enabling
legislation.”) (internal quotation marks omitted).
Even assuming that there is material distance in this case
between Mourning and Thorpe’s “reasonably related” test and
the well-established Chevron Step Two reasonableness
inquiry, the government overreads those pre-Chevron cases.
Mourning and Thorpe do not “state[] a canon of statutory
interpretation for general rulemaking provisions.” Colorado
River Indian Tribes v. National Indian Gaming Comm’n, 466
F.3d 134, 139 (D.C. Cir. 2006) (quoting Mourning, 411 U.S. at
369). Instead, in “determining whether the agency’s
interpretation is permissible[,] * * * we must employ all the
tools of statutory interpretation, including text, structure,
purpose, and legislative history.” Loving, 742 F.3d at 1016
(internal quotation marks omitted). After all, agencies are
“bound, not only by the ultimate purposes Congress has
selected, but by the means it has deemed appropriate, and
prescribed, for the pursuit of those purposes.” Colorado River,
466 F.3d at 139–140 (quoting MCI Telecomms. Corp. v. AT&T
Co., 512 U.S. 218, 231 n.4 (1994)); see also Ragsdale v.
Wolverine World Wide, Inc., 535 U.S. 81, 92 (2002)
(explaining that Mourning does not authorize agencies to
“contravene Congress’ will”).
10
III
The district court ruled at Chevron Step One that the
Medicare and Medicaid statutes unambiguously foreclose the
Secretary from requiring price disclosures in consumer
advertising. Merck, 385 F. Supp. 3d at 92 (“[W]hen viewed as
a whole, the [Social Security Act] unambiguously does not
delegate to [the Department] the power to promulgate the
[Disclosure Rule].”); see also Manufacturers Br. 22–35. But
we need not decide whether Sections 1302(a) and 1395hh(a)(1)
unambiguously foreclose any regulation of pharmaceutical
advertisements or price disclosure requirements. Even
assuming that the statutory provisions confer some relevant
regulatory authority in those areas, the Disclosure Rule’s
blunderbuss operation falls beyond any reasonable exercise of
the Secretary’s statutorily assigned power.2
Recall that, as relevant here, Section 1302(a) directs the
Secretary 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 programs. 42 U.S.C. § 1302(a) (emphasis added).
Similarly, Section 1395hh(a)(1) directs the Secretary to
“prescribe such regulations as may be necessary to carry out
the administration of the insurance programs under” the
Medicare Act. Id. § 1395hh(a)(1) (emphasis added).
The Department argues that, under Chevron Step Two, it
reasonably concluded that the Disclosure Rule is “necessary”
2
Although the Manufacturers primarily advance their statutory
construction arguments under Chevron Step One, they argue in the
alternative that, “[f]or many of the same reasons, * * * [the
Disclosure Rule] should fail at Chevron Step Two.” Manufacturers
Br. 35 n.22.
11
to the “efficient administration” of the Medicare and Medicaid
programs because the “price transparency” that it introduces
will “improve the efficiency of Medicare and Medicaid
programs by reducing wasteful and abusive increases in drug
and biological product list prices[.]” Department Br. 22–25
(quoting 84 Fed. Reg. at 20,733). In particular, the Secretary
reasons, the Disclosure Rule will (i) incentivize manufacturers
“to reduce their list prices by exposing overly costly drugs to
public scrutiny,” thereby reducing program costs, and
(ii) provide “consumers with more information to better
position them as active and well-informed participants in their
health care decision-making.” 84 Fed. Reg. at 20,733.
Neither of those arguments holds up. The Secretary’s
administrative authority is undoubtedly broad. See Thorpe,
393 U.S. at 277 n.28; see also National Welfare Rights Org. v.
Mathews, 533 F.2d 637, 640 (D.C. Cir. 1976). But it is not
boundless. To qualify as administering the Medicare or
Medicaid statutes, a program of such intrusive regulation must
do more than identify a hoped-for trickle-down effect on the
regulated programs.
Instead, to fall within the Secretary’s regulatory authority,
rules must be “necessary to the efficient administration of the
functions with which [the Secretary] is charged[,]” 42 U.S.C.
§ 1302(a) (emphasis added), or “necessary to carry out the
administration of the insurance programs under” the Medicare
subchapter of the Social Security Act, id. § 1395hh(a)(1)
(emphasis added). “[A]dministration” is the central focus of
both definitions. When the Social Security Act was enacted in
1935, this meant “the practical management and direction of”
12
its various programs (including eventually Medicare and
Medicaid), as well as their “management” and “conduct.”3
So for a regulation to be “necessary” to the programs’
“administration,” 42 U.S.C. §§ 1302(a), 1395hh(a)(1), the
Secretary must demonstrate an actual and discernible nexus
between the rule and the conduct or management of Medicare
and Medicaid programs. The regulation’s operational focus
must also be on those two programs, and the rule’s effect must
be more than tangential. For example, the Secretary would be
hard pressed to defend as necessary to program administration
a rule forbidding vending machines or smoking breaks at
3
Administration, BLACK’S LAW DICTIONARY 58 (3d ed. 1933)
(“In public law. The administration of government means the
practical management and direction of the executive department, or
of the public machinery or functions, or of the operations of the
various organs of the sovereign.”); Administration, WEBSTER’S NEW
INTERNATIONAL DICTIONARY 34 (2d ed. 1941) (defs. 1a, 2)
(defining “administration” as the “[a]ct or process of administering”
or “[t]he managing or conduct of an office or employment; the
performance of the executive duties of an institution, business, or the
like”).
The term had essentially the same meaning in 1965 when
Section 1395hh(a)(1) was enacted. See Administration, BLACK’S
LAW DICTIONARY 65 (4th ed. 1951) (defining “administration” as
the “[m]anaging or conduct of an office or employment”); id. (“In
public law, the administration of government means the practical
management and direction of the executive department, or of the
public machinery or functions, or of the operations of the various
organs of the sovereign[.]”); see also Administration, THE OXFORD
ENGLISH DICTIONARY 163 (2d ed. 1989) (defs. 3, 4) (defining
“administration” as “management” of either business or public
affairs, relying on historical usage dating back to the Fourteenth
Century).
13
businesses that employ Medicare or Medicaid recipients just
because those measures could promote healthier living and
thereby reduce program costs. In other words, the further a
regulation strays from truly facilitating the “administration” of
the Secretary’s duties, the less likely it is to fall within the
statutory grant of authority.
The Disclosure Rule strays far off the path of
administration for four reasons.
First, disclosure of a pharmaceutical’s “list price”—its
wholesale acquisition cost, 84 Fed. Reg. at 20,758—bears little
meaningful relationship to the price that either the federal
government or Medicare and Medicaid beneficiaries pay for
drugs. The Department conceded at oral argument that
reimbursement under Medicare Part B “in most cases” is tied
“to the average sales price of [a] drug” rather than to the
wholesale acquisition cost. Oral Arg. Tr. 5:3–7. Occasionally,
cost-sharing prices might also be “based on” the wholesale
acquisition cost, but that is the exception rather than the rule.
See 84 Fed. Reg. at 20,740; cf. Oral Arg. Tr. 6:4–20, 19:2–4
(asserting that, when there is no “established [average sales
price,]” Part B reimbursements “can be” based on the
wholesale acquisition cost).
The amount that Medicare beneficiaries pay under Part B
is even further removed from the wholesale acquisition cost.
As of 2019, Part B beneficiaries’ annual deductible was only
$185. Oral Arg. Tr. 19:20–21.4 Once their deductibles are met,
beneficiaries typically pay 20 percent coinsurance for
prescription pharmaceuticals. Oral Arg. Tr. 19:20–20:12; see
4
See also Disclosure Rule, 84 Fed. Reg. at 20,740; Centers for
Medicare & Medicaid Services, 2019 Medicare Parts A & B
Premiums and Deductibles, https://www.cms.gov/newsroom/fact-
sheets/2019-medicare-parts-b-premiums-and-deductibles.
14
also Disclosure Rule, 84 Fed. Reg. at 20,740. Therefore, even
in the limited circumstances where the wholesale acquisition
cost comes into play, consumers often are shielded from paying
that amount. Moreover, the Rule did not rest on any finding
that Medicare consumers are generally aware of how their
payments are computed in relationship to the wholesale
acquisition cost.
The Department also admitted that, under Medicare
Part D, insurance plans typically do not pay the full wholesale
acquisition cost. Rather, plan administrators and pharmacies
actively negotiate over the appropriate price. See Oral Arg. Tr.
7:4–7. And again, beneficiaries typically pay only a fraction of
this negotiated price, either in the form of a copay or
coinsurance.5
The Secretary nonetheless insists that the wholesale
acquisition cost is closely connected to the price Medicare
participants pay, explaining that Part D beneficiaries who are
responsible for coinsurance “effectively pay[] a percentage of
a metric that is closely related” to the wholesale acquisition
cost. Oral Arg. Tr. 7:9–12. But to state that what some
Medicare beneficiaries pay is at best three steps removed from
the disclosed wholesale acquisition cost only highlights the
5
See Juliette Cubanski et al., Kaiser Family Foundation,
Medicare Part D in 2018: The Latest on Enrollment, Premiums, and
Cost Sharing, figure 9 (May 17, 2018), https://www.kff.org
/medicare/issue-brief/medicare-part-d-in-2018-the-latest-on-
enrollment-premiums-and-cost-sharing; Juliette Cubanski et al.,
Kaiser Family Foundation, Medicare Part D: A First Look at
Prescription Drug Plans in 2019 (Oct. 16, 2018),
https://www.kff.org/medicare/issue-brief/medicare-part-d-a-first-
look-at-prescription-drug-plans-in-2019.
15
gulf between the Disclosure Rule and the actual operation of
the Medicare program.
The relationship between wholesale acquisition cost and
Medicaid is also quite attenuated. Under Medicaid, States
develop plans to implement the Medicaid statute and to provide
healthcare services to covered populations, subject to the
Secretary’s approval. 42 U.S.C. § 1396a(a), (b). At oral
argument, the Department explained that each plan establishes
the applicable drug prices to be paid under Medicaid in that
State. Oral Arg. Tr. 16:1–8. When pressed, the Department
said that it was unaware of any State that had adopted the
wholesale acquisition cost as the applicable price, and that it
was “unlikely” any had. Oral Arg. Tr. 16:9–15. Moreover, the
Manufacturers note—and the Department does not contest—
that the vast majority of Medicaid beneficiaries pay at most a
nominal copayment for prescription drugs. See J.A. 250; see
also Oral Arg. Tr. 59:8–24. And, again, the Secretary made no
finding that Medicaid consumers were generally aware of any
relationship between what they pay and the wholesale
acquisition cost.
To be sure, the Secretary determined that “some
consumers” will find that their coinsurance payments “increase
as the [wholesale acquisition cost] increases.” Disclosure Rule,
84 Fed. Reg. at 20,733 (emphasis added). That is so, the
Secretary said, because patients will often pay either the
wholesale acquisition cost or a cost-sharing amount of that
price “when drugs are purchased early in the year before a
deductible has been met, or during the plan year when
coinsurance applies, or at any time when a drug is not covered
by insurance[.]” Id. at 20,740. But it is not at all clear that this
point specifically refers to Medicare or Medicaid consumers,
as opposed to medical consumers generally. See id. at 20,740
(“A drug’s [wholesale acquisition cost] has relevance as a
16
benchmark in both federal and commercial health care
programs.”) (emphasis added).
In any event, the Secretary’s “either” reference again fails
to show that any substantial number of Medicare or Medicaid
consumers would pay the wholesale acquisition cost, or would
even understand the relationship between what they pay and
the price the Rule orders disclosed. In fact, the Centers
admitted at oral argument that the wholesale acquisition cost is
“a price that’s rarely paid[.]” Oral Arg. Tr. 39:1. On this
record, it is difficult to see how requiring the disclosure of
wholesale acquisition cost to consumers generally promotes
price transparency in any material way, or how it is otherwise
related to the “administration” of either Medicare of Medicaid.
Second, similarly attenuated is the Secretary’s claim that
disclosure of the wholesale acquisition cost “may inform”
consumers’ “critical health care decisions related to their
treatment with prescription drugs or biological products[.]”
Disclosure Rule, 84 Fed. Reg. at 20,733 (emphasis added).
For starters, the Rule again leaves unclear if this point is
aimed at Medicare and Medicaid consumers, or consumers
generally. See 84 Fed. Reg. at 20,740. If the latter, as the
Federal Register suggests, that would underscore the Rule’s
administrative overreach.
Anyhow, while agencies often can regulate based on
educated judgments about probabilistic outcomes, that is not
what is going on here. “May[be]” informing consumers about
a price that Medicaid and Medicare customers will almost
never pay, and that they are unlikely to understand, unlashes
the disclosure from its claimed administrative mooring.
Worse still, the Secretary candidly acknowledged that the
disclosure could just as well backfire. “[C]onsumers,
17
intimidated and confused by high list prices, may be deterred
from contacting their physicians about drugs or medical
conditions[,]” and may be “discourage[d] * * * from using
beneficial medications.” Disclosure Rule, 84 Fed. Reg. at
20,756. That, in turn, could “potentially increase [the] total
cost of care” under the Medicare and Medicaid programs. Id.
The Secretary also admitted a “lack [of] data to quantify these
effects.” Id. Generating potentially harmful confusion through
disclosures to the general public of information that is largely
disconnected from Medicare and Medicaid pricing is not a
plausible means of administering the programs.
Third, the Disclosure Rule regulates advertising directed
at the general public and not communications targeted
specifically, or even predominantly, to Medicare or Medicaid
recipients. See 84 Fed. Reg. at 20,732, 20, 758. That further
increases the distance between the Disclosure Rule and any
actual administration of those programs. Standing alone, that
factor might not foreclose the Secretary’s interpretation of his
authority, but it opens another fissure between the required
disclosure and the programs’ administration, particularly when
combined with the marginal relevance of the wholesale
acquisition cost in the first place.
Fourth, and finally, the sweeping “nature and scope of the
authority being claimed by the” Department underscores the
unreasonableness of the Department’s claim that it is just
engaged in general “administration.” Loving, 742 F.3d at 1021.
As the Supreme Court has explained, “courts should not lightly
presume congressional intent to implicitly delegate decisions
of major economic or political significance to agencies.” Id.
(citing Brown & Williamson, 529 U.S. at 160); see also Utility
Air Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2444 (2014)
(“When an agency claims to discover in a long-extant statute
an unheralded power to regulate ‘a significant portion of the
18
American economy,’ we typically greet its announcement with
a measure of skepticism.”) (citation omitted) (quoting Brown
& Williamson, 529 U.S. at 159–160).
The Department’s construction of the statute would seem
to give it unbridled power to promulgate any regulation with
respect to drug manufacturers that would have the arguable
effect of driving down drug prices—or even healthcare costs
generally—based on nothing more than their potential salutary
financial benefits for the Medicare or Medicaid program. This
suggests a staggering delegation of power, far removed from
ordinary administration. Could the Department dictate salaries
at pharmaceutical companies that make or sell products “for
which payment is available, directly or indirectly, under”
Medicare or Medicaid, 84 Fed. Reg. at 20,758? Could it
superintend pharmaceutical companies’ business operations to
cut costs? Surely not. But the Department’s reasoning
suggests that such regulations would be fair game as long as
they ultimately resulted—even indirectly—in reduced
Medicare or Medicaid expenditures or increased price
competition.
The Department counters that this rule is not of major
significance because compliance costs would be low. But that
is hardly the only measure of significance. The Disclosure
Rule at least implicates a substantial constitutional question
concerning the government’s authority to regulate the public
speech of companies just because some percentage of the
audience is involved in a governmental program from which
the businesses indirectly derive financial benefit. See AFL-
CIO v. FEC, 333 F.3d 168, 179–180 (D.C. Cir. 2003) (striking
down the agency’s construction under Chevron Step Two
because the agency’s approach raised “serious constitutional
difficulties”) (internal quotation marks omitted); id. (agency’s
construction was “properly addressed at Chevron [S]tep
19
[T]wo” because the statute was subject to “more than one
constitutionally permissible interpretation”).
In any event, the breadth of the Secretary’s asserted
authority is measured not only by the specific application at
issue, but also by the implications of the authority claimed. See
Gonzales v. Oregon, 546 U.S. 243, 248–249, 267–268 (2006)
(rejecting the argument that Congress implicitly delegated the
authority to “prohibit doctors from prescribing regulated drugs
for use in physician-assisted suicide” in part because, under the
Government’s theory, the Attorney General would have broad
power to “decide whether any particular drug may be used for
any particular purpose,” and whether “a physician who
administers any controversial treatment could be” punished)
(emphasis added).
In closing, we emphasize that nothing in this opinion holds
that the Secretary is categorically foreclosed from regulating
pharmaceutical advertisements. We leave that question for
another day and hold only that no reasonable reading of the
Department’s general administrative authority allows the
Secretary to command the disclosure to the public at large of
pricing information that bears at best a tenuous, confusing, and
potentially harmful relationship to the Medicare and Medicaid
programs. Although the Secretary’s regulatory authority is
broad, it does not allow him to move the goalposts to wherever
he kicks the ball.
IV
For the foregoing reasons, we affirm the district court’s
judgment vacating the Rule.
So ordered.