U.S. Inflation Reduction Act (IRA) Update: Pharmaceutical Companies Challenge the Medicare Drug Price Negotiation Program
In the wake of the Inflation Reduction Act (IRA) of 2022, a groundbreaking shift in the pharmaceutical landscape has emerged, challenging the status quo of drug pricing in the United States. Our research has delved into the contentious battle between pharmaceutical giants and the Medicare Drug Price Negotiation Program, a pivotal component of the Act aimed at curbing soaring prescription costs for Medicare beneficiaries.
Legal confrontations initiated by the industry challenge the government's innovative approach to drug price negotiations. The challenges raise questions about the legal, economic, and societal implications of this landmark legislation and the balancing act of public welfare and corporate interests in the quest for affordable healthcare.
Introduction and Purpose
Signed into law by the Biden Administration, the IRA includes provisions to lower prescription drug costs for people with Medicare, keep prescription drug premiums stable and reduce drug spending by the Federal Government¹.
The prescription drug provisions included in the IRA will:
Require the Federal Government to negotiate prices for some drugs covered under Part D (prescription drug coverage) and Medicare Part B (outpatient/medical coverage) with the highest total spending beginning in 2026
Require drug companies to pay rebates to Medicare if prices rise faster than inflation for drugs used by Medicare beneficiaries starting in 2023
Cap out-of-pocket spending for Medicare Part D enrollees and make other Part D benefit design changes beginning in 2024
Limit monthly cost-sharing for insulin to $35 for people with Medicare, starting in 2023
Eliminate cost-sharing for adult vaccines covered under Medicare Part D and improve access to adult vaccines in Medicaid and CHIP, starting in 2023
Expand eligibility for full benefits under the Medicare Part D Low-Income Subsidy Program, starting in 2024
Further delay implementation of the Trump Administration's drug rebate rule, starting in 2027
Claims Made by Pharmaceutical Companies
In 2023, multiple manufacturers (Merck, Johnson & Johnson's Janssen Pharmaceuticals, Bristol Myers Squibb, AstraZeneca, Novartis, Novo Nordisk and Boehringer Ingelheim) and two industry groups (US Chambers of Commerce – on behalf of AbbVie and the trade group The Pharmaceutical Research and Manufacturers of America (PhRMA)) filed separate lawsuits against the Federal Government over the Medicare Negotiation Program. The companies claim that the provisions of the Medicare Negotiation Program are unlawful because they violate the Constitution's First and Fifth Amendments.
In the United States, the First Amendment provides that Congress make no law respecting an establishment of religion or prohibiting its free exercise. It protects freedom of speech, the press, assembly, and the right to petition the Government for a redress grievances.²
The Fifth Amendment provides that citizens are not subject to criminal prosecution and punishment without due process. Citizens may not be tried twice on the same set of facts and are protected from self-incrimination (the right to remain silent). The amendment also establishes the power of eminent domain, ensuring that private property is not seized for public use without just compensation.³
Arguments against the Medicare Drug Price Negotiation Program
Merck argues that the IRA plan suggests that federal officials will sit down with drugmakers and negotiate voluntary price agreements, but that is not the case. The U.S. Department of Health and Human Services (HHS) selects the drug to be included in the program and then dictates the price, threatening prescription drug companies with an excise daily tax beginning at 185% of the drug's daily revenues and potentially increasing to 1,900%, if they decline to agree.⁴ Companies argue that under this threat, they are compelled to agree to this “negotiation” and that the government's negotiated maximum fair price is "fair." ⁵
A spokesman for Merck argued that Congress could have allowed HHS to specify a maximum price it would pay for a drug or employ its leverage to negotiate. Instead, the government uses the threat of severe penalties to requisition drugs and refuses to pay fair value, forcing drugmakers to act as if this was a fair and voluntary exchange.⁶
Furthermore, prescription drug companies argue that the Government is violating The Takings Clause of the Fifth Amendment (prohibiting the government from taking private property for public use without just compensation) because the Medicare Negotiation Program's aim of reducing drug prices by 25% does not amount to "just compensation".⁷
Drugs selected for the Medicare Drug Price Negotiation Program for 2026
Companies that manufacture the selected drugs were given until 1 October 2023 to sign and agree to the negotiations. Manufacturers participating in the Medicare Drug Price Negotiation Program 2026 under the Inflation Reduction Act:
Analysis of the Arguments
The Fifth Amendment claim is gripping because Janssen's application of the Takings Clause to patents and the profits from utilising those patents has no precedent.
Ruckelshaus v Monsanto Co.,⁸ held that trade secrets were recognised as property by state law and protected from uncompensated disclosure by the Takings Clause of the Fifth Amendment. Although trade secrets and patents differ, one wonders if the U.S. Department of Justice (DOJ) will consider patents held by pharmaceutical companies as private property.
On the other hand, the government's rebuttal argument that pharmaceutical companies' participation in the Medicare Negotiation Program is a voluntary benefit and therefore subject to conditions for participation set by the Government, could be potentially more robust than the claims made by the pharmaceutical companies.
Additionally, the government may argue that pharmaceutical companies can opt out of the program, a highly unlikely move given that opting out would essentially terminate a company's relationship with Medicare, which delivers a significant proportion of their income.
Why did the Biden administration select these drugs?
Prescription drugs without substantial generic competition qualified for selection. Seven out of the ten selected drugs (ELIQUIS®, JARDIANCE®, XARELTO®, JANUVIA®, FARXIGA®, ENTRESTO® and IMBRUVICA®) are small molecule drugs, which means they have a relatively simple chemical structure and do not face bona fide generic competition.⁹ According to the Centers for Medicare and Medicaid (CMS), these selected drugs account for $50.5 billion or about 20% of total Medicare Part D gross covered prescription drug costs.¹⁰
First Ruling
On 29 September 2023, a federal district court in Ohio denied the attempt by the U.S. Chamber of Commerce, on behalf of AbbVie (Chamber), to stop the Medicare Negotiation Program implementation immediately. The Chamber filed a motion for preliminary injunction asking the court to prohibit the administration from implementing the negotiation program due to several constitutional concerns.¹¹
The DOJ opposed that motion and filed a motion to dismiss the Chambers case on multiple preliminary grounds. So, in other words, the judge rejected the Chamber's motion for preliminary injunction.
Also, the judge rejected the motion to dismiss the lawsuit entirely, for now.
Analysis – First Ruling
The first ruling was a win for the Biden Administration. The Chamber had no "standing" to bring the lawsuit before the court. So, in other words, one cannot prove that they are harmed or likely to be harmed by the action or policy they are challenging because AbbVie was not a manufacturer of a drug selected for negotiation and/or subject to the program's conditions.¹²
Analysis - Second Ruling
On 12 February 2024, the federal judge of the Western District of Texas dismissed a lawsuit against the Biden administration brought by PhRMA. The Global Colon Cancer Association and the National Infusion Center Association (NICA) joined PhRMA in the complaint. The judge dismissed NICA from the case because it "lacked subject matter jurisdiction." NICA was PhRMA's lone plaintiff, so the judge dismissed the case given that NICA is the only plaintiff based in the district.¹³
What happens next in the Medicare Drug Price Negotiation Program?
Pharmaceutical manufacturers and industry groups are seeking to halt the implementation of a Medicare Negotiation Program that has been described as "tantamount to extortion."
Several lawsuits challenging the program are expected to launch in the first half of 2024. To date, AstraZeneca has chosen to present oral arguments to strike down the pricing scheme, rather than arguing against constitutional violations.¹⁴ In March 2024, four drugmakers, Bristol-Myers Squibb, Johnson & Johnson's Janssen Pharmaceuticals, Novartis and Novo-Nordisk, will present their oral arguments against the IRA.¹⁵
The deadline for participating manufacturers to either accept the Biden's administration's offer or proposed a counteroffer is set for 2 March 2024. Final prices will be published 1 September 2024, after the negotiation process ends.
Author
J’Neisha Smith
Healthcare Research Analyst, Verpora
Sources
Explaining the Prescription Drug Provisions in the Inflation Reduction Act | KFF - accessed 13/2/2024
The Constitution | The White House - accessed 13/2/2024
The Constitution | The White House - accessed 13/2/2024
Merck sues U.S. government over plan to negotiate Medicare drug prices, claiming "extortion" - CBS News - accessed 13/2/2024
Legal Challenges to the Medicare Drug Price Negotiation Program (mintz.com) - accessed 22/2/2024
Merck sues federal government, calling plan to negotiate Medicare drug prices extortion | Health News Florida (usf.edu) - accessed 22/2/2024
Legal Challenges to the Medicare Drug Price Negotiation Program (mintz.com) - accessed 22/2/2024
Ruckelshaus v Monsanto Co., 467 U.S. 986 (1984)
How Patents Contribute to High Drug Prices | The Regulatory Review (theregreview.org) - accessed 22/2/2024
Factsheet: Medicare Drug Price Negotiation Program (cms.gov) -accessed 22/2/2024
Challengers to Medicare Drug Price Negotiation Program Suffer Major Defeat - O'Neill : O'Neill (georgetown.edu) - accessed 22/2/2024
Challengers to Medicare Drug Price Negotiation Program Suffer Major Defeat - O'Neill : O'Neill (georgetown.edu) - accessed 22/2/2024
US judge tosses PhRMA lawsuit contesting IRA price negotiations (fiercepharma.com) - accessed 22/2/2024
https://news.bloomberglaw.com/health-law-and-business/astrazeneca-to-fight-medicare-drug-price-plan-in-federal-court - accessed 22/2/2024
Four Drugmakers to Face Government Together in IRA Oral Arguments Next Month | BioSpace - accessed 22/2/2024
Disclaimer
Content in this article is based on secondary market research using externally sourced data available in the public domain. Opinions and commentary are those of the authors and do not reflect views of any commercial organisation or government body mentioned in the article. For any questions relating to the article please contact info@verpora.com