Drug Price Disclosures and the First Amendment

Drug Price Disclosures and the First Amendment

Legal Sidebari

Drug Price Disclosures and the First
Amendment
Updated July 9, 2019
Update: On July 8, 2019, the U.S. District Court for the District of Columbia held that the Department of
Health and Human Services (HHS) exceeded its statutory authority in promulgating its new rule on drug
list price disclosures. As the court explained, “[n]either the [Social Security] Act’s text, structure, nor
context evince an intent by Congress to empower HHS to issue a rule that compels drug manufacturers to
disclose list prices. The Rule is therefore invalid.” The court ultimately vacated the rule. Because the
court concluded that the agency lacked the statutory authority to issue the rule, the court did not evaluate
whether the rule violated the First Amendment. HHS has not yet signaled whether it will appeal the
decision.
The original post from July 5, 2019 is below.
On May 10, 2019, the Centers for Medicare & Medicaid Services (CMS) published a final rule that will
require direct-to-consumer (DTC) television advertisements for certain prescription drugs and biologics to
include the wholesale acquisition cost of covered pharmaceuticals, also known as the list price, in those
ads. During the comment period on the rule, a number of commenters raised concerns about two distinct
legal issues: (1) whether the disclosure requirement would unlawfully compel advertisers’ speech in
violation of the Free Speech Clause of the Constitution, and (2) even if the new rule is permissible as a
constitutional matter, whether CMS possesses the statutory authority to promulgate this rule in the first
place. This Sidebar investigates the first question. (Another Sidebar will focus on the statutory
interpretation issue.)
CMS Regulation to Require Drug Pricing Transparency
The final rule, scheduled to become effective on July 9, 2019, provides that DTC television ads for
prescription drugs and biological products for which payment is available under Medicare or Medicaid
“must contain a textual statement indicating the current list price for a typical 30-day regimen or for a
typical course of treatment.” The rule specifies the precise statement to be made:
“The list price for a [30-day supply of] [typical course of treatment with] [name of prescription drug
or biological product] is [insert list price]. If you have health insurance that covers drugs, your cost
may be different.”
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The rule also requires that the statement be presented “in a legible manner, meaning that it is placed
appropriately and is presented against a contrasting background for sufficient duration and in a size and
style of font that allows the information to be read easily.” The quoted provisions are identical to the rule
proposal that CMS issued in late 2018. CMS says that the rule is intended to “improve the efficient
administration of the Medicare and Medicaid programs” by providing consumers “with relevant
information about the costs of prescription drugs,” ensuring that “they can make informed decisions” to
minimize costs.
Commercial Disclosure Requirements and the First Amendment
During the comment period, a number of groups argued that the proposed rule violated the First
Amendment by compelling manufacturers to state a drug’s list price in DTC advertisements. The rule’s
disclosure requirement likely does regulate speech rather than non-expressive conduct: the Supreme Court
held in 1976 that “prescription drug price advertising” is protected by the First Amendment, and more
recently, said that if the government regulates “the communication of prices rather than prices
themselves,” the government is regulating speech. Further, as discussed in more detail in this report, the
Supreme Court has said that, generally, disclosure requirements compel speech and are accordingly
subject to heightened scrutiny under the First Amendment.
CMS, however, maintains that the new list-price disclosure requirement is constitutional under the
authority of a Supreme Court decision called Zauderer v. Office of Disciplinary Counsel—also discussed
in the report mentioned above. In Zauderer, the Court considered a First Amendment challenge to a state
rule requiring attorney advertisements that mentioned contingent-fee rates to disclose how the fee would
be calculated. The Supreme Court acknowledged that in other contexts, it had previously ruled that the
government could not compel speech. For example, in West Virginia State Board of Education v. Barnette,
the Court held that a state could not punish students who refused to salute the flag. In subsequent years,
the Supreme Court has affirmed that, as a general matter, a government law compelling noncommercial
speech will be subject to strict scrutiny and presumptively unconstitutional.
But in Zauderer, the Court said that the free speech interest of the attorney challenging the state rule was
“not of the same order” as the interests discussed in Barnette. The Court has generally treated commercial
speech—defined as speech that “does no more than propose a commercial transaction”—differently than
“other constitutionally guaranteed expression,” and has said that the Constitution “accords a lesser
protection to commercial speech.” Noting that commercial speech is valuable because of its potential to
inform consumers, the Court concluded in Zauderer that the attorney’s First Amendment “interest in not
providing any particular factual information in his advertising is minimal.” Under the circumstances, the
Court held “that an advertiser’s rights are adequately protected as long as disclosure requirements are
reasonably related to the State’s interest in preventing deception of consumers.” The Court concluded that
this standard was met in the case before it, stating that the possibility of deception was “self-evident”
because “members of the public are often unaware of the technical meanings of such terms as ‘fees’ and
‘costs’—terms that, in ordinary usage, might well be virtually interchangeable.” Consequently, the Court
said that the state’s “position that it is deceptive to employ advertising that refers to contingent-fee
arrangements without mentioning the client’s liability for costs is reasonable enough to support a
requirement that information regarding the client’s liability for costs be disclosed.”
Therefore, for certain commercial disclosure requirements, to survive a constitutional challenge, Zauderer
requires the government to show only that a disclosure requirement is “reasonably related” to a sufficient
government interest. This standard is easier for the government to meet than strict scrutiny, which requires
the government to show that the law is “narrowly tailored to serve compelling state interests.” Zauderer is
also a more lenient test than the intermediate scrutiny standard that generally applies to commercial
speech, which requires that a regulation “directly advance” a “substantial” governmental interest and be
no “more extensive than is necessary to service that interest.” However, as the Supreme Court recently

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emphasized, “[e]ven under Zauderer, a disclosure requirement cannot be unjustified or unduly
burdensome.”
Importantly, courts have concluded that Zauderer’s “reasonably related” standard only applies to certain
types of disclosure requirements: in particular, Zauderer governs the constitutional analysis of provisions
that compel the disclosure of “factual and uncontroversial” commercial information related to the goods
or services the speaker provides. Some judges have argued that to be eligible for review under Zauderer’s
more lenient standard, the government must also justify the requirement by citing an interest in preventing
misleading speech, rather than, for example, an interest in protecting public health and safety. However,
most courts that have considered the question have rejected this position, applying Zauderer and
upholding disclosure requirements even where the government asserts an interest other than preventing
consumer deception. (The Supreme Court has not specifically addressed this last question.)
Assessing the New CMS Rule under the First Amendment
A number of parties commenting on CMS’s proposed list-price disclosure rule argued that Zauderer does
not apply and the rule should be subject to heightened First Amendment scrutiny. Some commenters
claimed that a drug’s list price is not “purely factual” or “uncontroversial” because the list price does not
reflect the cost paid by most consumers. For example, many patients pay lower prices because insurance
covers some of the cost. Commenters also argued that Zauderer should not apply because CMS was not
claiming that prescription drug advertisements are misleading or that the disclosure would prevent
consumer deception. Others claimed that even if Zauderer governs the analysis, the rule should
nonetheless be considered unconstitutional because it was unjustified, arguing that CMS has not proved
that consumers are currently unaware of drugs’ prices or that providing consumers with that information
would help lower drug prices. Still others argued that the rule was unduly burdensome, forcing drug
manufacturers to devote a relatively significant portion of their limited television advertising space to a
government-scripted message that would distract from their own message.
In its explanation of the final rule, CMS addressed these arguments, describing a drug’s list price as “an
objective fact” and claiming that because the list price “is a truthful statement of objective fact that is not
subject to dispute, it is ‘uncontroversial.’” The agency also said that the final sentence in the disclosure,
advising consumers that if they have insurance, their costs may be different, “directly addresses” the
concern that consumers might “misunderstand” the list price disclosure. With respect to the argument that
Zauderer only applies to disclosures intended to prevent consumer deception, CMS cited lower court
decisions to the contrary and concluded that the better view of “current law” is “that the Zauderer test is
not limited to disclosures designed to prevent consumer deception.” The agency further argued that its
interest in combating “rising drug prices” was sufficient to justify the disclosure requirement. But CMS
also claimed that ads that do not include the list price may be misleading because without access to that
information, “consumers appear to dramatically underestimate their [out-of-pocket] costs for expensive
drugs.” Finally, CMS said that the disclosure would not be unduly burdensome, because the “brief textual
statement . . . neither drowns out the speaker’s message nor rules out broadcast advertisements as a mode
of communication.”
CMS also argued in the alternative that even if the rule did not qualify for Zauderer review, the disclosure
requirement would withstand the intermediate scrutiny that generally applies to government acts affecting
commercial speech. The intermediate scrutiny standard requires the government regulation to “directly
advance” a “substantial” interest and be no “more extensive than is necessary to service that interest,”
CMS first said that it has a “substantial government interest in reducing prescription drug or biological
product costs generally, as well as the costs borne by Medicare and Medicaid.” Further, the agency argued
that disclosure of the list price “clearly and directly advances this interest” by improving market
efficiencies and “helping consumers make informed choices.” Turning to the question of whether the rule
burdened more speech than necessary to serve its interest, some commenters had argued that as a less

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speech-restrictive alternative, CMS should “encourage companies to institute voluntary price disclosure
measures.” (At least one industry group announced last year that members would soon include a website
in their DTC television ads where consumers could find more information about medicine costs.) In
response, CMS concluded that these “voluntary measures will be insufficient to ensure the continued
commitment of all of the relevant companies.”
Ultimately, if the rule is challenged in court, it is somewhat difficult to predict whether a court would
agree with CMS’s assessment of the disclosure’s constitutionality. While lower courts have upheld a wide
variety of commercial disclosure requirements, the Supreme Court has left open a number of significant
questions regarding when and how to apply Zauderer. In addition, the Supreme Court may have signaled
last term that lower courts should, in the future, apply more rigorous review to commercial disclosure
requirements when applying Zauderer. In National Institute of Family and Life Advocates (NIFLA) v.
Becerra, the Court considered a First Amendment challenge to a California law that required certain crisis
pregnancy centers to disclose in their advertising that the facilities were “not licensed as a medical
facility.” A majority of the Court concluded that even under the more deferential Zauderer standard,
California had not proved that its disclosure requirement was justified and not unduly burdensome. One
attorney for the Washington Legal Foundation—a group that filed a comment opposing the adoption of
the list-price disclosure rule—has argued that NIFLA suggests that the Court may be shifting its approach
to commercial speech, subjecting government restrictions on commercial speech to heightened scrutiny.
But as CMS noted in its final rule, the Supreme Court has not expressly overruled its cases affording less
protection to commercial speech, and so far, has continued to review restrictions on commercial speech
under a more permissive standard.
Implications for Congress
This rulemaking highlights the First Amendment issues that may arise if the government requires the
disclosure of prescription drug price information—issues that Congress may confront as it evaluates
legislative proposals concerning medical bills and drug pricing. Congress has in the past considered bills
that would require drug manufacturers to disclose drug prices in commercial advertisements as well as
other communications with health care practitioners. At least one bill introduced this session would
require pharmacists to disclose certain drug costs to customers. And a number of bills currently pending
would require drug manufacturers to report various pricing information to the government. 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. For example, in Citizens United v.
Federal Election Commission (FEC), the Supreme Court upheld a federal provision requiring persons
who spent more than $10,000 on electioneering communications to file disclosure statements with the
FEC—even though the provision did “burden the ability to speak.” 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.

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Author Information

Valerie C. Brannon

Legislative Attorney

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