Merck & Co., Inc. v. HHS, 962 F.3d 531

In May 2019 CMS promulgated a "Disclosure Rule" requiring pharmaceutical manufacturers to state the drug’s "list price" (defined as the wholesale acquisition cost) in television advertisements for drugs "for which payment is available, directly or indirectly," under Medicare or Medicaid, with a de minimis exception for drugs under $35/month.
CMS justified the Rule as within its power under 42 U.S.C. § 1302(a) and § 1395hh(a)(1) to make rules "necessary to the efficient administration" of Medicare and Medicaid, asserting transparency would lower prices and inform consumers.
Manufacturers (Merck, Eli Lilly, Amgen, and the Association of National Advertisers) sued under the APA and First Amendment; the district court granted a stay and vacated the Rule, holding CMS lacked statutory authority.
The D.C. Circuit reviewed de novo and applied Chevron, but resolved the case at Chevron Step Two by concluding the Rule was not a reasonable exercise of the Secretary’s administrative authority.
The court emphasized four defects: (1) the disclosed wholesale acquisition cost is poorly correlated with what Medicare/Medicaid or beneficiaries actually pay; (2) disclosures may confuse or harm patients and were not shown to advance program administration; (3) the Rule targets public advertising, not communications directed to program beneficiaries; and (4) the Rule’s breadth implies a consequential delegation of regulatory power that cannot rest on a general administrative grant.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether 42 U.S.C. § 1302(a) and § 1395hh(a)(1) authorize CMS to require manufacturers to disclose a drug's wholesale acquisition cost in TV ads	Merck: The statutes authorize rules "necessary to administration," not sweeping, untethered public-price-disclosure obligations; Rule regulates non-participants and is not necessary to manage the programs	CMS: The Rule is "necessary" to efficient administration because price transparency will reduce list prices, increase competition, and inform consumers, thereby lowering program costs	Affirmed vacatur: Rule unreasonably exceeds administrative authority; lacks an actual, discernible nexus to Medicare/Medicaid administration and is too attenuated and broad to be a reasonable exercise of the statutes
Whether the Rule implicates a major-question or significant-delegation concern that requires clear congressional authorization	Merck: The Rule would regulate a substantial portion of the economy (drug marketing) and implicate speech; Congress would not implicitly delegate such power in a general administrative clause	CMS: Compliance costs are low and the Rule is a modest exercise of authority to protect program finances	Held for Merck: The Rule’s sweep and potential consequences raise major-question/constitutional concerns; courts should not lightly infer such broad authority from general statutory grants

Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984) (framework for judicial review of agency statutory interpretation)
FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000) (courts should not lightly infer agency power to regulate matters of vast economic and political significance)
Utility Air Regulatory Group v. EPA, 573 U.S. 302 (2014) (skepticism toward agencies discovering major regulatory powers in long-extant statutes)
Mourning v. Family Publications Serv., 411 U.S. 356 (1973) (pre-Chevron case applying a "reasonably related" test for regulations under enabling provisions)
Thorpe v. Housing Authority of the City of Durham, 393 U.S. 268 (1969) (similar pre-Chevron discussion of "necessary" regulations for administration)
City of Arlington v. FCC, 569 U.S. 290 (2013) (deference principles and Chevron framework)
Gonzales v. Oregon, 546 U.S. 243 (2006) (rejecting expansive agency construction that would license broad regulatory control)
Louisiana Public Service Commission v. FCC, 476 U.S. 355 (1986) (agencies have no power to act absent congressional delegation)
Merck & Co. v. HHS, 385 F. Supp. 3d 81 (D.D.C. 2019) (district court vacated the Disclosure Rule)
Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014) (use of statutory text, structure, purpose, and history in Chevron analysis)