A panel of federal appellate judges on Tuesday ruled that HHS does not have authority to require drugmakers to disclose list prices in television advertisements.
The decision is another blow to President Donald Trump's drug-pricing policy agenda in an election year. Other banner administration drug-pricing policies have been withdrawn or delayed indefinitely.
A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit sided with drugmakers and upheld a lower court ruling that struck down HHS' regulation.
Merck & Co., Amgen, Eli Lilly and Co. and the Association of National Advertisers argued in their lawsuit challenging the rule that HHS had exceeded its legal authority.
Judge Patricia Millett agreed, and wrote in the court's opinion that HHS' rule was unreasonable and based on faulty logic that would have allowed the department "unbridled power" to enact any regulation that could potentially lower drug prices.
The list prices drugmakers would have been required to disclose bear "little resemblance" to the prices consumers actually pay, Millett wrote.
"Maybe informing consumers about a price that Medicaid and Medicare customers will almost never pay, and that they are unlikely to understand, unlashes the disclosure from its claimed administrative mooring," Millett wrote.
The appeals court did not address drugmakers' argument that the rule violated their First Amendment rights, as U.S. District Judge Amit Mehta did not address the issue in his prior decision.
HHS did not immediately respond to an inquiry about whether the department will appeal the ruling.