Long Road Ahead for Medicare Negotiations Program Litigation

            It’s been more than a year since the passage of the Inflation Reduction Act (IRA), which made over $393 million in investments towards reinforcing existing energy infrastructure, furthering R&D on clean energy sources, and strengthening the Internal Revenue Service’s collections efficacy. One of the IRA’s blockbuster provisions has increasingly made waves in the news and courthouses nationwide: the Medicare Drug Price Negotiation Program. Before the IRA’s enactment, the Health and Human Services (HHS) Secretary was prohibited from involvement in negotiations between pharmacies, drug manufacturers, and prescription drug plan sponsors under the “noninterference” clause. The IRA inserted an exception to the clause that now mandates the Secretary to negotiate prices directly with manufacturers for a select number of expensive “single-source” branded drugs or biologics without generic or biosimilar counterparts.

In response to the Program, drug companies and trade groups have filed ten complaints across seven federal forums around the country (Astellas dropped their complaint as their drug did not appear on the first round of negotiations). The plaintiffs include Merck, U.S. Chamber of Commerce (through its Dayton chapter), BMS, PhRMA, Janssen, Boehringer, AstraZeneca, Novartis, and Novo Nordisk. Interestingly, the root of many of the plaintiffs’ novel constitutional claims are the consequences if any of the ten manufacturers choose not to participate in the Program.

All manufacturers of the first ten branded drugs up for negotiation were required to begin the negotiations by October 1, 2023. Any manufacturer that fails to negotiate with Centers for Medicare & Medicaid Services (CMS) will be required to either pay an excise tax amounting up to 95% of the medication’s sales or cease its participation altogether in Medicare and Medicaid. Since Medicare held a 30% share of U.S. retail prescription drug spending in 2017, nonparticipation or nonagreement to the negotiations would be a huge deal for several manufacturers.

While it is too early to tell whether the courts will validate some of the constitutional claims, we at least know that there is some skepticism regarding some of the plaintiffs’ due process arguments: such is so in the U.S. Chamber of Commerce complaint. In a disappointment to the Chamber and its members, Judge Michael J. Newman not only denied the Chamber’s motion for a preliminary injunction on the program but expressed disapproval of their due process claims, one of which is that the negotiated prices were confiscatory and thus violated the Fifth Amendment. Judge Newman stated that the negotiated prices were not confiscatory because participation in Medicare was voluntary for drug manufacturers, whether it was a wise business sense or not. Given that the order also cites plenty of Sixth Circuit precedent supporting the notion that participation in Medicare is voluntary, it will be interesting to see whether this impacts other constitutional arguments throughout the litigation’s lifecycle. This is especially so since the present Supreme Court is exceedingly suspicious of Fifth Amendment violation matters.

            The Chamber of Commerce suit is just the tip of the Medicare Negotiations Program litigation iceberg. There are also First, Fifth, and Eight Amendment concerns raised by many of the plaintiffs’ complaints (e.g. the 95% excise tax can be considered an “excessive fine” under Eighth Amendment). Some even expect the disagreement across the circuits to result in a fast track to the Supreme Court, which casts much uncertainty on the legal survival of a program that would yield $98.5 billion in savings for Medicare over ten years – only time will tell.

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