Industry Challenges Medicare Price Negotiation Scheme

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As the federal government began to roll out the rules and procedures for negotiating prices of drugs reimbursed by Medicare Part D plans, biopharma companies launched an attack on the legality of the controversial program. Merck took the lead in filing a detailed lawsuit on June 6, 2023 in the Washington, D.C. federal district court, claiming that the negotiation process established by the Inflation Reduction Act (IRA) violates the constitutional rights of manufacturers (1).

Merck and Bristol Myers Squibb (BMS), which filed a similar lawsuit a few days later in New Jersey, charged that the Medicare price setting program would involve a “taking” of private property for public use without just compensation, in violation of the Fifth Amendment to the US Constitution (2). In addition, these companies claimed that the IRA also is unconstitutional under the First Amendment right to free speech because the process would coerce a manufacturer to sign an agreement it opposes: any company that wants to walk away from a price negotiation deal it doesn’t agree with would have to pay an onerous fine for doing so and thus is denied free speech. Both manufacturers have much to lose under the new pricing program, as lead targets for the scheme include Merck’s Januvia and Keytruda and BMS’ Eliquis and Opdivo, which would undermine company efforts to test and reformulate these therapies for new life-saving and profitable uses.

Similar to the Merck and BMS suits and to subsequent filings by Johnson & Johnson and Astellas Pharma, the US Chamber of Commerce filed a complaint in Ohio also charging that the price negotiation program violates the manufacturers’ constitutional rights. It additionally claims that Congress lacks the power to levy the specified excise tax for noncompliance because that would “compel” commerce (3).

Next up, on June 21, 2023, the Pharmaceutical Research and Manufacturers of America (PhRMA) joined a lawsuit filed by National Infusion Center Association (NICA) and the Global Colon Cancer Association (GCCA) challenging the constitutionality of the price negotiation provisions in the IRA (4). The plaintiffs take issue with the IRA’s excise tax—the provision that sets an 18% fine or more on a drug’s annual revenues for refusing to comply with the negotiated rate. Such a penalty, they claim, is an “excessive fine” and violates the constitution because there is no provision for judicial review of the many decisions involved in determining negotiated prices under the program. The plaintiffs also argue that the new law breaches due process by denying public input on the how the program will be implemented.

Beyond the specific legal issues raised in these lawsuits, which ultimately may end up before the Supreme Court, biopharma companies continue to claim that the administration’s price negotiation scheme will discourage investment in more risky research and development programs for new cures, particularly for rare diseases. Although the program exempts orphan drugs from negotiations, manufacturers note that this applies only to the first approved indication, and not to additional uses of the therapy. That provision is expected to undermine manufacturers’ plans to test additional uses for therapies hit by negotiated prices, cutting off industry’s main strategy for discovering and developing new treatments for cancer and rare diseases.

CMS modifications

The Centers for Medicare and Medicaid Services (CMS) meanwhile is working to implement the drug price negotiation program, as mapped out in a final guidance published June 30, 2023 (5). That document made some changes from its initial memorandum issued on March 15, 2023, responding partially to the industry lawsuits challenging CMS’ planned process for reaching agreement on negotiated prices by 2026 (6).

The documents outline what information CMS will require from manufacturers in order to select the first 10 drugs for negotiations by Sept. 1, 2023. The agency then will propose “maximum fair prices” in February 2024 and final prices by August 2024, which would become effective Jan. 1, 2026.The June advisory allows for more public discussion of the negotiation process and provides leeway for manufacturers to disclose proposed prices if they choose to do so.

The bottom line will be whether Medicare price negotiations actually reduce program outlays for drugs, as promised by the Biden administration alongside critics of high drug prices. Congressional approval of the program represented an unprecedented defeat for the pharmaceutical industry’s long-time efforts to block government price control initiatives. Pharma companies claim that they have long tried to facilitate patient access to needed medicines, but through individual discounts and other strategies that maintain market share. Industry also points to health insurers and pharmacy benefit managers for thwarting these efforts and limiting opportunities to reduce patient outlays for medicines. The legal challenges are only just beginning, and much can happen in Washington between now and 2026.

References

1. Wilson, M. R. Merck Sues HHS Over Drug Negotiation, Claims Program ‘tantamount to extortion’. Politico.com. June 6, 2023.
2. BMS. Impact of the Inflation Reduction Act on Innovative Medicines for Patients. BMS.com. June 16, 2023.
3. Stempel, J. US Chamber of Commerce Sues Over Government’s Drug Pricing Power. Reuters.com. June 9, 2023.
4. PhRMA, NICA, GCCA, PhRMA Litigation Asserts Price Setting
   Provisions in the Inflation Reduction Act are Unconstitutional. Press
   Release. June 21, 2023.
5. CMS. Medicare Drug Price Negotiation Program: Revised Guidance, Implementation of Sections 1191 – 1198 of the Social Security Act for Initial Price Applicability Year 2026. June 30, 2023.
6. CMS. Medicare Drug Price Negotiation Program: Initial Memorandum, Implementation of Sections 1191 – 1198 of the Social Security Act for Initial Price Applicability Year 2026, and Solicitation of Comments. March 15, 2023.

About the author

Jill Wechsler is Washington reporter for BioPharm International.

Article details

BioPharm International
Vol. 36, Number 8
Page: 8–9

Citation

When referring to this article, please cite it as Wechsler, J. Industry Challenges Medicare Price Negotiation Scheme. BioPharm International 2023 36 (8) 8–9.