Pharma Price Disclosure Rule Struck Down: Will Hospital Price Transparency Rule Meet the Same Fate?

Posted by Chris Raphaely and Danielle Sapega on June 19, 2020
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On June 16, the D.C. Circuit Court struck down the Centers for Medicare and Medicaid Services’ (“CMS”) rule issued in May 2019 requiring pharmaceutical companies to disclose the wholesale acquisition cost of drugs over $35 in their direct-to-consumer television advertisements (“RX Rule”). Similar to the RX Rule, the Hospital Price Transparency Rule, issued on November 27, 2019, requires hospitals to publish, among other information, payor-specific rates for certain services on their websites beginning on Jan 1, 2021 (“Hospital Rule”). Both rules stem from the Trump administration’s stated efforts to improve the nation’s health care quality and transparency, and both were met with swift legal opposition. The Hospital Rule litigation, American Hospital Association et al v. Azar, is currently before the U.S. District Court for the District of Columbia. While the D.C. Circuit Court’s RX Rule decision could be viewed as a predictor of the outcome of the Hospital Rule litigation, the alleged statutory authority underlying the Hospital Rule is different than the statutory authority underlying the RX Rule.  Therefore, the Circuit Court’s ruling in the RX Rule litigation may not be an accurate barometer of the likely outcome in the Hospital Rule litigation.

In promulgating the RX Rule, CMS cited Sections 1302(a) and 1395hh(a)(1) of the Social Security Act (“SSA”) as sources of statutory authority. Both sections, in short, grant the Secretary of the Department of Health and Human Services (“Secretary”) authority to prescribe rules and regulations necessary to administer the Medicare and Medicaid programs. While the Court acknowledged that the two sections undoubtedly grant the Secretary broad authority, it noted that “the Department [of Health and Human Services] acted unreasonably in construing its regulatory authority to include the imposition of a sweeping disclosure requirement that is largely untethered to the actual administration of the Medicare or Medicaid programs” (emphasis added). The Court undertakes a Chevron analysis, bypassing an analysis of the first Chevron step (whether Congress has directly spoken to the precise question at issue without leaving room for agency discretion) and delving into the Chevron second step’s “reasonably related” inquiry, ultimately concluding that the RX Rule was not reasonably related to CMS’ administrative authority over the Medicare and Medicaid programs.

The Hospital Rule, however, was not issued solely under the Secretary’s general administrative authority over the Medicare and Medicaid programs. Instead, the Hospital Rule was issued under the authority of Section 2718(e) of the Public Health Services Act (enacted as part of the Affordable Care Act) that specifically mandates hospitals’ disclosure of their “standard charges for items and services provided by the hospital.” Although the term “standard charges” is typically interpreted by hospitals and other industry participants to mean a hospital’s chargemaster rates, which bear very little relationship to the rates health insurers actually pay, CMS took the position in the Hospital Rule that “standard charges” also means privately negotiated payor-specific charges, cash rates, and minimum and maximum negotiated charges. Therefore, the outcome of the Hospital Rule litigation may hinge on whether Congress intended to grant CMS any discretion to interpret the term “standard charges” at all, not whether CMS’ discretion was exercised in a manner that was reasonably related to statutory authority under which the Hospital Rule was issued.

The District Court heard oral argument by video conference on May 7 on cross motions for summary judgment in the Hospital Rule litigation, but has yet to issue a ruling. We will monitor the case’s progression closely.

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