Drug Price Disclosure to Consumers: Current Legal Authority and Considerations for Congress
Legal Sidebari
Drug Price Disclosure to Consumers: Current
Legal Authority and Considerations for
Congress
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.
Drug price transparency measures are a key feature of recent efforts to reduce the escalating prices of
many prescription medications. Some Members of Congress and the Trump Administration are currently
exploring various initiatives intended to demystify drug prices, make patients more savvy consumers of
pharmaceuticals, and, in turn, reduce the costs of these products. Notably, as part of these initiatives, the
Centers for Medicare and Medicaid Services (CMS) recently issued a final rule requiring certain
prescription drug and biological product television advertisements to convey specified pricing
information. This rule has sparked debate, as well as a legal challenge involving two distinct, but related
legal issues: (1) whether the disclosure requirement would run afoul of the First Amendment of the
Constitution, and (2) whether CMS possesses the statutory authority to promulgate this rule under its
general authority to administer the Medicare and Medicaid programs. This Sidebar surveys the latter issue
(see this earlier Legal Sidebar on the first question). In so doing, the Sidebar addresses the Executive
Branch’s current legal authority to promote drug price transparency to consumers and explores legislative
proposals concerning drug price transparency currently before the 116th Congress.
CMS Drug Pricing Transparency Regulation
Effective July 9, 2019, the new CMS rule will require direct-to-consumer (DTC) television
advertisements for covered pharmaceutical products to include a textual statement indicating the current
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wholesale acquisition cost (WAC, also referred to as the list price), for a typical 30-day regimen or a
course of treatment, whichever is more appropriate. In general, the WAC is the manufacturer’s published
or listed price for a pharmaceutical product to wholesalers or direct purchasers, absent any discounts,
rebates, or other reductions in price that drug purchasers may receive. Some commentators compare the
WAC to a sticker price on a car, as pharmaceutical manufacturers, much like car manufacturers,
commonly negotiate price concessions with entities along the distribution chain, such as wholesalers,
pharmacies, health insurers, and pharmacy benefit managers (PBMs). Additionally, a consumer’s health
insurance (offered through the private insurance market or a government-sponsored health care program
such as Medicare) may subsidize a portion of a drug’s cost, with the consumer paying only set cost-
sharing. For these reasons, the WAC may not reflect the actual price that parties in the pharmaceutical
supply chain (including consumers) pay for a medication.
Pursuant to the final rule, the requisite pharmaceutical pricing statement that must be included in DTC
advertisements is as follows:
“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.”
Subject to an exception for certain low-cost medications, the final rule applies to products for which
payment is available, directly or indirectly, under Medicare or Medicaid. CMS estimates that about 25
pharmaceutical companies will run approximately 300 distinct television advertisements each quarter that
are subject to the disclosure requirements of the final rule.
CMS depends on its authority under Medicare and Medicaid provisions of the Social Security Act (SSA)
to promulgate the drug price disclosure rule. As background, Title XVIII of the SSA establishes the
Medicare program, which provides health coverage to persons age 65 and older, as well as certain other
qualified beneficiaries. Medicaid, created under Title XIX of the SSA, is a cooperative effort by the
federal government and the states to provide medical assistance for low-income and certain medically
needy individuals. The Secretary of Health and Human Services (HHS) has charged CMS with
administration and enforcement of these health care programs. In general, drug coverage is available
under Medicare and Medicaid, but there is variation in the structure of available drug benefits and out-of-
pocket costs for eligible beneficiaries. While these health care programs have certain mechanisms in place
to let beneficiaries know about available covered medications and the amount they will need to pay for
their prescriptions (e.g., the Medicare Plan Finder), Congress has not explicitly permitted CMS to compel
disclosure of pharmaceutical list prices to the public.
In requiring list price disclosure in televisions advertisements, CMS relies on two statutory provisions:
sections 1102(a) and 1871(a) of the SSA. Section 1102(a) permits the Secretary to “make and publish
such rules and regulations non inconsistent with this Act . . . as may be necessary to the efficient
administration of the functions” with which the Secretary is charged under Medicare and Medicaid.
Section 1871(a) directs the Secretary to “prescribe such regulations as may be necessary to carry out the
administration of [Medicare] . . . .”
Authority for CMS to Promulgate the New Rule
As the Supreme Court has observed, “an agency’s power to regulate private entities must be grounded in
a statutory grant of authority from Congress.” Some courts have recognized CMS’s broad authority to
issue regulations under sections 1102 and 1871 of the SSA. However, in these cases, courts have typically
considered CMS’s rulemaking authority in the context of another more specific Medicare or Medicaid
requirement. For example, in a recent Third Circuit decision examining CMS’s regulatory authority to
issue regulations interpreting the Emergency Medical Treatment and Active Labor Act (EMTALA), the
court cited to section 1871 and declared that “Congress has expressly delegated authority to [CMS] to
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construe Medicare-related statutes, like EMTALA, through rules and regulations” (emphasis added). In
contrast, the Medicare and Medicaid Acts lack any additional provisions concerning drug price
disclosures, and CMS relies solely on sections 1102 and 1871 to authorize the new rule.
In ascertaining whether Congress has authorized a specific agency rule, courts commonly engage in a
two-step analysis articulated by the Supreme Court in Chevron U.S.A., v. Natural Resources Defense
Council. First, courts analyze the language of the authorizing statutes to determine whether the statute
clearly speaks to the question at issue. If, however, a statute “leaves a gap or is ambiguous,” courts then
“typically interpret it as granting the agency leeway to enact rules that are reasonable in light of the text,
nature, and purpose of the statute.” Nonetheless, the Court has recognized in a series of cases that
Chevron review is inapplicable where Congress did not intend to give the agency the authority to issue
binding legal rules on the issue in question.
General delegations of rulemaking authority akin to sections 1102 and 1871 may present distinct issues
concerning application of the Chevron test. Prior to Chevron, in Mourning v. Family Publications Service
and other decisions, the Supreme Court upheld the validity of rules issued under general rulemaking
provisions so long as the rule was “reasonably related to the purposes of the enabling legislation.” Under
this standard, courts afforded heightened discretion “to the informed experience and judgment of the
agency to whom Congress delegated appropriate authority.” While some courts have continued to rely
upon the Mourning approach as separate from the Chevron inquiry when interpreting general delegations
of authority, the more common approach of courts has been to view Mourning as being relevant only after
a court has determined as an initial matter that “Congress has indeed delegated interpretative powers to
that agency” on a particular issue. Moreover, courts adopting such an approach have rejected the view
that a “court is free to interpret a statute to conform to some view of its general purposes,” favoring an
evaluation of agency regulations in the context of the precise language and structure of a particular
statute. Accordingly, a reviewing court considering the new CMS rule would likely need to consider
whether Congress intended the agency to regulate drug price disclosures in DTC advertising and whether
the agency’s interpretation of sections 1102 and 1871 comport with the text and structure of the Medicare
and Medicaid Acts.
An initial question concerning the CMS rule is whether Congress intended CMS to mandate drug price
disclosures in DTC advertisements. In other words, does the rule present a question that Congress
empowered the agency to answer? Pursuant to the so-called “major questions” doctrine, “an agency can
fill in statutory gaps where ‘statutory circumstances’ indicate that Congress meant to grant it such
powers,” but this rule is not followed “when the ‘statutory gap’ concerns ‘a question of deep “economic
and political significance” that is central to the statutory scheme.’” In these and other cases involving the
major questions doctrine, the Court has declined to defer to an agency’s interpretation under Chevron or
has simply found Chevron analysis inapplicable. The Supreme Court first recognized the major questions
doctrine in FDA v. Brown & Williamson Tobacco Corp. There, the Court invalidated a final rule enabling
FDA to regulate tobacco products through its general authorities over drugs because the economic
consequences of the rule, coupled with numerous examples of tobacco-specific legislation that Congress
enacted outside of FDA’s jurisdiction, suggested that it was Congress’s “consistent judgment to deny the
FDA [the authority to regulate tobacco products].” Similarly, in Gonzales v. Oregon, the Court held that
the U.S. Attorney General lacked authority under the Controlled Substances Act (CSA) and its
implementing regulations to prohibit the distribution of controlled substances for the purpose of
facilitating state-sanctioned physician-assisted suicide. The Court rejected the idea that “Congress gave
the Attorney General such broad and unusual authority [to regulate standards of medical practice] through
an implicit delegation” in a CSA provision requiring prescriber registration. As the Court in Gonzales
further explained, Congress “does not alter the fundamental details of a regulatory scheme in vague terms
or ancillary provisions--it does not, one might say, hide elephants in mouseholes.”
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Relying on Brown & Williamson, Gonzales, and other Supreme Court precedent, opponents of the CMS
rule have claimed that Congress did not intend to give CMS authority to require list prices in DTC
advertisements. These critics point to a lack of clear, specific text in the Medicare and Medicaid statutes
that confers authority on CMS to require this type of price disclosure, as well as any reference in these
statutes to regulate this type of advertising. Critics have also argued that recent legislative efforts to
require drug price disclosure in DTC advertising demonstrates that Congress thinks the agency currently
lacks authority to implement the new rule. On the other hand, CMS has maintained that various Medicare
and Medicaid provisions reflect the idea that the health care programs should be administered in a way
that minimizes unnecessary health care expenditures, and the rule is in concert with this goal.
Accordingly, the agency has claimed that its rule is within the scope of its authority, given the “clear
nexus” between the requirements of the rule and Congress’s explicit recognition of the importance of
operating Medicare and Medicaid programs in this manner.
Another issue that may be relevant to the initial question of CMS’s authority to promulgate the drug price
disclosure rule is the regulatory scheme for prescription drug advertising under the Federal Food, Drug,
and Cosmetic Act (FD&C Act). Under one general principle of statutory interpretation, expressio unius
est exclusio alterius, courts may determine that the expression or inclusion of one thing in a law implies
the exclusion of others. The FD&C Act generally tasks the Food and Drug Administration (FDA) with
oversight of prescription drug advertising, including television advertisements. Under the FD&C Act,
DTC advertisements must generally contain certain information about a medication’s uses and risks, and
drug information must be clearly and accurately conveyed. However, the FD&C Act and accompanying
regulations do not compel inclusion of drug price information in these advertisements. Additionally, FDA
has previously indicated that its role in pharmaceutical advertising oversight does not include regulation
of drug prices, and that the “decision to engage in public disclosure of prescription drug prices is not for
the [FDA] to make.” Relying on the FDA’s role with DTC advertising, commentators have maintained
that CMS lacks authority to regulate prescription drug television advertising, as Congress expressly gave
a more limited power to regulate drug advertising to FDA under a different statute. In the preamble to the
final rule, however, CMS responds that the FDA’s role in regulating prescription drug advertising does
not preclude CMS from imposing a drug price disclosure requirement under Medicare and Medicaid.
Specifically, the agency has argued that “given CMS’s role as an agency that reimburses for drugs, it is
appropriate that CMS impose the price disclosure requirement, as it is the Medicare and Medicaid
programs that bear the cost of drugs with excessively high prices.”
Assuming a reviewing court deems agency interpretation appropriate and proceeds with a Chevron
analysis of the rule, the court would likely examine the language of the sections 1102 and 1871 to
determine whether the text of the statute clearly authorizes the CMS rule. As noted above, should a
reviewing court determine that it is ambiguous whether statutory text of the Medicare and Medicaid Acts
authorizes CMS to issue the drug-pricing rule, a reviewing court could then defer to CMS’s interpretation
of its statutory authority, so long as its interpretation is reasonable. CMS has generally alleged that the
rule complies with the first step of the Chevron test because the text of sections 1102 and 1871 provide
the agency with broad authority to promulgate rules that promote the efficiency of Medicare and
Medicaid. The agency has also stated that the rule warrants judicial deference under Chevron step-two, as
well as the Mourning case, as the rule is a reasonable means of improving the efficient administration of
Medicare and Medicaid by providing beneficiaries with “relevant information” about prescription drug
costs, so that beneficiaries can make informed decisions that lower costs for themselves, as well as the
health care programs.
In evaluating these assertions, a reviewing court’s Chevron step-one analysis of sections 1102 and 1871 of
the SSA could hinge on how the court construes the term “necessary” in the context of these provisions.
As noted above, sections 1102 and 1871 of the SSA generally grant CMS the authority to issue
regulations “necessary” to administer the Medicare and Medicaid programs. In general, courts interpret
statutory terms in accordance with their ordinary or natural meanings, unless Congress explicitly indicates
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otherwise. In the preamble to the final rule, CMS expressed that its regulation is “necessary,” because, in
the agency’s view, it is a reasonable means of improving the efficient administration of the health care
programs. However, opponents of the rule have generally argued that while the rule may generally help
promote drug price transparency and efficient pharmaceutical markets, list price disclosure is not
“necessary” (i.e., critical) to the specific functions of the health care programs themselves.
If a court reaches the second step of the Chevron test, it is more likely that the court would accept CMS’s
argument concerning the reasonableness of its price disclosure rule. The Supreme Court has historically
concluded that agencies are entitled to substantial deference in implementing policy decisions under
regulatory regimes, such as those created by the Medicare and Medicaid statutes, which are “technical
and complex.” A court’s analysis of the reasonableness of the CMS rule may also consider use of list
price (or the WAC) as the price that must be disclosed to the public. As noted above, for many drug
consumers, the WAC will not reflect the actual price that the consumer will pay out-of-pocket for a drug.
For example, under the Medicaid program, beneficiaries typically pay a small co-payment for prescription
drugs or nothing at all. While CMS has averred that the WAC is meaningful, in that it is an “anchor price”
from which consumers can make comparisons about therapeutic options, others have claimed that
publicizing the WAC will mislead consumers about the amount the consumer must pay for a drug, and
consequently discourage them from discussing these medications with their health care providers or from
having their prescriptions filled. Nonetheless, courts frequently adopt an agency’s views on questions of
policy at the second step of the Chevron analysis.
Accordingly, the new CMS rule raises a number of complex issues of administrative law and statutory
interpretation. And it appears that a court will soon grapple with these issues. On June 14, 2019, three
pharmaceutical manufacturers and an advertising industry association filed a lawsuit challenging the
validity of the CMS rule. The plaintiffs also requested that the court stay the effective date of the rule
pending judicial review, and expedite review of the case. The judge in this case has reportedly agreed to
act quickly, and has indicated that he will issue a decision on the motion to stay the case by July 8, 2019.
Drug Price Disclosure to Consumers and the 116th Congress
The CMS rule takes place against the backdrop of broader congressional deliberations over drug price
transparency measures. Currently, the 116th Congress is considering an array of legislative proposals
relating to prescription drug spending, and several of these bills include provisions designed to make drug
pricing information more readily accessible to consumers. This legislation would require disclosure of
drug pricing information to consumers through television advertisements or other formats. Perhaps most
relevant to the CMS rule, proposed legislation would, if enacted, resolve many of the statutory questions
surrounding CMS’s authority over drug price disclosures by codifying the agency’s authority.
Specifically, S. 1437, the Drug-Price Transparency in Communications (DTC) Act, would require that
each DTC advertisement for a prescription drug or biological product for which payment is available
under Medicare or Medicaid include “an appropriate disclosure of truthful and non-misleading pricing
information with respect to the drug or product.” The legislation would instruct the HHS Secretary,
through CMS, to determine the applicable forms of advertising and requisite price information for the
disclosure.
Other bills would take a different approach to the transparency issue. Examples include S.1664, the
Prescription Drug Price Reporting Act, which would direct prescription drug manufacturers to submit
WAC and other drug-related information to the Secretary of HHS. HHS would then have to post
submitted information on a publicly available online database. Another example, H.R. 2115, the Public
Disclosure of Drug Discounts Act, would require the HHS Secretary to make available on the agency
website specified information submitted from pharmacy benefit managers, including information on
rebates, discounts, and price concessions that PBMs negotiate with drug manufacturers. The intent of this
bill is to allow the public to compare the price reductions that PBMs receive and the impact these
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reductions have on drug prices. Unlike the advertising requirements in S. 1437 and the CMS rule, these
legislative proposals would require consumers to proactively seek out drug price data from a publicly
available website, and Members of Congress may consider questions of policy in evaluating the
appropriate vehicle for communicating this information.
Author Information
Jennifer A. Staman
Legislative Attorney
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