Pharma group asks Fifth Circuit to ax Medicare drug price negotiation

(CN) — A lobby group for drug manufacturers asked a U.S. Fifth Circuit Court of Appeals panel Tuesday to block Medicare’s ability to negotiate drug prices under the Inflation Reduction Act, arguing the negotiation scheme violates the Constitution by blocking judicial review and imposing excessive fines.

Pharmaceutical Research and Manufacturers of America, a trade group that represents U.S. pharmaceutical companies, brought suit in the Western District of Texas, challenging the scheme in 2023 along with the National Infusion Center Association and the Global Colon Cancer Association. Senior U.S. District Judge David Alan Ezra, a Ronald Reagan appointee, rejected their arguments, finding the negotiation program wasn’t unconstitutional.

The plaintiffs told the panel that Ezra’s decision was wrong. They argue the fact that the Inflation Reduction Act states that decisions made by the Department of Health and Human Services regarding critical elements of the negotiation process, such as which drugs are eligible for negotiation and what constitutes a fair price, are not subject to judicial review means that Congress has unconstitutionally delegated its legislative authority to the executive branch.

“At that point, it means it’s basically just a delegation to the agency to do whatever it wants,” John Elwood, an attorney representing the plaintiffs, told the panel.

The plaintiffs also argue the lack of judicial review violates their due process rights. The government argues drug manufacturers don’t have a protected property interest that is implicated by the negotiation scheme, as it merely sets how much the government itself is willing to pay for medications through Medicare.

“In negotiating the price that Medicare will pay for drugs, the government is acting as a market participant,” the government argues in its brief. “The IRA sets the terms of the government’s offer to pay for certain drugs. While manufacturers may use their market power to negotiate with the government, they have no right to force the government to pay for their drugs on specific terms.”

But the plaintiffs argue the negotiation program regulates private transactions. They point to the fact that the program’s price limits include drugs purchased through Medicare Part D, where beneficiaries purchase plans from private insurers that are subsidized by Medicare.

“They’re controlling a lot of private transactions involving literally millions of private parties,” Elwood said. “They’re acting as a regulator. They’re not just acting as a market participant.”

This case is one of numerous lawsuits in which drug companies have challenged the constitutionality of the negotiation program. The Second and Third Circuits have both upheld the program as constitutional.

Under the negotiation program, HHS is authorized to set prices that Medicare will pay for certain high-cost drugs that don’t have a generic competition on the market. In its brief, the government says the negotiation program is necessary to address “skyrocketing drug prices” that not only fiscally burden the federal government but also create “unaffordable copays” for Medicare beneficiaries.

Manufacturers of selected drugs who don’t want to charge the set rate must withdraw from Medicare entirely, or they will be charged a steep excise tax on sales of the selected drugs.

The plaintiffs argue this tax violates the Constitution’s prohibition on excessive fines. In his ruling, Ezra found they were barred from bringing this claim by the Anti-Injunction Act, which prohibits taxpayers from preemptively challenging taxes. Instead, a taxpayer must pay a tax and then sue for a refund.

But U.S. Circuit Judge Cory Wilson, a Donald Trump appointee, questioned the feasibility of doing so in this case.

“The district court sort of just waved its hand at this and said, ‘Well, you can pay the tax on one of these pills, and then you challenge it. And so that’s easy,’” he said. “But that’s not accurate, really, is it? Because if you pay the tax on the one pill, but during the appeal, you deal with 100,000 more pills, if the manufacturer loses that appeal, their company shutters at that point. It’s closed. In other words, it’s so prohibitive that nobody’s ever going to take that risk.”

U.S. Circuit Judge Leslie Southwick, a George W. Bush appointee, and U.S. Circuit Judge Stephen Higginson, a Barack Obama appointee, joined Wilson on the panel.