Diabetes drug manufacturer asks 2nd Circuit to resuscitate Medicare drug price negotiation case

MANHATTAN (CN) — The German pharmaceutical drugmaker Boehringer Ingelheim asked a federal appeals court on Thursday to revive its constitutional challenge against what it claims is coerced participation in drug price negotiations under the federal Inflation Reduction Act, the historic law lowering health care costs for seniors through negotiated prices on select major prescription drugs.

Congress created the program as part of the Inflation Reduction Act passed during Joe Biden’s presidency in 2022. The first ten drugs targeted for negotiations were announced the following year and new prices, agreed upon in 2024, are set to take effect in 2026.

Boehringer Ingelheim Pharmaceutical, a private German pharmaceutical company with a U.S. headquarters in Ridgefield, Connecticut, sued the government in Connecticut federal court last year, claiming it was faced with an ultimatum to either provide its Jardiance diabetes drug to Medicare participants at a highly discounted price, or else incur an even greater economic toll in the form of a 1900% excise tax.

In the complaint challenging its leverage participation in the Medicare Drug Price Negotiation Program the company claims violations of its First Amendment right barring compelled speech, Fifth Amendment right to procedural due process, and the Eighth Amendment excessive fines clause.

It argues the program violated the Fifth Amendment’s takings clause by appropriating Boehringer’s property rights in its Jardiance diabetes drug, thus subjecting the company to tens of billions in annual excise taxes or across-the-board exclusion from Medicare and Medicaid if it did not “negotiate” and “agree to” a “maximum fair price” far below the prevailing rate

U.S. District Judge Michael Shea struck down case in July 2024 on the government’s motion for summary judgment, concluding that Boehringer Ingelheim had the option to withdraw from Medicare and Medicaid before any taking or deprivation of its property interests.

“With all the resources at the federal government’s disposal, private corporations will often have an incentive to participate in federal programs,” the Obama-appointed judge wrote. “The Fifth Amendment does not prevent the federal government from placing conditions on participation in those programs."

Appealing that judgment to the Second Circuit Court of Appeals, Boehringer Ingelheim contended that the statute’s use of the term “maximum fair price” violated the company’s First Amendment right by compelling Boehringer to engage in expressive conduct.

The company asserts that participation is not voluntary because Congress carefully constructed the program to ensure that manufacturers like Boehringer effectively cannot opt out.

“Once Centers for Medicare and Medicaid Services selects a drug for the program, the manufacturer faces a Hobson’s choice between giving away its drug for a fraction of its market value, withdrawing all its drugs from Medicare and Medicaid, or paying a tax so ruinous that the Congressional Budget Office estimated it would raise no revenue because no manufacturer could afford to pay it,” it wrote in an appeals brief. “Because the program employs ‘coercion by economic pressure,’ the ‘asserted power of choice is illusory’ and participation is ‘not in fact voluntary’.”

United States Department of Justice lawyer Maxwell A. Baldi argued on behalf of the government appellee on Thursday that participation in Medicare is voluntary, and Boehringer may choose not to accept the terms of the government’s offer.

“They can take it or leave it … those are their options,” he said. “We badly want to buy their drugs.”

While the three-judge panel on the Second Circuit Court of Appeals did not immediately rule from the bench, Boehringer Ingelheim seemed to face an uphill battle with judges who appeared to concur with the lower court’s holding that participation was, in fact, voluntary.

“When a service provider voluntarily participates in a price regulated program or activity, there is no is legal compulsion to provide services, and thus there can be taking,” U.S. Circuit Judge Joseph Bianco interjected early during oral arguments.

Bianco, a Trump appointee, noted multiple times that he found Boehringer Ingelheim’s accusation of “leveraging” to “an overly broad” term.

Bianco was joined on the panel by U.S. Circuit Judge Pierre Leval, a Clinton appointee, and U.S. Circuit Judge William Nardini, a Trump appointee.

The negotiations with participating drug companies under the federal Inflation Reduction Act took place in 2023 and 2024, and any negotiated prices will become effective beginning in 2026.

Medicare enrollees taking the first round of ten drugs covered under Part D selected for negotiation paid a total of $3.4 billion in out-of-pocket costs in 2022 for these drugs, according to the Department of Health and Human Services.

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