Mintz IRA Update — Legal Challenges to the Medicare Drug Price Negotiation Program
As discussed throughout this Update, the implementation of the Medicare Drug Price Negotiation Program (the “Negotiation Program” or “Program”) has been subject to a number of legal challenges. To date, six manufacturers and two industry groups have filed suits seeking to declare various aspects of the Program unconstitutional or unenforceable, including Merck, Bristol Myers Squibb, Johnson & Johnson, Boehringer Ingelheim, AstraZeneca, Novartis, the US Chambers of Commerce (on behalf of its member Abbvie), and the trade group PhRMA (collectively, the “Plaintiffs”). The Plaintiffs are spread out across the United States, with suits currently brought in federal courts in Connecticut, Delaware, DC, New Jersey, Ohio, and Texas. With CMS’s recent release of the 10 drugs that will be subject to negotiation, it is widely expected that additional parties will bring lawsuits challenging the Program.
The Claims:
The Plaintiff’s claims largely fall into seven categories.
- First Amendment. Several Plaintiffs have claimed that the Negotiation Program violates their First Amendment right to be free from government-compelled speech. The Plaintiffs have alleged that they will be compelled to peddle the government’s message that manufacturers “agree” to enter into the negotiation process and that they “agree” to the government’s negotiated maximum fair price (“MFP”).
- Takings Clause. A key claim in the lawsuits is that the Negotiation Program violates the Takings Clause of the Fifth Amendment, which prohibits the government from taking private property for public use without just compensation. The Plaintiffs allege that their drugs or patents will be taken without just compensation because the Negotiation Program is designed to take, at a minimum, 25% off the fair market value of the drug’s price.
- Procedural Due Process. Relying on another clause of the Fifth Amendment, some Plaintiffs are pursuing procedural due process claims, alleging that their property interest will be taken without adequate process. Under this claim, the Plaintiffs allege that they do not have a meaningful opportunity to be heard through a neutral decision-maker concerning their property rights since CMS will be the final arbiter of the MFP and that determination purports to be unreviewable by the courts.
- Unconstitutional Conditions. Building off these claims, at least two Plaintiffs have brought an “unconstitutional conditions” claim, which is likely designed to counter CMS’s response that the Negotiation Program is purely voluntary. The government may place conditions on the receipt of federal benefits. But this claim alleges that the proposed conditions on participation in the Medicare and Medicaid programs here — waiving free speech rights or the right to just compensation — go too far and are not proportionate to the government program at issue.
- Excessive Fines. Presumably, to encourage participation, the IRA imposes an “excise tax” on all manufacturers who do not enter into drug pricing agreements with CMS. A number of the lawsuits argue that the excise taxes increase with noncompliance and could range from 185% to 1,900% of the drug’s daily revenues. The IRA also implements civil monetary penalties for other violations. Several Plaintiffs have alleged that these taxes or fines violate the Eighth Amendment’s prohibition on excessive fines, which prohibits monetary exactions as punishment that are grossly disproportional to the gravity of a defendant’s offense.
- Lack of Constitutional Authority. At least one Plaintiff has brought claims seeking to invalidate parts of the IRA by alleging that Congress lacks the constitutional authority to enact them. The US Chamber of Commerce alleges that the IRA improperly employs Congress’s power to regulate interstate commerce to compel manufacturers to participate in commerce they do not wish to participate in by selling their drugs at the government’s preferred price.
- Non-Delegation Doctrine. In typical administrative rulemaking, Congress delegates to agencies the authority to interpret and administer legislative schemes. Some Plaintiffs, however, have alleged that Congress did not provide CMS with appropriate guidance (an “intelligible principle”) through which CMS can make many Program-related decisions, including the determination of an MFP.
- Administrative Procedure Act (APA). Manufacturers argue that CMS’s implementation of the Program violates the APA on both procedural and substantive grounds. On procedural grounds, one Plaintiff alleges that CMS’s implementing guidance was not issued following proper notice-and-comment rulemaking. On substantive grounds, two Plaintiffs argue that the “bona fide” marketing standard and definition of “qualifying single source drugs” included in CMS’s implementing guidance are arbitrary and capricious. Both provisions impact whether a drug is eligible for negotiation. We discuss these claims further in an article titled “A Deeper Dive into the Controversy of the IRA’s Medicare Drug Price Negotiation Program.”
The Government’s Response:
We expect the government to raise several procedural and substantive defenses to these claims. On the procedural front, the government has moved to dismiss many of the suits on various grounds, including by arguing that (i) the Plaintiffs’ lack Article III standing, (ii) the claims are not ripe for adjudication, and (iii) some lawsuits have been brought in the wrong jurisdictions. The government contends that the Plaintiffs are under no threat of imminent or certain injury because they will not suffer most of their claimed injuries for months or even years as the negotiation process unfolds. For similar reasons, the government argues that courts currently lack enough information to assess many of the claims because it is not known what price for selected drugs CMS will settle upon with manufacturers. According to the government, CMS may determine an MFP that matches manufacturers’ current net proceeds after accounting for rebates or other discounts.
One particular focus of the government’s filings, particularly in response to the Fifth Amendment Takings claims, is that manufacturer participation in the Negotiation Program is voluntary — i.e., if a manufacturer doesn’t want to subject its drugs to negotiation, it can simply opt out of negotiation. However, because a manufacturer that opts out of the negotiation must either pay an excise tax or withdraw all its products from the Medicare and Medicaid programs, a number of Plaintiffs argue that this makes opting out infeasible, primarily because Medicare and Medicaid make up nearly half of US pharmaceutical spend. According to the Plaintiffs, the fact that a manufacturer must withdraw all of its drugs from Medicare and Medicaid — not just those that are subject to negotiation — to avoid the excise taxes for noncompliance with the Program allegedly leaves them with no real choice but to participate in the Program.
What Comes Next:
It will take time for the litigation to make its way through the courts. Only one Plaintiff has sought preliminary relief to enjoin the Negotiation Program, while many others have agreed to briefing schedules that could lead to rulings in late 2023 or early 2024. Once the matters are fully briefed, courts may begin issuing decisions on a rolling basis. As courts across the country issue their decisions, there are likely to be competing conclusions and rationales. Some courts may issue injunctions to enjoin enforcement of the Negotiation Program, though those injunctions may not manage to halt the Negotiation Program entirely. Courts may be able to carve out certain aspects of the Negotiation Program in their injunctions but are likely to leave other aspects to proceed. For example, a court could issue an injunction that prohibits enforcement of the “bona fide” marketing standard but still permits the negotiation process to otherwise proceed. Further, those trial court decisions or injunctions will be only one step in the litigation process — as the losing party in each suit will likely appeal, winding at least some of the cases up to the Supreme Court. In all, we expect some uncertainty to persist for the near future and do not expect the issues to be sorted out until at least next year.
