Merck & Co. v. U.S. Dep't of Health & Human Servs., 385 F. Supp. 3d 81

Background

Plaintiffs (Merck, Eli Lilly, Amgen, and the National Association of Advertisers) challenged HHS/CMS's WAC Disclosure Rule, which compelled disclosure of a drug's wholesale acquisition cost (WAC) in television ads. Plaintiffs sued under the APA and raised First Amendment claims; the court addressed only the APA lack-of-authority claim.
Plaintiffs moved to stay (and the court consolidated the stay motion with merits) seeking vacatur of the Rule as exceeding HHS's authority under the Social Security Act (SSA). The court did not reach the First Amendment claim.
HHS relied on broad SSA grants (42 U.S.C. §§ 1302, 1395hh) authorizing rules “necessary to the efficient administration” of Medicare and Medicaid to justify the Rule as a cost-saving measure. HHS argued the Rule reasonably relates to administration and cost control.
Plaintiffs countered Congress never delegated authority in the SSA to regulate drug marketing or compel price disclosures in DTC (direct-to-consumer) television ads; that subject is addressed in the FDCA and by FDA authority. Plaintiffs argued Chevron deference should not apply because there is no implicit delegation.
The court applied Chevron, but held at Chevron Step One that the SSA does not implicitly authorize HHS to compel WAC disclosures in TV ads — the SSA’s administration-focused grants target program operations/participants, not general market regulation of pharmaceutical advertising.
As a result, the court vacated the WAC Disclosure Rule as exceeding statutory authority under 5 U.S.C. § 706(2)(C).

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Chevron governs review of HHS's interpretation of its SSA authority	Chevron applies and court should ask whether SSA forecloses HHS's claim of authority	Defendants urged a pre-Chevron "reasonably related" Mourning standard and urged deference without invoking Chevron	Court applies Chevron (City of Arlington/Mead) and proceeds with Step One inquiry
Whether SSA grants HHS authority to compel WAC disclosures in TV ads	SSA contains no explicit or implicit delegation; subject is outside administration of Medicare/Medicaid and instead concerns drug marketing addressed by FDCA/FDA	General rulemaking power in SSA plus cost-control purpose permits rules affecting market actors to reduce program expenditures	Court holds SSA does not delegate authority for the Rule; compelled disclosures exceed HHS's SSA authority
Whether other statutes or context imply delegation (e.g., FDCA, congressional action)	Congress has legislated on drug advertising under FDCA; silence in SSA weighs against reading-in broad market regulation authority	Defendants: FDCA serves different purpose and does not preclude CMS regulation; absence of express prohibition permits CMS action	Court finds FDCA shows Congress regulates drug advertising specifically and SSA silence does not imply delegation; proximity to agency's ordinary duties also undermines delegation claim
Remedy	Vacatur requested	N/A	Court vacates the WAC Disclosure Rule under APA § 706(2)(C)

Key Cases Cited

Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n, 447 U.S. 557 (First Amendment commercial-speech intermediate-scrutiny framework)
Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, 471 U.S. 626 (compelled commercial disclosures standard)
Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (agency statutory-interpretation deference framework)
City of Arlington v. FCC, 569 U.S. 290 (Chevron governs agency authority/interpretation challenges)
United States v. Mead Corp., 533 U.S. 218 (limits on Chevron deference; need for congressional delegation)
FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (courts consider other statutes and significance of economic/political impact in delegation analysis)
Mourning v. Family Publications Servs., Inc., 411 U.S. 356 (reasonably-related standard for broad delegations; pre-Chevron context)
Thorpe v. Housing Auth. of City of Durham, 393 U.S. 268 (agency rules reasonably related to statutory purposes upheld)
Utility Air Regulatory Group v. EPA, 573 U.S. 302 (expectation that Congress speak clearly when delegating major regulatory decisions)
Colorado River Indian Tribes v. Nat'l Indian Gaming Comm'n, 466 F.3d 134 (agency cannot regulate beyond means chosen by Congress for a statutory purpose)
Doe 1 v. FEC, 920 F.3d 866 (deference where agency rule tied to agency's statutory objectives and participants)