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Pharma Battling Legal Precedent in Medicare Drug Price Lawsuits [1]
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Date: 2023-09
Decades of legal precedent defending the authority of Congress and the Medicare agency threaten to stand in the way of the pharmaceutical industry’s pursuit to stop the federal government from negotiating lower drug prices, lawyers and drug pricing analysts say.
The leading industry trade group, the Pharmaceutical Research and Manufacturers of America, took a stab last week at arguing the drug price negotiation provisions of the Inflation Reduction Act are unconstitutional, following similar lawsuits filed by member companies Merck & Co. and Bristol-Myers Squibb Co. The US Chamber of Commerce and several state and local affiliates filed another lawsuit over the law earlier this month.
The lawsuits make various constitutional claims, including that the negotiation process violates the Fifth Amendment’s prohibition on taking private property without just compensation and the Eighth Amendment’s excessive fines clause, based on the excise tax pharmaceutical companies face if they refuse to comply with the negotiations.
The industry has signaled that they’re ready to take the fight all the way up to the Supreme Court.
Program Serving Beneficiaries
But litigation dating back to the 1970s has struck down some of the arguments the industry complaints make. Courts have also typically defended Medicare’s authority as a voluntary program serving beneficiaries and federal agencies’ ability to regulate when they are acting within statutes set by Congress.
The pharmaceutical industry will have to overcome this precedent as they work to get federal judges across the country on their side in challenging a program that is expected to save Medicare roughly $100 billion over 10 years, analysts say.
“The drug companies are throwing spaghetti at the wall, and they’re going to hope that some of it sticks,” said Nicholas Bagley, a professor at the University of Michigan Law School focused on administrative and health law.
“They’re really facing an uphill challenge, because there’s an act of Congress that establishes this program,” Bagley added. “Constitutional challenges to laws” succeed “very rarely,” because “we live in a democracy and Congress has a lot of authority to do what it thinks is in public interest.”
The Centers for Medicare & Medicaid Services plans to finalize guidance on the negotiation process as early as this week. The agency has a Sept. 1 deadline to publish the names of the first 10 Part D drugs that will face government-negotiated prices starting in 2026.
CMS has committed to continuing to implement the negotiation program in the face of these legal challenges. Department of Health and Human Services officials have repeatedly said that the administration believes the law is on the federal government’s side, and that nothing in the US Constitution prevents Medicare from negotiating lower pharmaceutical prices.
Due Process, Separation of Powers
The PhRMA and Chamber of Commerce lawsuits argue that the drug price negotiation program violates the Constitution’s separation of powers clause by giving HHS discretion over a maximum fair price for any given drug selected for negotiation.
They also cite the Fifth Amendment’s due process clause, which they argue requires companies to charge a lower price without greater opportunities to challenge the negotiated price ultimately set by Medicare. The IRA specifically bars judicial or administrative review of the final price following the negotiation process.
But PhRMA and others face obstacles “showing how the program improperly deprives them of a constitutionally protected private or property right,” said Zachary Baron, an associate director of the Health Policy and the Law Initiative at Georgetown University’s O’Neill Institute.
“Just losing profits associated with their investment has not been viewed to be sufficient,” Baron said, adding that the Supreme Court “has warned against telling federal agencies the ‘best’ way to set out proper procedures for agencies to implement government programs when they are operating under the statutory design envisioned by Congress.”
Nevertheless, drug manufacturers have signaled they are willing to go up against the authority granted to the CMS. Jones Day partner Yaakov M. Roth is listed on the complaints from both Merck and Bristol. Roth most recently worked on the winning side in West Virginia v. EPA, in which the Supreme Court brought uncertainty to the longtime legal standard of giving deference to federal agencies on areas where it has not been given express authority by Congress.
Takings Clause
Merck and Bristol argue in their complaints that patented drugs are “protected from uncompensated takings” under the takings clause. This part of the Fifth Amendment states that private property can’t be taken for public use without proper compensation.
Top courts have stuck down such claims in challenges to other federal programs, including the Affordable Care Act, the No Surprises Act, and the 340B drug pricing program. A 2014 decision by the US Court of Appeals for the District of Columbia Circuit in Association of American Physicians & Surgeons v. Sebelius found that the ACA’s individual health insurance mandate is a valid taxing power.
The Supreme Court also struck down challenges to Medicare’s decision-making in the 1970s in Association of American Physicians & Surgeons v. Weinberger. Here, the high court upheld a lower court’s judgment that participation in the Medicare program is voluntary and that while there are economic incentives to participate in the program, “such inducement is not tantamount to coercion or duress.” Merck in its suit called Medicare’s drug price negotiation process “tantamount to extortion.”
Merck and Bristol will have to “overcome that precedent and persuade the courts that what they ought to do is decide whether the government is paying suppliers or contractors enough when they change their contracts,” Bagley said.
The Biden administration has defended the price negotiations as a landmark policy to drive down the costs of prescription drugs for Medicare beneficiaries. This public interest concern will “affect the doctrines that are applied in these cases,” said Robin Feldman, a law professor at the University of California College of the Law, San Francisco.
“It can’t be that the government as a buyer has to take whatever price a seller demands,” Feldman added. “The government will go bankrupt if that were the case.”
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[1] Url:
https://news.bloomberglaw.com/health-law-and-business/pharma-battling-legal-precedent-in-medicare-drug-price-lawsuits
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