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Case number 19-5222, Merkin Coe, Inc.

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at Elle v. United States Department of Health and Human Services at Elle Appellates.

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Mr. Davis for the appellate, Mr. Bress for the appellate.

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Mr. Davis, good morning.

[00:00:17] Speaker 06:
Good morning.

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May it please the Court, Ethan Davis, for the United States.

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The statutory authority question in this case begins with the plain text of the statute.

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Section 1302 gives HHS the authority to publish rules and regulations as may be necessary to the efficient administration of Medicare and Medicaid.

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Efficient means acting with a minimum of waste or expense.

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Administration in this context means the management of a government or large institution.

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So CMS's role is therefore to manage

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the Medicare and Medicaid programs with a minimum of waste and expense.

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In other words, CMS's goal is to pay for drugs and services without wasting money paying artificially inflated prices.

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Now, requiring the disclosure of list prices in direct to consumer advertisements is closely connected to the efficient administration of Medicare and Medicaid.

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The United States is experiencing a crisis in prescription drug costs.

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Costs per Part D beneficiary have increased 40 percent over the last decade.

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Part of the problem is the lack of transparency over prices.

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And so requiring price disclosure will encourage manufacturers to compete on price, promote consumer understanding of the cost of drugs, and encourage conversations between consumers and doctors about lower cost alternatives.

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Now, the district court concluded that drug manufacturers do not participate in Medicare or Medicaid.

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Well, that's just not true, as my colleagues on the other side now concede.

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As a condition for paying for their drugs, CMS requires drug manufacturers to pay rebates to states, to pay rebates to 340B entities, and to pay rebates to certain Medicare Part D beneficiaries.

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That's right.

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If you could help me understand a little bit more,

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When it comes to Medicare Part B, as in boy, not D, payments, are there contracted for payments that are settled in advance?

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How is that determined?

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Did you make a prescription drugs under Medicare Part B as well, correct?

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Correct.

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And how are the prices for those?

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Is there some sort of contractual determination or negotiated price or do you have with drug companies?

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So reimbursement under Part B, Your Honor, is tied in most cases to the average sales price of the drug.

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Not the WAC.

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Not the WAC.

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However, the average... Did you negotiate those prices or did you negotiate to

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The average sales price, how did that come to be what you pay under Medicare Part B?

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I believe that the Medicare Modernization Act of 2003 changed reimbursement under Part B from AWP to ASP, and now that's the price that Medicare pays.

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So that's statutorily set for Medicare Part B?

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I believe that's correct, Your Honor.

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The other point I was going to make is that

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The ASP is closely related to the WAC.

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I think a large percentage of the top Part B drugs have a ASP that is less than 10% different from the WAC.

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They tend to be higher than the WAC?

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I think they tend to be a little bit lower than the WAC because it's a price that includes some discounts and rebates, whereas the WAC does not.

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But also during the first year or so of some Part B drugs when they don't have an established ASP yet, reimbursement can be based on the WAC in those circumstances.

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So it's either based on the WAC itself or on a metric that is closely related to the WAC.

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Okay.

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And then under Part D, I'm sorry, explain to me again exactly, is it contractual relationship or?

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How would you describe the relationship you have with prescription drugs manufacturers that want to have their drugs, obviously, in this very large program?

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So in Part D, Medicare is not allowed to interfere in the negotiations over drug prices.

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There's a statutory prohibition on that.

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So what happens is Part D

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or pharmacy benefit managers on behalf of Part D plans negotiate drug prices with pharmacies.

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They create what's called a negotiated price.

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That negotiated price is very often expressed as a function of the WAC, so it is closely tied to that.

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And then Medicare beneficiaries in turn frequently pay co-insurance on the negotiated price.

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So they're effectively paying a percentage of a metric that is closely related to the list price.

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And along those lines, I point out, Your Honor, that many of the drugs that are going to be subject to this rule tend to be the higher cost, more profitable drugs.

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So they tend to be specialty drugs.

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or non-preferred drugs, which tend to be on the kinds of drugs that Part D beneficiaries pay co-insurance on, not co-payments.

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So, you know, this rule really does affect or the list price, at least the one associated with the drugs at issue in this rule, really does have a gravitational impact on the prices that consumers actually pay.

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And does every drug manufacturer participate

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in part B and part D. And I assume they have a choice if they didn't want to, if they wanted to do something higher than the ASP for part B or if they didn't like the negotiations.

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I'm just trying to figure out, because your brief sort of said this is just to people who, this is for companies that want to participate in these programs.

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I'm trying to figure out if that's 100 percent of all drug manufacturers or manufacturers selecting out of any of these programs.

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Because you've got a big population to offer to them.

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Right.

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Your Honor, I'm not sure if any drug manufacturers don't participate in Medicare and Medicaid at all.

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I would suspect that if you have an FDA approved drug, then one of the benefits of that is that you're generally going to get reimbursed by Medicare and Medicaid.

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But I'm not completely sure of the answer to that.

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What is the thing that you think you're efficiently administering with this rule?

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Your Honor, we're efficiently administering Medicare and Medicaid.

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And what are Medicare and Medicaid?

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They are programs that pay.

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I'm saying with this rule, I understand what Medicare and Medicaid are.

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I understand what administration normally means.

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I don't understand the connection between this rule and efficiently administering those programs.

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So, Your Honor, Medicare and Medicaid pay for certain drugs and services.

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And what CMS is regulating here are the very drugs that it pays

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And the theory- You're not regulating the drugs.

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You merely establish a rule with respect to notice.

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That's all.

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We respectfully disagree.

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And there's a large chunk that are excluded depending upon whether they're covered by insurance.

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I mean, the thing is, you're relying very heavily on mourning.

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And we have said, and I realize you have one recent case in which Judge Henderson dissented, that did apply mourning more or less in the way that you would like to apply it.

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But the connection there between the regulation and the purpose of the statute seems to be fairly clear.

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I don't understand your reading warning in a way to say if an agency has the right to engage in notice and comment rulemaking, all they have to do is show that they're regulating something with respect to which the statute refers.

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We've rejected that.

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That is not the law.

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Your honor.

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You seem to be saying as long as you're in an area with respect to which the statute generally pertains, you're fine.

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No, your honor, that's not our position.

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I don't see the close connection, which I thought post-mourning you have to have.

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Your honor, we believe there is a very close connection between the phrase.

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Tell me what it is, because that I've missed.

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So, your honor.

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There's a connection, but very close never occurs to me.

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Your Honor, the statute uses the phrase, efficient administration.

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Those are words with meaning.

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Efficient administration of the functions with which it is charged.

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And not just efficient administration.

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If you're talking efficient administration, maybe you could scramble up to very close where you want to be.

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But it says, of the functions with which it is charged.

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And one of those functions, Your Honor, a major function is the payment for particular drugs.

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And what this rule does is it will reduce the amount that CMS pays for particular drugs.

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It will make it more efficient.

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How do we know that?

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Because the purpose of the rule is to encourage consumers to A,

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lose some interest in the very higher-priced drugs and, B, talk to their doctors about potentially lower-cost alternatives.

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I mean, I think it's... Does the rule require all of that?

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It does not require it, Your Honor, but it is a... Well, I'm not getting.

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All it is is a notice rule.

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Your Honor, I think... It merely says you have to show, in not all circumstances, in some circumstances, you have to give the notice of the wholesale price.

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That's all.

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So how does that get to efficient administration of the functions?

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It's not a price control regulation and indeed people can buy as they see fit.

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They're not required to go see their doctor under the rule.

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So I'm not seeing the connect.

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Correct, Your Honor, but it is a well-accepted economic principle that price transparency leads to more efficient markets.

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And what will happen here is that a consumer who sees an ad on television for an extremely high-cost drug

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But maybe he doesn't know what the price is.

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It's far more likely to go ask the doctor to prescribe that drug and the drug and the doctor doesn't know what the price is either.

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I don't think that's correct, Your Honor.

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The JAMA study fully supports what we're saying here.

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What that study shows is that when the consumer sees a high price associated with a particular drug, that consumer loses interest in that drug.

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Now, when there's a disclaimer included that the consumer's price may be as low as zero, then the consumer is more likely to talk to the doctor about that drug.

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And so you can see how if the consumer goes to the doctor about a high-priced drug and informs the doctor

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I want this drug, doctor, but the TB ad says it costs many thousands of dollars a month.

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The doctor may be more likely to prescribe...

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information with respect to the relative cost of the drug.

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It's just a statement of the wholesale cost, that's all.

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So that's not telling the consumer what you're suggesting.

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That is, I don't worry about this drug because it's higher priced.

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You don't know that from what you're requiring.

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You don't know whether it's higher priced as compared to other drugs.

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You simply know the wholesale price of this drug.

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That's all.

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Your Honor, the wholesale, the WAC of a particular drug is an anchor price that exerts a gravitational force

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on virtually everything that follows.

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And if you can look at the table in the rule at Joint Appendix 206, which has a list of the 20 drugs most frequently advertised on television, you can see from that table that the list price, a higher list price almost always means a higher out of pocket cost for the consumer.

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And a lower list price means a lower out-of-pocket cost.

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You know what I'm saying?

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What I'm asking you is, what you're requiring, tell the consumer anything about how this drug is priced as compared to comparable drugs.

[00:12:23] Speaker 05:
No, it doesn't.

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It just gives an absolute wholesale price.

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That's all.

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Your Honor, that's a real price that's associated with a real drug.

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I know, but does it tell me, when I go look at what you're requiring, does it tell me how that compares with how comparable drugs are being priced?

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What it tells you, your honor, is an anchor price about that particular drug.

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And if it's a very high-priced drug.

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How do I know it's very high?

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You may see another advertisement for it.

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I may or may not see it.

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Could you compel them to put a notice that says, here's what our wholesale price is.

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And as compared to other drugs on the market, this is really high.

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Could you require that?

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Because that's not what you require.

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Could you require that?

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I think that.

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could very well be within CMS's authority, Your Honor, to require something like that?

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I mean, again, it's a disclosure of a price associated with a drug that CMS actually pays for.

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So you could require a manufacturer to indicate on the label, here's what our wholesale price is, and here are the comparative drugs, and here's what they charge.

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I don't see, I mean, I'd have to know the specifics of that.

[00:13:36] Speaker 05:
I'll give you the specifics.

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Yeah, but I don't see a necessary problem with that.

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I think that the key limiting principle that we have here is that this is a regulation that is targeted at the particular drugs and services that CMS actually pays for.

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Many of the hypotheticals in the other side's brief and in some of the amicus briefs involve regulating particular products and services that CMS does not pay for, like hospital executive compensation.

[00:14:02] Speaker 04:
Can you tell me about Medicaid, because we talked about Medicare.

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Prices negotiated at the state level.

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Do they use the ASP as well?

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I know there's the whole rebate program.

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Do they pay the WAC?

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So my understanding of Medicaid, Your Honor, is that the prices are set by formula and state plans, state Medicaid plans, which are then?

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And each state can vary as long as it's approved by the secretary.

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Correct.

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And as long as the secretary approves it, each state can vary.

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And then the states make payments.

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Does any state pay the WAC, as far as you know?

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I don't know the answer to that, Your Honor.

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Probably unlikely, though.

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I think I would agree with that, although I'm not totally sure.

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I would say that even in Medicaid, there is some connection.

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I don't want to overstate the connection, but there is some connection between WAC and the price that consumers pay.

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So when you say there's some connection, but I don't want to overstate it, that makes me sound like it's

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No, I don't think it's that remote, Your Honor, and I think one of the experts on the other side has acknowledged this as well.

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I mean, the connection is that higher cost specialty and non-preferred drugs tend to be on non-preferred tiers in state Medicaid programs.

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What percentage of the drugs under Medicaid or Medicare, and I'm not asking for...

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If you have a statistic you can give it to me, but just your gut sense here is for these specialty drugs.

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Is that a lot of what we're talking about?

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I would assume a lot of Medicaid and Medicare is not specialty drugs.

[00:15:32] Speaker 06:
That proposition is correct, Your Honor.

[00:15:34] Speaker 04:
So they're not going to be that close to the WAC price?

[00:15:38] Speaker 06:
Not correct, Your Honor, because the drugs that are going to be the major subject of this rule tend to be the very high cost specialty and non-preferred drugs.

[00:15:48] Speaker 04:
Why is that?

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I thought all drugs were subject.

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Most of them fall under the $35 exception?

[00:15:53] Speaker 04:
Oh, no, no.

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What I'm saying, Your Honor, is that as a practical matter, the drugs that are advertised

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most often on television tend to be the specialty or non-preferred drugs.

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There are preferred drugs advertised on television as well, and the rule definitely does apply to those drugs, but as a practical matter, the ones that are subject to the rule... Well, that depends on choices by manufacturers what to advertise or not.

[00:16:18] Speaker 04:
That's correct, Your Honor, but what they had chosen... The rule here wasn't sort of rationalized on the theory that in practice it's only applying to the super

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expensive drugs.

[00:16:27] Speaker 06:
Well, I disagree with that to an extent, Your Honor.

[00:16:30] Speaker 06:
I think the rule does focus heavily on those kinds of drugs.

[00:16:33] Speaker 04:
It's obvious, but there's nothing in the terms of the rule that limit it to the super high-priced drugs.

[00:16:38] Speaker 06:
That's correct, Your Honor.

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But again, as a practical matter, it will apply most often.

[00:16:42] Speaker 04:
It's a practical matter mostly, you said, but not always.

[00:16:45] Speaker 06:
No, I agree with that, Your Honor.

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I'm not taking issue with that.

[00:16:48] Speaker 04:
But my... So nobody that pays the WAC, Medicaid, Medicare, they don't pay the WAC.

[00:16:56] Speaker 06:
Well, I think that Medicare, you know, they don't pay it directly, except in part B, there is a time at which the WAC is a relevant price that Medicare doesn't pay.

[00:17:08] Speaker 04:
Well, it's a relevant price in setting the ASP, but you don't pay the WAC.

[00:17:11] Speaker 04:
Do Medicare beneficiaries ever pay the WAC?

[00:17:14] Speaker 06:
Yes, Your Honor.

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Before they meet their deductible, sometimes they can pay the WAC or they pay the negotiated price, which is a closely, which is very closely related.

[00:17:22] Speaker 06:
The negotiated price between?

[00:17:24] Speaker 06:
The Part D plan and the pharmacy.

[00:17:26] Speaker 04:
Part D plan, okay.

[00:17:27] Speaker 04:
Under just Part B. Well.

[00:17:30] Speaker 04:
If they, because Medicare Part D is optional, right?

[00:17:33] Speaker 06:
Correct.

[00:17:34] Speaker 04:
Right.

[00:17:34] Speaker 04:
So if you just have Medicare Part B, you would pay the WAC before you met your deductible?

[00:17:40] Speaker 06:
Yes, there's $185 annual deductible under Part B.

[00:17:44] Speaker 06:
So you would pay up until that point and then there'd be co-insurance of 20% after that.

[00:17:49] Speaker 06:
So really your price is anchored to the ASP or the WAC.

[00:17:55] Speaker 04:
Is it 20% of the ASP?

[00:17:57] Speaker 06:
It's 20% of the ASP, yes, Your Honor.

[00:18:00] Speaker 06:
All right.

[00:18:00] Speaker 04:
But as I've said, the ASP is... And if these are high-priced stugs, I've got to figure that deductible is going to be met like on the first couple of pills.

[00:18:07] Speaker 06:
It could be met quickly, Your Honor.

[00:18:09] Speaker 06:
I agree.

[00:18:09] Speaker 06:
But again, after the deductible is met, there's still a coinsurance percentage.

[00:18:13] Speaker 04:
And as far as you know, for Medicaid, no one's paying WAC.

[00:18:17] Speaker 04:
The negotiations, I assume, will give them some better price than that.

[00:18:23] Speaker 06:
What I would say about Medicaid, Your Honor, is that the higher-priced drugs are more likely to be on non-preferred tiers, which means higher copayments.

[00:18:33] Speaker 04:
They're not paying, no consumer that's getting this ad is paying the WIC.

[00:18:37] Speaker 04:
They're paying the copayment or co-insurance.

[00:18:39] Speaker 04:
I guess probably copayment under Medicaid.

[00:18:40] Speaker 06:
Generally Medicaid beneficiaries pay copayments, Your Honor.

[00:18:43] Speaker 06:
That is true.

[00:18:44] Speaker 06:
One final point I'd like to make, if you'll indulge me, is that many of these questions I think are more appropriately addressed as part of the plaintiff's arbitrary capricious challenge, which is still in district court.

[00:18:57] Speaker 06:
I just want to emphasize that the only question that's up here

[00:19:01] Speaker 06:
in front of this board is a question of statutory authority.

[00:19:05] Speaker 06:
Is this the kind of rule that falls within HHS's admittedly broad authority under Section 1302?

[00:19:15] Speaker 05:
You're intending, one of your goals with this regulation is to limit the price of drugs, is that right?

[00:19:24] Speaker 06:
I would not describe it in that way, Your Honor.

[00:19:26] Speaker 06:
Our goal is to help create a more efficient

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market in the price of drugs.

[00:19:33] Speaker 06:
I don't know what that means.

[00:19:35] Speaker 05:
You're trying to limit the price.

[00:19:36] Speaker 05:
I mean, I understand why you're trying to avoid the answer that I think you should be giving, because you don't have any statutory authority to monitor pricing, right?

[00:19:48] Speaker 06:
No, Your Honor, I think we do.

[00:19:49] Speaker 06:
I mean, what we're trying to do here, the price of prescription drugs is artificially high.

[00:19:55] Speaker 06:
in this country.

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And what this rule is designed to do is to make that marketplace for prescription drugs more efficient, which will have the result of reducing the amount that CMS pays.

[00:20:06] Speaker 05:
You're jumping from artificially high to efficiency in a way that just, you know, maybe it's me, maybe I'm having a bad day.

[00:20:13] Speaker 05:
I can't see it.

[00:20:16] Speaker 06:
I think it's natural to disagree.

[00:20:17] Speaker 05:
I mean, it's convenient for you.

[00:20:19] Speaker 05:
It advances your case.

[00:20:21] Speaker 05:
It's self-serving.

[00:20:22] Speaker 05:
I mean, I just don't see it.

[00:20:23] Speaker 05:
You can call anything efficient.

[00:20:25] Speaker 05:
Your reading of warning produces unlimited results.

[00:20:29] Speaker 05:
And you have authority under your reading of warning to do anything you want that indicates a general area that's effectively covered.

[00:20:41] Speaker 06:
Your honor, we respectfully disagree with that.

[00:20:43] Speaker 06:
We think this is a closely bounded grant of authority here.

[00:20:48] Speaker 06:
This is the theory that we're advocating here, and I have a number of limiting principles on this grant of authority.

[00:20:54] Speaker 06:
First is the phrase efficient administration.

[00:20:56] Speaker 06:
itself and not any distant connection to improving the efficiency of Medicare and Medicaid is going to do, the rule has to relate to the very functions that Medicare and Medicaid actually perform.

[00:21:09] Speaker 06:
And here the functions are paying for particular drugs.

[00:21:12] Speaker 06:
And this rule relates to the very drugs that CMS pays for.

[00:21:15] Speaker 04:
Another limiting principle.

[00:21:16] Speaker 04:
I guess I'm not sure that's so limiting because you also pay for doctors, right?

[00:21:20] Speaker 06:
We pay for services.

[00:21:21] Speaker 04:
So doctor services, right, sorry.

[00:21:23] Speaker 04:
You don't hire doctors.

[00:21:24] Speaker 04:
You pay for the services they render.

[00:21:26] Speaker 04:
Whenever I go in, there's a whole bunch of services they check off and get paid for those.

[00:21:32] Speaker 04:
But then there's lots of ways you could make that a lot more efficient, make doctors disclose their prices.

[00:21:41] Speaker 06:
I think when you're talking about disclosure requirements, Your Honor, it is a lot.

[00:21:45] Speaker 06:
The disclosure requirements of the prices of the very goods and services that CMS actually

[00:21:51] Speaker 06:
pays for, I don't think that is particularly beyond CMS's authority.

[00:21:55] Speaker 06:
I think when you start getting beyond the services and products... But nothing in this rule is limited to what Medicare or Medicaid pays for, right?

[00:22:04] Speaker 04:
This requires disclosure of the WAC for every drug, whether it's to all consumers, whether they're Medicaid or Medicare or general public.

[00:22:13] Speaker 06:
That's not correct, Your Honor.

[00:22:15] Speaker 06:
The rule only applies to drugs that

[00:22:18] Speaker 06:
CMS actually pays that are reimbursable.

[00:22:21] Speaker 04:
Well, I was asking at the beginning, if that's 100 percent of all drugs, that's really not much of a distinction.

[00:22:25] Speaker 06:
I think it's the majority of drugs, Your Honor.

[00:22:28] Speaker 06:
I think it's possible there could be some cosmetic drugs out there that aren't covered.

[00:22:32] Speaker 04:
Okay, are we talking about, I'd really like to know as a number here, majority could be 51 percent, it could be 99 percent.

[00:22:40] Speaker 04:
And as you said, people want to get FDA approval and then they can get Medicare and Medicaid reimbursement.

[00:22:45] Speaker 04:
We're told statistically it's like 50 percent.

[00:22:48] Speaker 04:
of pharmacy payments in this country.

[00:22:50] Speaker 04:
It would help me in understanding your theory here as to why this is so limited to know whether in fact the drugs that are covered, the drug manufacturers, the drugs that are covered here are a large percentage

[00:23:07] Speaker 04:
of drugs.

[00:23:08] Speaker 06:
Your Honor, I think it is a large percentage of drugs that are talking here.

[00:23:11] Speaker 04:
90% to more north?

[00:23:13] Speaker 06:
I'm not sure what the exact percentage is, but I think it is a large percentage of drugs.

[00:23:17] Speaker 06:
That's not what our limiting principle is tied to.

[00:23:20] Speaker 04:
There's really no way to advertise.

[00:23:23] Speaker 04:
Once you've got this advertising thing, it goes to the whole public, whether they're Medicaid, Medicare consumers or not.

[00:23:29] Speaker 04:
And the same with disclosing how much doctors are charging.

[00:23:33] Speaker 04:
It would be the exact same situation.

[00:23:35] Speaker 04:
Some percentage of them will be Medicaid, Medicare.

[00:23:38] Speaker 04:
clients, but some will not, but once you just require the disclosure of what they charge.

[00:23:46] Speaker 04:
I don't know why that would be any different under your efficiency theory.

[00:23:49] Speaker 06:
You think it would be, right?

[00:23:50] Speaker 04:
You can require doctors to post the prices they charge for services.

[00:23:56] Speaker 04:
Well, Your Honor, I think that... Or at least Medicaid and Medicare covering services.

[00:24:00] Speaker 06:
Well, I think if you're talking about Medicare and Medicaid covered services and you're talking about the prices that doctors charge for services that are covered by Medicare and Medicaid, you know, I'm not sure why that is so far removed from- I'm just trying to understand your theory here.

[00:24:17] Speaker 04:
You were trying to say that it was limited, but if it's everything that Medicare and Medicaid pays for, that price can be disclosed?

[00:24:23] Speaker 04:
So is that right?

[00:24:24] Speaker 06:
Well, Your Honor, there are other limiting principles here.

[00:24:27] Speaker 04:
I know, but just as your first one on this efficiency connection, anything that Medicare or Medicaid pays for could be ordered disclosed.

[00:24:34] Speaker 06:
So long as it is a non-misleading disclosure.

[00:24:39] Speaker 04:
Well, no one's going to suggest that you're ordering.

[00:24:42] Speaker 04:
I'm talking about your authority to order misleading disclosures.

[00:24:46] Speaker 06:
And so long as it doesn't conflict with another provision of the statute, and there are a lot of other provisions of the statute that impose restrictions here.

[00:24:54] Speaker 04:
But your efficiency theory is not, I'm just talking about your efficiency theory.

[00:24:58] Speaker 04:
Your efficiency theory is we could require a disclosure by anyone who's getting reimbursed under Medicare and Medicaid of their price.

[00:25:09] Speaker 04:
whether it's for services or drugs or whatever it is that they're doing, hospital beds.

[00:25:13] Speaker 06:
Under that part of our limiting principle, I think that's correct.

[00:25:18] Speaker 06:
But there are other limiting principles throughout the statute, and this court has looked to those other external statutory provisions in other cases, like the Verizon case, in determining whether there's a limiting principle or not.

[00:25:32] Speaker 06:
Section 1395,

[00:25:34] Speaker 06:
provides that CMS cannot exercise any supervision or control over the practice of medicine, no supervision or control over the manner in which medical services are provided, no supervision or control over the selection, tenure, or compensation of any officer or employee of an institution that provides healthcare services.

[00:25:55] Speaker 04:
So would those ban requiring doctors to disclose the price of the services?

[00:26:00] Speaker 04:
they provide that are compensable under Medicare or Medicaid?

[00:26:03] Speaker 06:
I don't think so, Your Honor.

[00:26:05] Speaker 06:
And no supervision or control over the administration of a institution that provides healthcare services.

[00:26:13] Speaker 06:
As we talked about, the Part D program also contains a separate restriction on the federal government interfering with the prices that are negotiated between Part D plans and pharmacy benefit managers and pharmacies.

[00:26:28] Speaker 06:
And I point out that in the Verizon case, the net neutrality case, this court adopted, accepted the same limiting principles that we're advocating for here.

[00:26:39] Speaker 06:
I mean, that case involved a comparably general grant of authority.

[00:26:42] Speaker 06:
In that case, the statute specified that the FCC should, quote, encourage the deployment on a reasonable and timely basis of advanced telecommunications capability.

[00:26:51] Speaker 06:
This court there acknowledged that that rule certainly involved decisions of great economic

[00:26:57] Speaker 06:
and political significance.

[00:26:59] Speaker 06:
The court also acknowledged there that the agency's assertion of authority was new and that the agency had in fact previously disavowed the authority, which is not the case here.

[00:27:08] Speaker 06:
And yet the court dismissed concerns about the lack of a limiting principle.

[00:27:12] Speaker 06:
Like we do here, the court observed a general grant of authority there has to be read in conjunction with other provisions.

[00:27:19] Speaker 06:
And like we do here, the court emphasized that any regulations must be designed to achieve a particular purpose.

[00:27:25] Speaker 06:
And this is a broad grant of rulemaking authority that Congress added to the statute.

[00:27:30] Speaker 06:
I mean, Congress could have limited it to internal.

[00:27:33] Speaker 04:
What's your response to our Motion Picture Association case in which there was a recognition that at least when it comes to adopting regulations with significant First Amendment consequences, that's not going to be presumed to be within a general delegation of authority.

[00:27:55] Speaker 06:
Your Honor, on that particular point, we don't think that this regulation implicates significant First Amendment concerns.

[00:28:01] Speaker 04:
But if it did, that case, you'd lose under that case.

[00:28:05] Speaker 04:
If this rule were interpreted as implicating significant First Amendment consequences, would you then lose?

[00:28:12] Speaker 04:
And your point is just that it's not significant.

[00:28:14] Speaker 06:
No, Your Honor, we have a number of other reasons why the motion picture case is not on point here.

[00:28:19] Speaker 06:
There, there was a statute

[00:28:21] Speaker 06:
that required the agency to issue rules governing closed captioning.

[00:28:26] Speaker 06:
And then in an immediately adjacent provision, there was another provision that just required the agency to issue a report to Congress about video description.

[00:28:36] Speaker 06:
And what the court did was compare those two and say, well, Congress knew at that point how to require the agency to issue regulations, and instead with video description, it simply required the agency to issue a report.

[00:28:49] Speaker 06:
And so there was a much clearer indicia from the statute there that Congress did not.

[00:28:54] Speaker 04:
We have a statute here that talks about drug prices directed to the same secretary, although the sub-delegation is to the FDA, and says, you know, you can do, you can require disclosures that prevented something from being false and misleading, but you can do nothing else expressly.

[00:29:12] Speaker 06:
So the Food, Drug, and Cosmetic Act, Your Honor, is a different statute enacted at a different time by a different Congress addressed to totally different purposes.

[00:29:20] Speaker 04:
Does that matter for purposes of this analysis?

[00:29:23] Speaker 04:
I think it matters a lot.

[00:29:24] Speaker 04:
I don't think it did in Gonzalez versus Oregon.

[00:29:30] Speaker 06:
Your Honor, I think it matters a lot here, because that case, all of the FDA's authority

[00:29:37] Speaker 06:
under the Food, Drug, and Cosmetic Act is directed at safety and efficacy.

[00:29:41] Speaker 06:
And that's what Congress was concerned about when it passed the Food, Drug, and Cosmetic Act.

[00:29:45] Speaker 06:
And so you can see from all of the provisions governing advertising in the FDA.

[00:29:49] Speaker 04:
But you have a statute that says secretary, it doesn't say FDA, it says secretary, you may, when it comes to drug prices, you may sort of police and require disclosures designed to prevent false misleading dangers to health

[00:30:07] Speaker 04:
representations, but no more, Secretary.

[00:30:13] Speaker 04:
And then the Secretary says, well, let me turn to this other statute over here, and then this prohibition on me as Secretary doing these things doesn't seem to apply.

[00:30:22] Speaker 06:
I don't see any inconsistency between those two statutes.

[00:30:26] Speaker 06:
I mean, the FDCA is in a totally different sphere than the Social Security Act.

[00:30:31] Speaker 06:
The FDCA is about safety and efficacy.

[00:30:34] Speaker 04:
The Social Security Act... It's also the prime statute for regulating drugs and drug advertising.

[00:30:38] Speaker 04:
That's where Congress thought drugs and drug advertising were going to be regulated.

[00:30:42] Speaker 04:
I think that might be a...

[00:30:42] Speaker 04:
fair reading of the statutory structure.

[00:30:45] Speaker 06:
I would quibble with that a little bit.

[00:30:46] Speaker 06:
Your Honor, I'd say that's where Congress thought that any decisions related to the safety or efficacy of drug advertising would be made, but I don't think that there's any indication in the FDCA that the statute simply occupies the field of all prescription drug advertising.

[00:31:03] Speaker 06:
I think it's a narrow, well it's not that narrow, but it's a broad area related to prescription drug advertising.

[00:31:09] Speaker 04:
But we don't need occupies the field under Motion Picture Association.

[00:31:13] Speaker 04:
reasoned judgments, looking at what Congress did, what it said, and so what are the implications for the assertion of authority here?

[00:31:21] Speaker 04:
I guess your answer there is you can't do that across statutes?

[00:31:24] Speaker 06:
Well, Your Honor, my answer is that I don't think that the FDCA has anything to say about the Social Security Act in this context.

[00:31:31] Speaker 06:
I think when you're, the two statutes, as I've said, are directed at totally different realms of... Does that have something to do with the authority of the secretary?

[00:31:41] Speaker 06:
Well, it's related only in the sense that the FDA and CMS are under the same secretary.

[00:31:48] Speaker 05:
But as a practical matter.

[00:31:50] Speaker 05:
If a colleague is asking if the secretary is prohibited from doing something in the statute, you can say, well, but we're going to look under this statute.

[00:31:58] Speaker 05:
They didn't authorize to do what we want to do, but they don't address the way it was addressed in the other statute.

[00:32:04] Speaker 05:
And so you're home free?

[00:32:07] Speaker 06:
Well, Your Honor, I would say that under the Social Security Act,

[00:32:11] Speaker 06:
the statute explicitly gives the secretary the authority to adopt rules related to the efficient administration of Medicare and Medicaid.

[00:32:19] Speaker 06:
That is totally different from the authority that is granted to the FDA under the Food, Drug, and Cosmetic Act, which is limited to ensuring the safety and efficacy of prescription drugs and regulating drug advertising.

[00:32:32] Speaker 04:
It's not limited to that.

[00:32:33] Speaker 04:
I mean, they do have authority over prescription drug pricing advertisements.

[00:32:37] Speaker 04:
They can police those, right?

[00:32:39] Speaker 06:
As they relate to

[00:32:41] Speaker 06:
safety and efficacy.

[00:32:42] Speaker 04:
Well, over prescription drug pricing.

[00:32:45] Speaker 06:
What?

[00:32:45] Speaker 04:
I mean, they cite this 1975 Federal Register where, at least then, the Secretary seemed to be very careful to say, we will make sure things, advertisements are accurate, but we're not mandating disclosure of prescription drug prices.

[00:33:05] Speaker 06:
And again, the FDA was interpreting different statutory provisions, and here we have

[00:33:11] Speaker 06:
a separate statutory provision as part of a different title of the US Code, a different statute that talks about the efficient administration of Medicare and Medicaid.

[00:33:20] Speaker 06:
I just think it's too much of a stretch to import congressional silence under the Food, Drug and Cosmetic Act into the Social Security Act.

[00:33:32] Speaker 06:
I mean, it would be much clearer if FDA and CMS were simply in different agencies.

[00:33:38] Speaker 06:
And the only reason this is

[00:33:40] Speaker 06:
this argument has some facial plausibility is because they happen to be under the same secretary.

[00:33:44] Speaker 06:
But I think we all realize that if they were separate agencies, they would.

[00:33:48] Speaker 04:
Well, then the fact that Congress commanded the secretary not to do something wouldn't matter.

[00:33:53] Speaker 04:
I don't think you can brush it off that lightly when Congress has made a command to the very same secretary that is issuing this rule.

[00:34:02] Speaker 04:
One other question I wanted to just make sure I'm clear on, because I asked you about Medicare and Medicaid pricing.

[00:34:09] Speaker 04:
Stronger points in your brief was that this is limited to those companies who choose to participate in Medicare and Medicaid.

[00:34:15] Speaker 04:
If you don't participate in that, you don't have to do this.

[00:34:19] Speaker 04:
But none of that is contractual.

[00:34:22] Speaker 04:
the participation of Medicare and Medicaid or, and it wasn't, it didn't sound like it was factual.

[00:34:29] Speaker 06:
I mean, it's, there's contracts with other people, but it's not directly with... No, I believe there are direct contracts between drug companies and CMS where drug companies agree to pay rebates to

[00:34:42] Speaker 06:
340B entities to states and to certain Part D beneficiaries.

[00:34:48] Speaker 04:
But this rule goes beyond those folks that have chosen to enter into contracts with the government.

[00:34:52] Speaker 04:
It's anyone who's reimbursed even under Part B. Well, I think that the categories are coextensive, Your Honor.

[00:34:58] Speaker 06:
I think that any drug company that wants its products to be reimbursed by Medicare or Medicaid needs to enter into these contracts.

[00:35:05] Speaker 06:
That's how it works.

[00:35:08] Speaker 03:
Before you sit down, Mr. Davis, let me ask you something.

[00:35:13] Speaker 03:
I've watched a lot of ads on TV for drugs.

[00:35:17] Speaker 03:
I've never seen the first one that mentions cost other than saying if you have difficulty something called AstraZeneca can help.

[00:35:27] Speaker 03:
So the problem is the cost of prescription drugs.

[00:35:33] Speaker 03:
I don't see

[00:35:35] Speaker 03:
that this is a solution to that.

[00:35:38] Speaker 03:
I don't see this as a solution to a problem.

[00:35:40] Speaker 03:
The problem isn't, as you posited somebody seeing on TV, oh, this is a drug I can use, but it's way too expensive.

[00:35:49] Speaker 03:
I mean, am I just in a different market?

[00:35:51] Speaker 03:
I've never seen an ad that says what the price is.

[00:35:56] Speaker 06:
I think that's true, Your Honor, and I think that's the very problem at this point.

[00:36:00] Speaker 03:
Well, so now you're going to say,

[00:36:03] Speaker 03:
or tell Merck, you've got to put the WAC cost in, which is, I think, according to the record, not the price they'll ever pay.

[00:36:15] Speaker 03:
And why isn't that adding confusion where there isn't any?

[00:36:21] Speaker 03:
You keep saying that people don't get these drugs because they're told on TV that they're too expensive.

[00:36:28] Speaker 03:
I'm just saying I've never, ever seen an ad

[00:36:31] Speaker 03:
that says what the cost is, any cost.

[00:36:34] Speaker 06:
Your Honor, our point here is that that's true, that right now.

[00:36:39] Speaker 03:
So how is this, I mean, if people aren't being stopped from getting the drug because the cost is too high according to a TV ad, how is this going to help them when you're requiring them to put a cost in that they're not going to pay?

[00:36:56] Speaker 06:
Well, the point here, Your Honor,

[00:36:58] Speaker 06:
First of all, it is in some circumstances the cost that they will pay, but not at all, we acknowledge.

[00:37:04] Speaker 06:
But the point here, the point of this rule is to give consumers an understanding of in general whether they are likely to pay more or less for a drug.

[00:37:15] Speaker 06:
Right now they have no anchor point at all to figure out how much a drug is going to cost.

[00:37:19] Speaker 06:
and really neither do doctors.

[00:37:21] Speaker 06:
And the point here is to show consumers and doctors how much a particular drug costs so that the consumer and the doctor can have an informed discussion then about whether there are any overpriced alternatives or potentially therapeutic alternatives that can be achieved at a lower cost.

[00:37:38] Speaker 06:
And the very problem here is that

[00:37:39] Speaker 06:
is that no one does know what the price of these drugs are.

[00:37:42] Speaker 04:
And so it leads to overprescriptions of really- I'm sorry, I don't mean to interrupt, but if that's the very problem, your rule doesn't address that because it does not disclose or require disclosure of prices actually paid.

[00:37:54] Speaker 06:
Well, Your Honor, again, the point is not to require the disclosure of the price that's actually paid in all instances.

[00:37:59] Speaker 06:
That would be impossible in a pricing system as complex as- The price is almost never paid.

[00:38:04] Speaker 06:
It's a price that's rarely paid, Your Honor.

[00:38:06] Speaker 06:
But the point is to give consumers a general sense of an anchor price, a price that suggests to them that they're likely to pay more or less for a particular drug as the whack goes up or down.

[00:38:17] Speaker 04:
And I would point you... Consumers are given... I'm sorry.

[00:38:21] Speaker 04:
You can finish your... I don't mean... I'm sorry.

[00:38:22] Speaker 04:
I didn't mean to interrupt.

[00:38:23] Speaker 03:
Well, all I wanted to say was, following up on Judge Edwards' questions about efficient administration, even giving you that this falls within

[00:38:33] Speaker 03:
the word administration.

[00:38:35] Speaker 03:
I don't see how it falls within the efficient at all.

[00:38:38] Speaker 06:
Well, our position there, Your Honor, is that price transparency improves efficiency.

[00:38:44] Speaker 06:
It's an economic principle that I think has been applied in many different contexts.

[00:38:48] Speaker 06:
And if people know the price of these drugs, they're able to price shop, which improves efficiency.

[00:38:53] Speaker 04:
Is there any economist that says price transparency that is not the price people will pay improves

[00:39:03] Speaker 04:
Efficiency in this sense improves.

[00:39:06] Speaker 04:
I don't know what the transparency is if it's not the price they're paying.

[00:39:09] Speaker 06:
I'm not going to say that.

[00:39:10] Speaker 04:
If I just disclose, you call it the list price, people think that means something, but I don't think it does in this context.

[00:39:18] Speaker 06:
Well, Your Honor, the MSRP on an automobile is also not the price that people pay, and yet it's well accepted that requiring disclosure of the MSRP price

[00:39:28] Speaker 06:
on automobile advertisements, it proves price transparency.

[00:39:31] Speaker 06:
This is, this may be a more complicated market than the automobile market, but the principle is the same, that there isn't, the WAC is an anchor price, just like the MSRP is an anchor price, and it doesn't tell you what you're likely to actually pay, but it sure does give you a good indication of whether you're likely to pay more or less in general for a particular product.

[00:39:52] Speaker 03:
All right, we'll give you some time to reply.

[00:39:55] Speaker 03:
Thank you.

[00:39:55] Speaker 03:
Mr. Bress?

[00:39:57] Speaker 03:
Good morning.

[00:40:00] Speaker 01:
Good morning.

[00:40:02] Speaker 01:
Judge Henderson, you may please the court.

[00:40:04] Speaker 01:
I'd like to start actually where my brother started, where he said that the statutory question in this case begins and ends, or begins with the plain text of the statute.

[00:40:17] Speaker 01:
He often veered off of the plain text in his remarks, but the plain text is instructive.

[00:40:22] Speaker 01:
What it says is that the Secretary has the authority to issue rules that are necessary for his efficient administration of the functions with which he is charged under Medicare and Medicaid.

[00:40:35] Speaker 01:
So one has to look at what functions is he charged with.

[00:40:38] Speaker 04:
Was contracting one of those functions?

[00:40:42] Speaker 04:
Contracting with prescription drug companies?

[00:40:45] Speaker 01:
Your Honor, Congress has provided what those contracts have to say.

[00:40:49] Speaker 04:
I'm just asking you whether contracting, negotiating prices, that's not part of the administration?

[00:40:56] Speaker 01:
Negotiating prices with the drug companies is not part of his administration because Congress has provided what the prices are.

[00:41:03] Speaker 04:
So they negotiate some rebates, at least under Part D, and there's a whole rebate program under Medicaid.

[00:41:11] Speaker 01:
And it's statutorily set up, Your Honor.

[00:41:12] Speaker 01:
What the statute provides, let me just start with Medicaid, for example.

[00:41:16] Speaker 04:
I'm sorry, that's completely functionary on their part?

[00:41:19] Speaker 04:
They don't have any exercise of discretion or judgment in this whole process under Part D or the Medicaid?

[00:41:26] Speaker 01:
Certainly, Your Honor, they've got interstitial authority to interpret a particular provision and even make rules with regard to, for example, forms of claims.

[00:41:38] Speaker 01:
They do a lot of rulemaking under certainly Medicaid rebate program and I think under at least Part D. But what the rebate program provides, Your Honor, is, and it's statutory, is that

[00:41:51] Speaker 01:
everything is quarterly, the drug companies agree that they will pay rebates to the states.

[00:41:57] Speaker 04:
Well, what those rebates?

[00:41:59] Speaker 04:
Plenty of fights about what those rebates are and the formula for calculating.

[00:42:04] Speaker 04:
That's all within their administrative authority.

[00:42:05] Speaker 01:
Your Honor, I would think that the fact that Congress has set forth what the function is in that context, in other words, whatever flexibility that the Secretary has with regard to

[00:42:19] Speaker 01:
the rebates that are being agreed upon, which is the statutory point.

[00:42:23] Speaker 01:
Congress has given not only a goal of lower drug prices, but a means to achieve that goal.

[00:42:30] Speaker 01:
What the secretary can't do is say, I know that Congress in general is interested in lower prices, so I'm going to take my authority to administer the functions with which I'm charged and bootstrap that into the authority to create entirely new functions that are in the statute.

[00:42:49] Speaker 04:
So if they passed a regulation that said instead of this one,

[00:42:52] Speaker 04:
If it just said, any manufacturer who has participated in Medicare or Medicaid must include at the bottom of the red, the same font type, the exact same positioning as this one, a statement that says, for information on Medicare and Medicaid pricing, go to X website.

[00:43:13] Speaker 04:
Would that be within their administrative authority or their statutory authority?

[00:43:18] Speaker 01:
No, Your Honor, and in fact the record is instructive on this.

[00:43:23] Speaker 04:
I don't know how the record can be instructive on this because this is a hypothetical.

[00:43:26] Speaker 01:
Well, but it is instructive because there is a discussion at JA 18 of what the enforcement mechanisms are for this particular rule and what they're going to be.

[00:43:35] Speaker 01:
And the Secretary discusses that comments were introduced saying that you should think about making it a condition of coverage.

[00:43:44] Speaker 01:
And the secretary notes that there was a comment found, and the comment was found actually by a congressional agency, MedPAC.

[00:43:50] Speaker 01:
And MedPAC favored that, but said you would need to change the statute.

[00:43:54] Speaker 01:
You would need a statutory amendment in order to do that.

[00:43:57] Speaker 04:
And the reason is... So you said as a condition of coverage, what I'm saying is all they're requiring you to do is disclose

[00:44:04] Speaker 04:
not a price universal, but tell people if you're Medicare or Medicaid, you're covered by Medicare or Medicaid, here's where you can go to figure out what your price is.

[00:44:13] Speaker 04:
Do you think that they don't have the authority to do that?

[00:44:16] Speaker 01:
Well, I don't think that they've got the authority to do that, Your Honor, particularly in the manner in which you suggest it.

[00:44:22] Speaker 01:
And I'll discuss otherwise in a moment.

[00:44:23] Speaker 01:
But the manner you suggest it is by having that in the rebate agreement.

[00:44:27] Speaker 01:
Executing a rebate agreement is a condition of coverage under Medicare and Medicaid.

[00:44:32] Speaker 01:
And so requiring us to sign on to or agree to provide that message to consumers within the rebate agreement would translate it into a condition of coverage, and they lack the authority to do that.

[00:44:46] Speaker 01:
And they've never claimed that they have the authority to do that.

[00:44:48] Speaker 04:
There's a distinction here, Your Honor, between their claim that... I'm sorry, there's a statutory provision that bars them from doing that?

[00:44:54] Speaker 01:
Your Honor, there isn't any... How many condition of coverage?

[00:44:57] Speaker 01:
What the Congress has done is it's set out what the conditions of coverage are and it's made it very express.

[00:45:03] Speaker 01:
In other words, there's very few with regard to drug companies.

[00:45:07] Speaker 01:
The ones that exist have to do with agreeing to pay certain rebates to Medicaid, agreeing to certain pricing with regard to Medicare Part B. That pricing relies, as my brother said, on ASP.

[00:45:19] Speaker 04:
If Congress had intended to provide the Secretary with just general authority to include... Where is the statutory list of these conditions and what cases said that they have no authority whatsoever?

[00:45:31] Speaker 01:
Your Honor, there isn't a provision that says they've got no authority whatsoever.

[00:45:35] Speaker 01:
What I'm suggesting is that Congress has so specifically set out... So you would have the argument that they couldn't do it?

[00:45:40] Speaker 01:
Exactly.

[00:45:41] Speaker 01:
I'm not suggesting that there was a statement.

[00:45:42] Speaker 04:
What is that statutory provision?

[00:45:43] Speaker 04:
Which one is this?

[00:45:44] Speaker 01:
So the rebate agreement provisions are at 42 USC 1396 R-8, little a in the hole.

[00:45:55] Speaker 01:
Connected to that, there's a provision, 42 USC 1396 R-8, little b in the hole.

[00:46:05] Speaker 01:
The second one that I've stated.

[00:46:06] Speaker 04:
Little b in the hole?

[00:46:07] Speaker 01:
B in the hole, sorry, in parentheses.

[00:46:08] Speaker 04:
Oh, in parentheses.

[00:46:11] Speaker 01:
Sorry.

[00:46:12] Speaker ?:
Sorry.

[00:46:12] Speaker 01:
The reason I cited the second one is in order to put into effect the Medicare Part B agreements, which require ASP-related pricing, Congress passed a statute, the one I quoted, cited, that requires drug companies to provide that very information to the secretary so the secretary can enforce it.

[00:46:38] Speaker 04:
So the secretary can disclose that information.

[00:46:42] Speaker 01:
Probably could, Your Honor.

[00:46:44] Speaker 01:
At least as to average, at least as to WAC, the Secretary probably could.

[00:46:49] Speaker 04:
No, as to what Medicare and Medicaid are paying.

[00:46:53] Speaker 01:
Well, as to, oh, as to the actual price they're paying, yes they could, Your Honor.

[00:46:58] Speaker 01:
As to ASP, there's some confidentiality provisions in the disclosure requirement that Congress has put in.

[00:47:04] Speaker 01:
So if one interpreted those

[00:47:06] Speaker 01:
confidentiality provisions, you might decide that they, by implication, would prevent the Secretary from disclosing those problems.

[00:47:14] Speaker 04:
And the first set you gave me, because I didn't get you in the whole thing, was 1396R-8 what?

[00:47:17] Speaker 04:
Small a. Small a. Got it.

[00:47:21] Speaker 01:
Sorry about that, within parentheses.

[00:47:28] Speaker 01:
Getting back to it, Your Honor.

[00:47:30] Speaker 01:
What Congress has done is when it wanted the Secretary to interact in any way with regard to drug pricing, to lower drug pricing, it actually passed laws that said

[00:47:43] Speaker 01:
You can require rebate agreements, and it said what those rebates should be.

[00:47:48] Speaker 01:
It passed laws talking about how to determine pricing for Medicare Part B. For Medicare Part D, it didn't include any of that, but it did require an agreement as a condition of coverage.

[00:48:00] Speaker 01:
that would require certain pricing for people who are in the gap period of their Medicare Part D coverage.

[00:48:07] Speaker 01:
For A, there is no agreement.

[00:48:09] Speaker 01:
For Medicare Part A, the drugs are simply sold and they're reimbursed.

[00:48:12] Speaker 01:
So there's no volitional aspect to that.

[00:48:17] Speaker 04:
Under Part A, is it the same ASP formula, or is it a hospital-specific formula?

[00:48:22] Speaker 01:
Part A, you charge the medication as part of your hospital stay.

[00:48:26] Speaker 04:
So it's whatever deal the hospital has?

[00:48:28] Speaker 01:
It's more by procedure.

[00:48:29] Speaker 01:
In other words, the hospitals get reimbursed for treating particular conditions, and the drug price is just folded into whatever Medicare pays the hospital.

[00:48:42] Speaker 01:
Getting back to the language for a moment, Your Honor mentioned Gonzales versus Oregon, and I think it's relevant here because Gonzales versus Oregon dealt with very similar statutory language.

[00:48:54] Speaker 01:
The language in that case gave the Attorney General the authority to enact rules necessary for the efficient execution of his functions.

[00:49:04] Speaker 01:
And the very same argument was made, as the government is making here, that that should be interpreted very broadly, allow the Attorney General to do essentially anything that related to what his duties were.

[00:49:17] Speaker 01:
The Supreme Court looked at that language very specifically and said that it would go against the plain language of the statute to treat a delegation of authority to execute functions with which he is charged to delegate the further authority to create new functions with which he's not charged under the statute.

[00:49:42] Speaker 01:
In fact, the court distinguished the language that's very

[00:49:46] Speaker 01:
that's very narrow there, and in this case, from language that deals with carrying out the provisions of the act, which the court said is more broad.

[00:49:56] Speaker 04:
Did they not also look to other statutes that have been enacted as well outside the state?

[00:50:01] Speaker 01:
Yes, the court did there as well, as it did, of course, in Brown and Williamson, as this court knows.

[00:50:10] Speaker 01:
With regard to that, I think it's important not only that you can look at different

[00:50:15] Speaker 01:
provisions, but when you look at what Congress did with regard to the FTCA, FDCA, and you look at what Congress did with regard to, within the Social Security Act, giving the Secretary the authority to review marketing materials for Medicare Advantage plans.

[00:50:34] Speaker 01:
In both cases, Congress did that quite explicitly, gave the power explicitly, but also subject to quite explicit limitations.

[00:50:43] Speaker 01:
What we learned from that is when Congress is giving the authority to regulate speech in these instances, for the Secretary to do that, it takes care and it does it very expressly and subject to limitations.

[00:50:55] Speaker 01:
In that sense, this case is similar, as Your Honor mentioned, to MPAA, where the Court remarked that

[00:51:02] Speaker 01:
The power in that case to regulate content is one that obviously can impinge on the first demand.

[00:51:09] Speaker 04:
No one can get out of it.

[00:51:10] Speaker 04:
I mean, here you can get out of it by just saying, fine, I'm not going to participate in Medicare-Medicaid.

[00:51:14] Speaker 01:
Your Honor, it's unrealistic.

[00:51:15] Speaker 01:
Well over 90% of drugs are covered by Medicare and Medicaid.

[00:51:18] Speaker 04:
Is there an actual statistic somewhere?

[00:51:19] Speaker 01:
What's that?

[00:51:20] Speaker 04:
Is there an actual statistic somewhere?

[00:51:21] Speaker 04:
I had assumed it was in the high 90s.

[00:51:25] Speaker 01:
Your Honor, it is well over 90%, but I don't have a source to cite for you for this purpose, because we don't have one in the brief.

[00:51:32] Speaker 01:
In terms of the breadth of the power that's being claimed, Your Honor, it's not at all narrow.

[00:51:43] Speaker 01:
We were given and understood.

[00:51:44] Speaker 01:
It's not narrow at all, Your Honor.

[00:51:47] Speaker 01:
While the government has indicated that while it only has to do with things that are paid for under Medicare and Medicaid, it also of course has to do with people who are treated under Medicare and Medicaid.

[00:51:58] Speaker 01:
Presumably, it would make Medicare and Medicaid more efficient if the Secretary could require beneficiaries to do some exercise, perhaps could legislate, could promulgate rules with regard to what their diet should be, because if people are healthier, it's going to save money too.

[00:52:15] Speaker 04:
Well, the answer to that is we don't directly regulate the people, but we do

[00:52:18] Speaker 04:
have regulations and a regulatory role with respect to drug manufacturers.

[00:52:24] Speaker 04:
I think that's the answer that he was foreshadowing.

[00:52:26] Speaker 01:
I don't think that that answer is satisfying, Your Honor, for a couple of reasons.

[00:52:29] Speaker 01:
First of all, with regard to beneficiaries, we do require, the government does require under statute, lots of things about claims and lots of things in order to find out that they have particular conditions.

[00:52:39] Speaker 04:
It's not the same thing.

[00:52:40] Speaker 04:
It doesn't regulate their behavior in any way.

[00:52:43] Speaker 01:
Not yet, Your Honor.

[00:52:44] Speaker 01:
No.

[00:52:45] Speaker 01:
But where the power has been given.

[00:52:47] Speaker 04:
No, but it does regulate.

[00:52:49] Speaker 04:
That's too easy for you.

[00:52:51] Speaker 04:
It does regulate drug manufacturers' behavior as part of their participation here.

[00:52:56] Speaker 04:
It's maybe limited.

[00:52:57] Speaker 01:
But in very specific ways.

[00:52:58] Speaker 01:
And I think that there's a negative pregnant there, Your Honor, where Congress has wanted to come in.

[00:53:03] Speaker 01:
Because for the most part, as you pointed out, this program is not a program like the FCC has, where you're regulating an entire industry.

[00:53:13] Speaker 01:
Under the Social Security Act,

[00:53:15] Speaker 01:
The power here is to administer particular government insurance programs, not to be a regulator of primary conduct of drug companies in the marketplace, which is of course a very different power.

[00:53:27] Speaker 01:
So I do think that the claim that they can go beyond administration of the insurance programs to regulation of primary conduct brings up a phrase that the court used in Utility Air, which was if what the secretary is claiming is the ability to introduce an expansive and enormous

[00:53:52] Speaker 01:
an enormous expansion of regulatory power, one would expect to see Congress discuss that clearly.

[00:53:58] Speaker 01:
The Secretary has never claimed the ability to regulate the conduct of drug companies in the marketplace.

[00:54:05] Speaker 01:
And that's precisely what this does.

[00:54:06] Speaker 01:
These ads go out not only to Medicare and Medicaid beneficiaries, but to the general public.

[00:54:12] Speaker 01:
And in response to some of Your Honor's questions, they will mislead and confuse and intimidate the people who receive the... Well, that's the arbitrary and capricious point.

[00:54:23] Speaker 01:
It's, and the First Amendment point as well, Your Honor.

[00:54:26] Speaker 05:
That's a different point.

[00:54:27] Speaker 05:
How do you get around Verizon and Doe, the FEC case?

[00:54:31] Speaker 01:
Certainly, Your Honor.

[00:54:33] Speaker 01:
Let me start with Verizon, and then I'd love to actually address Doe, Mourning, and Thorpe in that line of cases.

[00:54:38] Speaker 01:
As far as Verizon goes, it was a much more specific grant of authority.

[00:54:42] Speaker 01:
Section 706 deals with advanced telecommunication services.

[00:54:46] Speaker 01:
And the main question before the court essentially was whether the command was oratory or whether it was actually giving power.

[00:54:53] Speaker 01:
And the court, of course, has gone two ways on that because the agency's gone two ways on that.

[00:54:58] Speaker 01:
Initially, the agency viewed it one way as merely oratory, and the second time I think it said that it was an actual, no, vice versa, sorry, the first time they said it was oratory.

[00:55:09] Speaker 01:
I think your honor might have been on one of those cases.

[00:55:13] Speaker 01:
But it was a much more specific grant of statutory authority.

[00:55:16] Speaker 01:
This one is dealing only with the administration of the program, the efficient administration of his functions.

[00:55:26] Speaker 01:
under the program, which is a much more general provision in certain ways, but begs for pointing out specific statutory provisions.

[00:55:36] Speaker 01:
In fact, if you look at MPAA, it's relevant in another way.

[00:55:39] Speaker 01:
And I'll get in a moment to mourning it, sir, I promise.

[00:55:41] Speaker 01:
But with MPAA, the court looked also at sections 303R and 4I, which are very general rulemaking authority provisions.

[00:55:49] Speaker 01:
They deal with carrying out the provisions of the Act.

[00:55:53] Speaker 01:
And what the court said as to 303R is that it requires a specific statutory authority in order, you can't just regulate the public interest.

[00:56:03] Speaker 01:
You've got to be able to point to something in the statute that you are implementing.

[00:56:07] Speaker 01:
And with regard to 4i, what the court said is it's similar to a necessary and proper clause, and it most gives you the power to issue regulations that are reasonably ancillary to specific provisions.

[00:56:18] Speaker 01:
Well, the same obviously goes here, but even in spades, because in this case, the delegation is narrower.

[00:56:25] Speaker 01:
His functions under the act, you've got to be able to point to a function.

[00:56:28] Speaker 01:
As to Thorpe, Mourning, et cetera, actually, I really appreciate the ability to address that, because I think there's been a lot of confusion in the law

[00:56:36] Speaker 01:
several decades about it.

[00:56:38] Speaker 01:
If you look carefully at Thorpe and at Mourning, at Doe, and at this court's decision in a national welfare versus Matthews, all of them dealt with this language, but not in the way that the government says.

[00:56:53] Speaker 01:
What they did is they first looked at the question whether Congress has delegated to the agency the type, the authority to issue the type of regulations that were at issue.

[00:57:05] Speaker 01:
And only then, after addressing that question and deciding that the type of regulation at issue had been authorized, did the court then use the language about reasonably related to the purposes when addressing whether the particular regulation that was issued was a valid one.

[00:57:23] Speaker 01:
It was much more like either a contrary to law or arbitrary and capricious analysis, but it didn't have to do with the first level question.

[00:57:31] Speaker 01:
There's really no way to read Mourning, Thorpe, et cetera, particularly when you read them closely and then in light of Chevron later, to give anywhere near the broad sort of thesis the government would give, which is, regardless of what the general rulemaking provisions say, you've got this overarching authority to issue regulations that are reasonably related to the purpose of this statute.

[00:57:57] Speaker 05:
How do you distinguish the FEC case?

[00:57:59] Speaker 05:
The FEC case, how do you think DOE?

[00:58:02] Speaker 01:
DOE, Your Honor, I think comes as close as one can come to a situation where you don't have to point at a particular provision that gives you underlying authority to issue, you know, in that case to disclose particular information, because it was essentially a housekeeping or how we run our own organization type of rule.

[00:58:21] Speaker 01:
You know, agencies are presumed to be able to issue rules

[00:58:25] Speaker 01:
that govern their own internal conduct.

[00:58:28] Speaker 01:
In comparison to that, I think if you look at Matthews, which actually did have to do with 1302, the same statute that's at issue in this case, that case involved the ability of, it was HEW in that case,

[00:58:45] Speaker 01:
And what the court was looking at was whether they had the delegated authority to require that states took into account the assets that an AFDC recipient had.

[00:59:00] Speaker 01:
The court didn't just look at 1302 itself and say, yes, it's reasonably related or anything like that.

[00:59:05] Speaker 01:
What the court looked at is there were specific statutory provisions

[00:59:09] Speaker 01:
that told the, in that case the Secretary of HEW, that his authority or his duty was to ensure that state plans had sufficient provisions for the proper administration of the program.

[00:59:24] Speaker 01:
And then he looked even more specifically that there was a statute that required states to take into account the resources that AFDC recipients had.

[00:59:33] Speaker 01:
So the court went from 1302's general language to find something far more specific that was in fact being administered in the case.

[00:59:41] Speaker 01:
And the court said therefore the secretary has the sort of authority that he's claiming here.

[00:59:46] Speaker 01:
By the way, in that case, ended up saying it was invalid because it wasn't, it was inconsistent statutorily with other parts of the act and also there wasn't a sufficient record to support it.

[00:59:59] Speaker 01:
So I think the best way to think of the case overall is it's at most sort of an articulation of how Chevron Step 2 might apply when you're looking at the underlying validity of the rule itself, and it was never applied to determine whether the delegated authority issued that sort of rule.

[01:00:23] Speaker 01:
There were a couple of questions, I think, that your owners had about how pricing is determined.

[01:00:32] Speaker 01:
I'm happy to answer your questions if you'd like, because we certainly have the information.

[01:00:36] Speaker 01:
It's different in many instances from what the government told us.

[01:00:39] Speaker 04:
We need to clarify.

[01:00:41] Speaker 04:
Do you need to clarify something?

[01:00:43] Speaker 01:
Well, I'd just like to, I guess, clarify a couple of points, Your Honor.

[01:00:47] Speaker 01:
First of all, WAC is not only not the price or a price that is rarely paid, but for more than 120 million Americans, it bears no relationship whatsoever to the price that they pay.

[01:01:00] Speaker 01:
On Medicaid, people paid a maximum of an $8 copay.

[01:01:04] Speaker 01:
So WAC has nothing to do with Medicaid and $8 copay.

[01:01:11] Speaker 01:
By the way, there's one exception, which is Kentucky, where I think the copay is a little bit higher.

[01:01:14] Speaker 01:
But for the other 49 states, it's $8.

[01:01:19] Speaker 01:
For Medicare, Part B,

[01:01:22] Speaker 01:
There is a $185 deductible, as the government said, and it is true that co-insurance is 20%, but it's also true that 80% of recipients have supplemental insurance, which results in them having no co-insurance payment at all or just a small co-pay.

[01:01:38] Speaker 04:
When you go to Medicare Part D... But even then, the co-insurance is not...

[01:01:44] Speaker 04:
indirectly tied to WAC, the co-insurance.

[01:01:46] Speaker 01:
It's ASP, Your Honor, and not WAC, and so therefore it takes into account the discounts and rebates that the wholesalers pay or the wholesalers receive from the manufacturer, so it's a different number as well.

[01:01:57] Speaker 01:
And then if you get to Medicare Part D, Medicare Part D about

[01:02:04] Speaker 01:
About 40 to 50 percent of the people that do Medicare Part D only have co-payments.

[01:02:16] Speaker 01:
Sorry, 77, never mind, that was incorrect, 40 to 50 percent don't have deductibles that cover insurance.

[01:02:23] Speaker 01:
In terms of co-pay versus co-insurance, 99 percent of those who are covered by Medicare Advantage plans

[01:02:31] Speaker 01:
pay only co-pays for preferred drugs.

[01:02:36] Speaker 01:
77% of those who are covered by standalone prescription drug plans only have co-pays for preferred drugs.

[01:02:45] Speaker 01:
If you take all of this into account and you understand that even for individuals, what they pay is going to vary during the course of a year based on deductibles, based on whether the particular drug is preferred, non-preferred, et cetera, the government's comment that telling people whack gives them an anchor is actually far more dangerous than helpful.

[01:03:04] Speaker 01:
Because as the government said, it's an anchor that acts as a gravitational force on everything that follows in the ad.

[01:03:11] Speaker 01:
So they're given this number, whack.

[01:03:13] Speaker 01:
that not only doesn't tell them what they're going to pay, but even from a relative basis might be highly misleading.

[01:03:19] Speaker 01:
A drug might have a higher wag.

[01:03:27] Speaker 05:
It's actually, it's my first amendment.

[01:03:31] Speaker 04:
Well he's also responding to my questions to try to understand how the whole scheme works.

[01:03:34] Speaker 01:
And I was trying to.

[01:03:36] Speaker 04:
No, it goes to understand how the whole scheme works.

[01:03:39] Speaker 01:
Your Honor, I'll try to be very brief about this.

[01:03:41] Speaker 01:
The government's pitch is that this gives you important relative information.

[01:03:45] Speaker 01:
And it doesn't quite often because a drug can have a higher whack, but if it's preferred, it can have a much lower, for a particular individual, it can have a much lower out-of-pocket payment.

[01:03:56] Speaker 01:
It could be a $5 out-of-pocket payment than the drug that has a lower whack.

[01:04:01] Speaker 01:
So that gravitational force is a dangerous one.

[01:04:05] Speaker 01:
And the caveat that they've ended to it that says if you have insurance that covers prescription drugs, your price may be different doesn't take that away.

[01:04:14] Speaker 01:
First of all, as the government said, it's a gravitational force.

[01:04:18] Speaker 01:
The weak disclaimer isn't going to take it away.

[01:04:21] Speaker 01:
Secondly, though, the terms of that disclaimer

[01:04:24] Speaker 01:
First of all, suggest that if you don't have insurance, that will be your price.

[01:04:28] Speaker 01:
And as we pointed out in our brief, that often won't be the case.

[01:04:31] Speaker 01:
Secondly, telling people that have insurance, your price may be different.

[01:04:36] Speaker 01:
Doesn't tell you your price will almost certainly be far lower.

[01:04:40] Speaker 01:
So rather than actually clarifying things, their disclaimer lulls you into the feeling that your price will be in or around the amount.

[01:04:49] Speaker 01:
And it's not going to be so different.

[01:04:52] Speaker ?:
Thank you.

[01:04:52] Speaker ?:
All right.

[01:04:54] Speaker 01:
Thank you.

[01:04:56] Speaker 03:
Does Mr Davis have any time?

[01:05:00] Speaker 03:
Why don't you take two minutes?

[01:05:03] Speaker 06:
Thank you, Your Honor.

[01:05:04] Speaker 06:
I just have three quick points to make.

[01:05:07] Speaker 06:
The first is that a good way to think about how this rule relates to the efficient administration of Medicare and Medicaid is to remember that the Secretary is effectively the trustee of Medicare and Medicaid.

[01:05:18] Speaker 06:
The Secretary is responsible for efficiently administering the Medicare trust funds in the best interest of the recipients.

[01:05:25] Speaker 06:
And the best interests of a Medicare beneficiary are to pay a market price, a lower price, for their drugs rather than a

[01:05:33] Speaker 06:
a higher price.

[01:05:35] Speaker 06:
That's my first point.

[01:05:37] Speaker 06:
My second point, Your Honor, is about the Food, Drug, and Cosmetic Act.

[01:05:41] Speaker 06:
I think it's important to recognize that with respect to the FDCA, the question here is what Congress intended.

[01:05:49] Speaker 06:
And the Congress that enacted the Food, Drug, and Cosmetic Act would be very surprised to learn that anything it was doing would affect HHS's rulemaking authority under a totally different law.

[01:06:02] Speaker 06:
And the final points I'd like to make, Your Honor, is on limiting principle.

[01:06:07] Speaker 06:
My colleague on the other side brought up the example of mandating exercise, mandating a particular diet.

[01:06:15] Speaker 06:
Nothing in our theory goes anywhere close to those hypotheticals.

[01:06:20] Speaker 06:
CMS, as we've talked about, does not pay for exercise.

[01:06:24] Speaker 06:
It does not regulate exercise.

[01:06:26] Speaker 06:
It does not regulate diet.

[01:06:27] Speaker 06:
But the one thing that we know CMS does regulate

[01:06:31] Speaker 06:
is prescription drugs and CMS pays for those drugs.

[01:06:35] Speaker 06:
This rule is tightly connected to the very products that CMS actually pays for and I think it is a circumscribed grant of authority.

[01:06:45] Speaker 04:
Do you agree with their reading of 1396R8 that the contracting conditions, because the two in the statute can't be added to and that you couldn't

[01:07:00] Speaker 04:
You couldn't require them to roll on.

[01:07:02] Speaker 04:
I assume you don't, because this is a lesser included version of what you've done here, to roll on the bottom for information about Medicare and Medicaid pricing go-to acts website.

[01:07:12] Speaker 06:
Your Honor, I think that the Secretary's authority would extend to requiring under this statute

[01:07:19] Speaker 06:
a girl company to advertise or include its prices on a particular website, if that's what you're asking?

[01:07:25] Speaker 04:
Are there other contracting conditions that can be imposed?

[01:07:29] Speaker 04:
Has the Secretary imposed any conditions on contracting other than the statutory ones?

[01:07:34] Speaker 06:
I'm not aware of other conditions, Your Honor.

[01:07:37] Speaker 06:
There are no further questions.

[01:07:39] Speaker 06:
All right.

[01:07:40] Speaker 06:
Thank you.

[01:07:48] Speaker ?:
Okay.