The U.S. Department of Health and Human Services (HHS) in May published a final rule that required drug makers to show the price of drugs costing more than $35 a month in any TV ads for those drugs. A federal District Court judge on Monday sided with three drug companies that had sued to challenge the requirement.

Merck, Eli Lilly and Amgen filed a complaint in June alleging that the new HHS rule’s requirement to disclose the wholesale acquisition cost (WAC disclosure rule) of a drug exceeded the department’s statutory authority, was arbitrary and otherwise not in line with the law and violated the First Amendment to the U.S. Constitution. The plaintiffs also filed a motion to stay the execution of the final rule, which would have taken effect July 9. The stay was granted on Tuesday, July 8.

Although an HHS spokesperson said the Trump administration was “disappointed in the court’s decision,” there really doesn’t seem to be any question that the drug companies had this one sewn up from the get-go. But that could change if Congress acts.

The federal District Court judge in the case, Amit P. Mehta, ruled that under the Social Security Act, Congress did not “expressly” grant HHS the authority to “compel” drugmakers to disclose prices in TV ads. Because Congress granted no such thing, then did Congress “expect” HHS to “speak with the force of law.” Citing several similar cases, Judge Mehta ruled that the department’s adoption of the WAC disclosure rule exceeded its authority. Game over.

HHS attempted an “incursion into a brand-new regulatory environment” and to accept the department’s arguments for why it could do so “would swing the doors wide open to any regulation, rule, or policy” that might save money unless any such rule was expressly prohibited by Congress.

Judge Mehta did not even address the drugmakers’ First Amendment argument because the HHS’s lack of statutory authority to impose the WAC disclosure rule was reason enough to stay enforcement of the final rule.

The political implications of both the rule as promulgated and its demise could be interesting in the run-up to next year’s presidential election. Trump administration officials have searched for ways to make good on some of the president’s 2016 campaign promises, including one to reduce drug prices. Can he get Congress to go along?

Will enough House Democrats oppose a bill that the president and congressional Republicans say will lower drug prices? That seems like a vote-killer in the coming elections, so the administration appears to have Democrats over a barrel. The Democrats, however, could go along with the disclosure rule while remaining fairly confident that it would be struck down on First Amendment grounds later.

Another question could be whether the president wants to give Congress more authority over regulation. Everything he’s done to date has put limits on regulation, tacitly acknowledging that Congress can agree on what day of the week it is, but little else.

Of course, Congress and the president could surprise us and give HHS limited authority to impose a WAC disclosure rule. Then the drugmakers would revive their First Amendment arguments. According to the Congressional Research Service, Congress would then face all manner of tricky maneuvering:

To the extent that these efforts could be viewed as compelling or otherwise burdening protected speech, they may implicate the First Amendment. Disclosure requirements that apply outside the context of advertising, however, may raise distinct First Amendment concerns. … But not every regulation of speech is unconstitutional, and courts may uphold disclosure requirements even if they do burden a drug manufacturer’s free speech rights, so long as the court determines that the burden is sufficiently justified and tailored to the problem at hand. … The evaluation of any given disclosure requirement’s constitutionality under the First Amendment would likely be highly fact-specific and context-dependent, given the nature of the law in this area.

Neither party will want to have a public “evaluation” of the issue before the 2020 elections.

Get Our Free Investment Newsletter

I have read, and agree to the Terms of Use

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.