MERCK & CO., INC., ET AL., APPELLEES v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, ET AL., APPELLANTS
No. 19-5222
United States Court of Appeals for the District of Columbia Circuit
Argued January 13, 2020. Decided June 16, 2020.
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 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.
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 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,
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,
Second,
B
After undertaking the notice and comment process, the Centers published the Disclosure Rule in May 2019. See 84 Fed.
The Rule defines “[l]ist price” as “the wholesale acquisition cost” for the pharmaceutical. 84 Fed. Reg. at 20,758 (codified at
The Disclosure Rule identifies
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“),
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.
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.
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
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“).
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
The Department argues that, under Chevron Step Two, it reasonably concluded that the Disclosure Rule is “necessary”
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[,]”
So for a regulation to be “necessary” to the programs’ “administration,”
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
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
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.
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 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 or 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
Worse still, the Secretary candidly acknowledged that the disclosure could just as well backfire. “[C]onsumers, 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 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
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.
Notes
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).