Employers who pay for health benefits for their employees are painfully aware of the impact rising drug prices and drug utilization have on their plan costs. In May, the Trump Administration, through the Centers for Medicare and Medicaid Services (“CMS”), issued a new rule requiring drug companies, effective on July 9, 2019, to include wholesale or list prices in all ads for drugs where the monthly cost is likely to exceed $35.00. Although based upon the Medicare program, the rule would have affected all drug advertising, because it would have been impossible to avoid advertising to Medicare beneficiaries along with private plan participants. Thus, many employers looked favorably upon the rule as one step to rein in drug costs. Also supportive of the Trump Administration in this effort were the AARP, and Democrats in both Houses of Congress, along with many Republicans. Almost immediately, however, the rule was challenged by major drug companies, Amgen, Merck and Eli Lilly, plus the largest advertising association in the nation, the National Association of Advertisers.

The challenge was based on two major points: that the rule was an unconstitutional violation of the free speech rights of the advertisers; and that the rule was an unauthorized exercise of authority not delegated to CMS. On the eve of the rule’s effective date, Judge Amit Mehta of the D.C. Federal District Court blocked the rule, granting the plaintiffs an injunction. In doing so, he declined to use the constitutional issue as the basis for his ruling, instead finding that the Social Security Act had not given the administration the right to regulate television direct-to-consumer advertising. He pointed out that the rule might be a good one and might help control rising drug costs, but he could find nothing in the congressional delegation of authority that was broad enough to encompass mandating content in TV ads.

The department stated that it will be in consultation with the Justice Department as to next steps. For the immediate future, however, employers should not anticipate any additional transparency as to drug prices, and hence no optimism for knowledge-based reduction in demand for high-cost, minimally advantageous drugs from plan participants. Continued use of more blunt-force drug demand measures, such as use of formularies and pre-approvals will be necessary, even if they are not popular with plan participants. The other noteworthy upshot of this case is that, so far at least, bipartisan support of a Trump Administration initiative does not guarantee its survival in court. Judge Mehta’s reasoning seems consistent with both D.C Circuit and Supreme Court approaches to limits upon administrative agency authority. It remains to be seen whether Congress will be able to translate bipartisan support of the concept of mandated pricing advertising into legislation.

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Photo of Keith A. Ashmus Keith A. Ashmus

Designated Best Lawyers’ “2016 Lawyer of the Year” in Labor Law-Management in Cleveland and named to the Top 100 Ohio Super Lawyers, Keith is nationally recognized as a respected advocate and a trustworthy neutral. His practice focuses on employment law and business law, as well as mediation and arbitration cases around the nation. Keith is a Past President of the Ohio State Bar Association and a Past Chairman of both the Labor Law Section and the ADR Committee of the Cleveland Metropolitan Bar Association.

Keith is a recognized advocate for small business, having served as Chair of both the Council of Smaller Enterprises and the National Small Business Association. He has testified before the U.S. Senate and House of Representatives Committees, as well as the Ohio General Assembly, in support of small business positions.