Mintz IRA Update — IRA Litigation Update: Courts Begin to Address Legal Challenges to the Medicare Drug Price Negotiation Program

The IRA’s Medicare Drug Price Negotiation Program (the “Negotiation Program” or “Program”), which enables the federal government to negotiate prices for some of the costliest Medicare Part D drugs, has been subject to several legal challenges over the last year. Manufacturers and trade associations began filing lawsuits against the government even before the first 10 negotiation-eligible drugs were published in late August 2023. All but one of the manufacturers of those drugs has since filed suit seeking to enjoin the Negotiation Program, and nine lawsuits are currently pending across the country challenging the constitutionality and legality of the Negotiation Program on several grounds. As we previously reported, a federal district court in the Fifth Circuit tossed a lawsuit on procedural grounds, and another in the Sixth Circuit reached a preliminary determination that the plaintiffs had not shown a likelihood of success on the merits of their claim.

Since our last update, three more courts, two in the Third Circuit and another in the Second Circuit, have weighed in on the issues presented and have concluded that the Program passes constitutional muster. In total, each of the courts that has issued a decision so far has either dismissed the plaintiffs’ challenges on procedural grounds or upheld the legality of the Program on the merits. Below, we summarize those new cases and what we can expect going forward.

Federal Judge in Delaware Dismisses AstraZeneca’s Challenge

On March 1, 2024, a judge in the District of Delaware, located in the Third Circuit, dismissed AstraZeneca’s suit challenging the constitutionality of the Negotiation Program and the legality of two Centers for Medicare & Medicaid Services (CMS) interpretive rules under the IRA. AstraZeneca alleged that the Negotiation Program violated its Fifth Amendment due process rights and thus was unconstitutional. The first inquiry for due process challenges is whether the plaintiff has been deprived of a protected interest in property or liberty. As the court discussed, a protected property interest requires "more than an abstract need or desire" and "more than a unilateral expectation”; the plaintiff must have a legitimate claim of entitlement to" the property. The court found that AstraZeneca’s purported property interest — which the court described as “the ability to sell its drugs to Medicare at prices above the ceiling prices and negotiated maximum fair prices established by the IRA” — was not protected by the Fifth Amendment, reasoning that the manufacturer does not have a right to force the government to buy its products at a particular price. AstraZeneca had also argued that participation in the Program was not voluntary because the consequence of not participating — which includes not being able to sell drugs to Medicare and Medicaid patients — essentially amounted to a “gun to the head.” The court reasoned that while the “opportunity to sell drugs to 50% of the potential market for prescription drugs” may be a strong economic incentive, there was nothing improper about the federal government wielding its market share to obtain better prices. As for the claims based on the Administrative Procedure Act, the court concluded that AstraZeneca lacked Article III standing to bring the claims because CMS’s allegedly erroneous interpretations of the IRA would not force AstraZeneca to suffer any concrete harm for years. The court, therefore, did not address the merits of those claims, dismissing them on procedural grounds.

New Jersey Federal Court Rejects Challenges Brought by Bristol Myers Squibb and J&J

In another string of cases arising out of the Third Circuit, nearly two months later, on April 29, 2024, the New Jersey federal judge overseeing four of the legal challenges to the IRA brought by multiple manufacturers rejected the constitutional challenges lodged by Bristol Myers Squibb Company (BMS) and Janssen Pharmaceuticals, Inc., a division of Johnson & Johnson (J&J). BMS and J&J both alleged that the Program violated three constitutional principles: (1) the Takings Clause of the Fifth Amendment by forcing manufacturers to transfer their drugs to Medicare participants at a government-dictated and below-market price; (2) the First Amendment right to free speech by compelling them to enter into “faux agreements” to “negotiate” a “maximum fair price”; and (3) placement of an unconstitutional condition on BMS’s and J&J’s exercise of those First and Fifth Amendment constitutional rights. In line with the AstraZeneca court, the New Jersey court concluded that because participation in Medicare is purely voluntary, the manufacturers could not complain of any constitutional infringements. The New Jersey court further concluded that the Program did not violate the Fifth Amendment or the First Amendment at all, and so the Program did not place an unconstitutional condition on the manufacturers’ constitutional rights.

Connecticut Court Agrees that Manufacturer Claims Are Meritless

On July 3, the district court in Connecticut (located in the Second Circuit) overseeing the case brought by Boehringer Ingelheim became the latest to join the chorus of district courts, concluding that the Negotiation Program passes constitutional muster. Boehringer Ingelheim brought claims that overlapped with many other manufacturers (including the First Amendment, Takings Clause, and Unconstitutional Conditions claims considered and rejected by other courts). In line with all the courts to date, the Connecticut court concluded that these constitutional claims failed, resting largely on the conclusion that participation in the Medicare program is purely voluntary — though the court, in dictum, rejected the government’s argument that there is no constitutional violation because a manufacturer can simply divest its interest in the Selected Drug. The case also offered a first look at additional claims brought by other manufacturers but not yet addressed by the courts, including claims (which we summarized in a prior edition) that (1) the Negotiation Program’s excise tax levied on non-compliant manufacturers was an excessive fine in violation of the Eighth Amendment, and (2) CMS violated the Administrative Procedures Act when it promulgated the manufacturer agreement without following notice-and-comment procedures. The court rejected the latter claim, concluding that Congress exempted much of the Negotiation Program’s regulatory framework from the typical notice-and-comment procedures. Further, the court refused to consider Boehringer Ingelheim’s Eighth Amendment excessive-fines claim, concluding that doing so would violate the Anti-Injunction Act, which generally prohibits preemptive suits by taxpayers to prohibit the collection of taxes and instead requires that they sue for a refund after paying. In sum, the Connecticut court handed the government yet another complete victory.

What’s in the Pipeline

Three other cases, brought by Merck & Co. in DC (DC Circuit) and Novartis and Novo Nordisk in New Jersey (also in the Third Circuit), are awaiting decisions from the district courts. Each case brings claims that overlap with those that have been rejected by the AstraZeneca, BMS/J&J, and Boehringer Ingelheim courts but also inject additional claims that have not been heard on the merits by any court yet, including (1) constitutional challenges that the Program violates the nondelegation doctrine and levies excessive fines in violation of the Eight Amendment, and (2) challenges under the Administrative Procedures Act to certain CMS agency actions under the IRA.

While the parties in those three cases await district court rulings, the appellate process has already begun to take shape for some of the cases where decisions have been issued. AstraZeneca, BMS, and J&J have each filed appeals to the Third Circuit, and the Boehringer Ingelheim case is likely to percolate up to the New York–based Second Circuit. As we previously reported, the Texas-based lawsuit brought by Pharmaceutical Research and Manufacturers of America (PhRMA) was dismissed on procedural grounds. PhRMA and its co-plaintiffs have since appealed that ruling, and the Fifth Circuit recently heard oral arguments on whether to reinstate the case and require the district court to proceed to hearing the case on its merits. (At least one Fifth Circuit judge appeared skeptical of the government’s argument that participation in Medicare is purely voluntary.) If the Fifth Circuit reinstates PhRMA’s case, then the Fifth Circuit district court will join the district courts in the Second, Third, Sixth, and DC Circuits in having the opportunity to rule on the merits of the challenges to the Negotiation Program.

Uncertainty over the legality of the Program seems as though it will persist into 2025. Decisions from the district courts will continue to come in on a rolling basis, and we expect to see the appellate courts begin to weigh in on the merits. So far, the government has yet to lose a case, although manufacturers will have many opportunities to notch a first victory. Whether or not a circuit split emerges, there is still a reasonable chance that at least some of the cases will eventually wind up at the Supreme Court. Given the current timeline, the Supreme Court could hear the cases and issue a decision as early as the next term, which runs from October 2024 through June 2025.

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