Roughly two years after President Biden signed the Inflation Reduction Act (IRA) into law, finally allowing Medicare to negotiate the prices for some of the most expensive and most frequently dispensed drugs, a key milestone was crossed. On August 15, 2024, the U.S. Department of Health and Human Services published the results of the first Medicare drug price negotiations for ten selected drugs that treat a range of conditions, including diabetes, chronic kidney disease, and rheumatoid arthritis. The prices of these ten drugs will become effective January 1, 2026, and this initial negotiation cycle is projected to deliver billions in savings to Medicare and its beneficiaries. At the same time, pharmaceutical companies and industry allies continue their quest to thwart the implementation of the program through litigation—a quest that has been futile to date.
This summer has been another busy period in the litigation that began more than a year ago. Drug companies and their allies have pursued a slew of constitutional and statutory claims. In district courts in Connecticut, New Jersey, and Ohio, federal judges rebuffed the efforts by drug companies and industry allies to derail the program.
This Expert Column summarizes the courts’ reasoning in these three decisions and considers what future developments in the litigation will look like.
Boehringer Ingelheim
Boehringer Ingelheim’s drug, Jardiance, treats diabetes, heart failure, and chronic kidney disease. In August 2023, the company filed a lawsuit challenging the Medicare drug negotiation program in Connecticut.
Boehringer claimed that the negotiation program violates the Fifth Amendment’s Due Process and Takings Clauses, compels speech in violation of the First Amendment, and imposes unconstitutional conditions on participation in a government program. Boehringer further argued that the program requires manufacturers to sign agreements that needed to (but did not) go through notice-and-comment rulemaking, and that the program contemplates an excise tax in violation of the Eighth Amendment’s Excessive Fines Clause. On August 3, 2024, the court sided with the government’s summary judgment motion and denied Boehringer’s motion on multiple grounds.
Fifth Amendment
First, Boehringer argued that the negotiation program violates the Due Process and Takings Clauses of the Fifth Amendment.
Specifically, Boehringer claimed the program violates the Due Process Clause by forcing Boehringer to transfer its drugs to Medicare beneficiaries at below market rates and to disclose confidential business information through the negotiation process, all without due process of law. Similarly, Boehringer argued that the program violates the Takings Clause by taking its doses without paying the company just compensation for them.
The court held the company “has not been deprived of property” to successfully bring these Fifth Amendment claims as participation in Medicare is voluntary and Boehringer could have avoided the program by opting out of Medicare and Medicaid (on an expedited basis).
In considering the company’s argument that withdrawing from Medicare and Medicaid is not a viable option as it profits substantially from these programs, the court would not equate the possibility of profit loss with legal compulsion. The court’s reasoning was in line with other courts that have rejected takings claims in Medicare and other federal health care programs as participation in those programs is voluntary.
Lastly, Boehringer tried to rely on the anti-commandeering doctrine, related to conditioning federal dollars in certain circumstances, that was expanded upon by the Supreme Court to block the full implementation of Medicaid expansion under the Affordable Care Act. However, the court made clear that “[n]o similar limit on Congress’ spending powers applies here, where the government is dealing with private parties instead of state agencies. The federal government is free to use its economic power as a bulk purchaser of certain goods to negotiate better deals for those goods.”
First Amendment
Boehringer also claimed the program violates the First Amendment because participants are required to sign a “manufacturer agreement”—compelling them to ratify certain messages encompassed by the agreement. Boehringer feared that the public would assume the company believes its participation is voluntary, that it is undertaking an “actual negotiation,” and that the prices agreed to under the program are fair.
As above, the court rejected this challenge in large part because Boehringer could avoid the speech compulsion by withdrawing from Medicare and Medicaid. Moreover, the court also held the program could not unconstitutionally compel Boehringer’s speech because it regulates conduct (drug prices), and its impact on speech, if any, is incidental.
As to the notion that an “uninformed observer” would ascribe certain views to Boehringer based on the agreement, the court explained that such an argument “finds no support in precedent.” The court also warned that if adopted, Boehringer’s argument “could have broad implications for government contracting” writ large, pointing to other statutes that affect the health care industry. The court worried that siding with Boehringer “would require the government to substitute terms that some observer might find more neutral for an endless list of statutory words.”
Unconstitutional Conditions
Boehringer’s unconstitutional conditions claim fared no better. The doctrine prohibits the government from punishing the exercise of a constitutional right by withholding a benefit. The court assessed this claim through the lens of three separate constitutional provisions—the First Amendment, Takings Clause, and Due Process Clause.
The court rejected the First Amendment and Takings Clause bases for the same reasons it rejected these underlying constitutional claims. The court clarified it is only potentially unconstitutional for the government to attach conditions to voluntary government benefits under the Takings Clause when it conditions land-use permits on ceding property to public use. Boehringer also could not base its unconstitutional conditions claim on the Due Process Clause as that would “subject nearly every government purchase from a private sector firm to Fifth Amendment scrutiny.” The court also warned that would “inundate the courts and reverse longstanding principles allowing the government the same leeway” as other private businesses when it participates in the market.
Apart from these failures, the court noted that the condition at least needed to be irrelevant to the benefits of participating in Medicare. Boehringer’s unconstitutional conditions claim did not fit this mold, as the condition (selling drugs to Medicare at certain maximum prices) is closely related to the benefit (the ability to participate in Medicare).
Statutory Claims
Boehringer further attacked the manufacturer agreement as improper rulemaking without notice and comment. While the court agreed that the Administrative Procedure Act and Medicare Act would ordinarily require that such an agreement go through the notice-and-comment rulemaking process, it found that the statutory text of the IRA overrides that requirement through 2028. This is because the IRA explicitly directed the Centers for Medicare & Medicaid Services (CMS) to implement the program for the first three years (which includes issuing the manufacturer agreement) by “program instruction or other forms of program guidance.”
Excessive Fines Clause
Boehringer also argued that the program’s excise tax is unconstitutional under the Eighth Amendment’s Excessive Fines Clause. The court would not entertain the merits of this argument due to the Anti-Injunction Act (AIA)—a statute that limits when parties can bring lawsuits challenging certain taxes (generally limiting people from going to court until a tax is paid).
Boehringer could only skirt the AIA by showing it was likely to suffer “irreparable injury” from the tax and “certainty of success” in challenging it. Even if the court conceded irreparable injury for the sake of argument (which it otherwise rejected), the company’s claim here was “novel.” The court was persuaded by the government’s argument that the Excessive Fines Clause only applies in connection to criminal conduct, which “finds support in the text and structure of the Constitution.” Accordingly, the argument to get around the AIA failed on both prongs.
Novo Nordisk Inc.
Novo Nordisk Inc. and Novo Nordisk Pharma, Inc. manufacture multiple forms of the same drug that treat diabetes, including NovoLog and FIASP. In September 2023, the companies filed a lawsuit challenging the negotiation program in New Jersey.
This case also involved cross-motions for summary judgment, and on July 31, 2024 the court sided with the government and denied the drug companies’ motion on statutory and constitutional bases.
Statutory Challenges
The drug companies in Novo Nordisk raised numerous statutory challenges focused on CMS’s process for selecting drugs. Novo Nordisk makes a suite of six products that treat diabetes. Because those products use the same active ingredient, CMS aggregated them and considered them to be one drug and selected them for negotiation. The drug companies argued that CMS overstepped its statutory authority to select only 10 drugs because the aggregation brought the total number of selected drugs to 15. They also argued that CMS’s drug selection violated the IRA’s criterion that only biological products that have been approved for at least 11 years can be selected for negotiation. They further faulted CMS for selecting some of their products that are reimbursable under Medicare Part D, which—unlike Part B drugs—aren’t subject to the negotiation program until 2028.
The court lacked subject matter jurisdiction to entertain most of these disputes, as the IRA expressly bars judicial review of many decisions related to negotiation and drug selection. This is significant because it is the first case where a federal judge relied on the judicial review bar to block certain statutory claims by the pharmaceutical industry. Separately, though the court did not decide whether it could review the claim that CMS selected too many drugs, even if so, this claim failed for another reason—lack of standing. The relief the companies sought was “overbroad insofar as they seek to enjoin the IRA program as a whole and to declare invalid CMS’s entire guidance.”
Coercion and Due Process
Like in Boehringer Ingelheim, the court in Novo Nordisk found the program compels neither participation nor speech because participation in Medicare is voluntary and the negotiation program regulates conduct, not speech.
The court also found no unconstitutional conditions. It treated this argument as an extension of due process and reasoned that just because the companies prefer to sell their drugs at a particular rate, this right is not “inherent” under the Due Process Clause.
The companies’ broader due process claim also failed. First, the court found no deprivation of the companies’ physical drugs because participation in the program is voluntary, stating that “Plaintiffs cannot plausibly maintain that Defendants are depriving [them] of their physical drugs if they are not being coerced or compelled to give them up in the first instance.” Second, it found the companies are not being deprived of their interest in selling drugs at particular prices, noting that “because [their] participation in the Program is voluntary, [they] do not have a protected property interest to sell drugs to Medicare at their professed ‘fair market value’” or “in their expectation that they will continue selling their drugs to Medicare at a fair market value.” Ultimately, the court held that companies “provide no authority, statute, or regulation stating that they are inherently entitled to continue Medicare sales at their preferred price.”
Nondelegation Doctrine
The companies’ final constitutional argument also failed. They claimed the IRA violates the nondelegation doctrine, which requires that a statute contain an “intelligible principle” to guide agency action. The nondelegation doctrine stems from the principle of separation of powers, ensuring that Congress does not delegate legislative power to the executive branch.
The court easily found the IRA properly guides CMS, given its many instructions regarding the program, including directing CMS to publish a list of selected drugs, sign manufacturer agreements with participants, and negotiate prices, as well as criteria to consider in the negotiations. Therefore, the court concluded that “the statute provides significantly much more guidance than Plaintiffs claim,” as it not only “sets forth a broad delegation to CMS to negotiate maximum fair prices” but also “narrowly defines relevant terms, sets forth the timelines for the various applicability periods, and provides CMS with guidance during the price negotiation phase.” The court explained that finding for the companies here would “would disturb nearly century-long precedent upholding very broad delegations to agencies” to regulate and conduct their work.
The court also rejected the companies’ efforts to claim the IRA’s preclusion of judicial review of certain choices related to the negotiation program violates the nondelegation doctrine. It deemed this issue irrelevant to the question of an intelligible principle “on the front end,” which it found clearly present in the statute.
Dayton Area Chamber of Commerce v. Becerra
The Dayton Area, Ohio, and Michigan Chambers of Commerce and U.S. Chamber of Commerce filed a lawsuit in June 2023 challenging the negotiation program in Ohio. On August 8, 2024, the court denied their motion for summary judgment and granted government’s motion to dismiss.
Standing
The court promptly dismissed three of the four state and local chamber chapters for lack of standing. These plaintiffs relied on “associational standing,” whereby an organization can sue on behalf of its members if one of its members has standing, the organization’s purpose relates to the interests driving the litigation, and the suit does not require its members’ participation.
The Dayton Area, Ohio, and Michigan Chambers of Commerce failed the second prong due to a mismatch between their interests and those of their named members, AbbVie and Pharmacyclics. Whereas the Dayton Area, Ohio, and Michigan Chambers of Commerce promote the business landscape in Dayton, Ohio, and Michigan, respectively, AbbVie is based in Illinois, California, Massachusetts, and Washington, D.C. and Pharmacyclics in California. “The Program’s potential downstream effects—on unnamed members in the supply chain, and on unknown investment in all pharmaceutical companies—are far too speculative to connect this lawsuit to the business climate of the Dayton area,” the court explained. This same rationale precluded standing for the Ohio and Michigan Chambers of Commerce.
Venue
The court questioned whether the U.S. Chamber of Commerce satisfies the third prong of associational standing, and even if it did, venue was improper. Venue requires that at least one plaintiff reside in this district, but U.S. Chamber of Commerce is headquartered in D.C.: “Because the Court has determined that the Dayton Area Chamber must be dismissed due to lack of standing, venue is no longer proper in the Western Division of the Southern District of Ohio.”
Though the case could proceed if Dayton Area Chamber of Commerce had standing, the court warned such a finding “would open the door for any individual or company to bypass venue rules by becoming a member of any association remotely related to a challenged law or regulation.” The court also could have transferred the case, but dismissed due to the remaining plaintiff’s “unstable foundation” for standing as well as its “artfulness in choosing this venue.” In so doing, the court was critical of efforts by the plaintiffs here “to manipulate the system and manufacture standing to obtain a favorable venue.”
Looking Ahead
These district court decisions are not the final say in the matter. Boehringer and Novo Nordisk have appealed the district courts’ decisions, and the plaintiffs in Dayton Area Chamber of Commerce have until October 7 to appeal. While industry losses pile up in other districts, various appeals are pending, including in the Third Circuit and Fifth Circuit. District courts have yet to rule in cases brought by Merck and Novartis, but the industry’s exclusive losses to date make its success in those cases improbable.
As these cases go on, so does the negotiation program. The negotiated prices announced on August 15, 2024 for the initial drugs selected still do not go into effect until 2026. Meanwhile, while industry has attacked the program as “sham negotiations” and devastating to their business and innovation in the courts, the reality of the program seems quite reasonable in comparison. CMS says it met with companies three times and not only “revised its offers for each of the drugs upward in response to these discussions,” but ultimately accepted multiple companies’ revised counteroffers. Some industry representatives even downplayed the impact of the negotiated prices. For example, in press accounts and corporate earnings calls, Bristol Myers Squibb’s CEO said the company is “increasingly confident in our ability to navigate the impact” of the program on its blood thinner Eliquis, while AbbVie’s CEO reassured that the company “still expect[s] to deliver on our long-term outlook” even though its leukemia drug Imbruvica was subject to the program.
While litigation over the negotiation program carries on, the Administration has cleared a major implementation milestone that should help to deliver significant savings to taxpayers and Medicare beneficiaries.
