June 16, 2020
By Timothy Sandefur

Federal appellate judges this morning ruled that the Trump administration violated the law by trying to force pharmaceutical companies to tell consumers false information about their products. The case involved a rule that compelled drug companies to include in their advertisements what their products cost—which sounds nice, except that, as the Goldwater Institute explained in our brief in the case, there is no such number. Drug prices are decided through a process so complicated and subject to so many different factors, that the administration had tried instead to force companies to disclose the so-called Wholesale Acquisition Price—a number which actually bears almost no relationship to what patients pay for their medicine.

We argued that this violates the First Amendment because while current law allows the government to force businesses to tell customers true things about their products, it doesn’t allow the government to force companies to say untrue things, or things that are technically true but still misleading. The drug price did both things, by requiring companies to tell people prices that aren’t actually prices—which could have the dangerous consequence of discouraging people from getting medicines they need.

Today’s decision stopped short of declaring the administration’s actions unconstitutional; instead, it held that regulators overstepped their bounds because existing law doesn’t give them the authority to do what they did. In fact, the court found that the Department of Health and Human Services was engaged in a “staggering” effort to claim “unbridled power” for the federal government.

The Department claimed it could impose the rule because the law gives it authority to do what’s “necessary to the efficient administration of the functions with which [it] is charged,” which is admittedly a very broad delegation of power. And as we’ve explained elsewhere, courts using the theory of “Chevron deference,” allow bureaucratic agencies to interpret statutes as broadly as they like as long as their interpretations aren’t “unreasonable” and aren’t prohibited by the actual text of the law.

But the judges today ruled that the Department overstepped even the extremely wide boundaries of Chevron deference, because when the law says the agency can do what’s necessary to “administer the functions with which it’s charged,” that means it can do what’s necessary to manage the Medicare and Medicaid programs—not to do what’s necessary to regulate medical costs nationwide. The Department’s effort to argue the latter, said the court,

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. 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? 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.

That, the court said, was obviously too far, especially given the fact that the Wholesale Acquisition Price is simply not what customers actually pay or can be expected to pay. While the Department’s “regulatory authority is broad,” it concluded, “no reasonable reading” of the law allows it “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.”

Today’s decision is a welcome step in the direction of reining in the administrative state. You can read more about the case here.

Timothy Sandefur is the Vice President for Litigation at the Goldwater Institute.

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