On May 8, in the first appellate court decision addressing the merits of the legal claims that the pharmaceutical industry and their allies are pursuing against the Medicare drug negotiation program, a Third Circuit panel (with two Republican appointees) unanimously affirmed a district court ruling rejecting legal arguments brought by AstraZeneca.
This decision reflects a substantial loss for opponents of the drug negotiation program. However, the Third Circuit panel’s decision is not the last word in the slew of cases bringing a wide range of constitutional and statutory attacks to derail the program.
This Expert Column explores the decision in greater detail, provides an update on the status of other lawsuits challenging the drug negotiation program, and addresses other recent federal policy developments related to prescription drug affordability.
Third Circuit Decision
This case arose after AstraZeneca’s drug, Farxiga, which treats diabetes, heart disease, and chronic kidney disease, was selected for the first round of drug negotiation. In August 2023, the company sued the federal government in a federal district court in Delaware. AstraZeneca argued that the Medicare drug negotiation program deprives it of procedural due process and that two provisions of the Centers for Medicare and Medicaid Services’ (CMS) guidance on implementing the program violate the Administrative Procedure Act (APA). A district court judge ruled against AstraZeneca on March 1, 2024.
AstraZeneca appealed to the Third Circuit, and oral argument in the case took place on October 30, 2024. The Third Circuit panel’s decision was authored by Judge Arianna J. Freeman (a Biden appointee) and joined in full by Judges Thomas M. Hardiman (a George W. Bush appointee) and Peter J. Phipps (a Trump appointee).
Statutory Claims
After providing an overview of the drug negotiation program, the Third Circuit’s opinion turned to AstraZeneca’s statutory claims.
The company’s APA claims focused on how CMS’ revised guidance defined “qualifying single source drug” — those drugs that are eligible to be selected for price negotiation — and “bona fide marketing” of a generic or biosimilar drug, which disqualifies a competing brand-name drug from selection.
The court first analyzed whether AstraZeneca had “standing” to challenge the guidance. In other words, had AstraZeneca suffered a “concrete” or “particularized” injury because of CMS’ revised guidance?
The company argued it had been injured in two ways by certain aspects of the guidance: (1) the impact on AstraZeneca’s decision-making about research, development, and marketing, and (2) the company’s difficulty valuing Farxiga in negotiations with CMS. The court rejected both theories of injury.
The court started with AstraZeneca’s asserted injury to its business decision-making. Considering an affidavit from a senior company official about how CMS’ revised guidance would affect incentives for future R&D investment, the court explained that the company “did not identify any actual decision about drug development or marketing that AstraZeneca has made or will make to avoid different drugs being grouped together.” While the company hypothesized how certain drug products could be grouped together with Farxiga in the future under the guidance, they presented no evidence “about how the company has been (or imminently will be) injured.” Further, the court found that company statements about “broad-based market effects stemming from regulatory uncertainty” were not enough to establish standing either.
Lastly, the court swiftly rebuffed AstraZeneca’s argument that the guidance made it impossible to value Farxiga during negotiations because the company did not specify how the guidance shaped AstraZeneca’s behavior before or during those negotiations.
Given that AstraZeneca failed to show that it had been harmed by the guidance, the Third Circuit panel affirmed the district court’s ruling, granting summary judgment to the administration as to these statutory claims.
Constitutional Claim
For its constitutional procedural due process claim, AstraZeneca argued that the negotiation program deprives the company of its property interests in drugs subject to negotiation and fails to provide adequate procedural safeguards (through lack of judicial review). AstraZeneca asserted that the negotiation program unconstitutionally limits its ability to sell its drugs at a market rate, thereby infringing on its property rights (derived from its patents and regulatory exclusivity periods).
The court squarely rejected the company’s due process arguments. Starting with the basic rights under patent laws, the court explained that such laws “do not create any affirmative right to make, use, or sell anything.” And federal patent laws “do not confer a right to sell at a particular price.”
Striking at the core of AstraZeneca’s legal argument, the court wrote: “There is no protected property interest in selling goods to Medicare beneficiaries (through sponsors or pharmacy benefit plans) at a price higher than what the government is willing to pay when it reimburses those costs.” The court added that this so-called “interest” was at odds with “any traditional conception of property”; thus, the company “has no more than a unilateral expectation of that interest.”
As to AstraZeneca’s argument that the drug negotiation program was constitutionally suspect because of limited judicial review, the court explained that past case law requiring judicial review involving solely private market transactions was not applicable. Here, given the nature of the negotiated prices only affecting how CMS reimburses private actors, “[t]hese are not private market transactions, regardless of the private hands through which CMS’s funds pass.”
Accordingly, the Third Circuit affirmed the district court’s ruling granting summary judgment on the due process claim.
Takeaways
The Third Circuit’s decision in AstraZeneca’s appeal is a major win for the drug negotiation program and a significant loss for the pharmaceutical industry.
While other companies have pursued different statutory claims against CMS’ revised guidance to implement the negotiation program, the Third Circuit’s ruling suggests a fair amount of skepticism regarding the theories of harm alleged. Notably, since the Third Circuit affirmed the ruling that AstraZeneca lacked standing to bring these claims against the revised guidance, the court did not explore the boundaries of the statutory bar on judicial review that might have otherwise prevented the court from considering such claims.
The due process claim may have more lasting significance. Several cases brought by the pharmaceutical industry raise due process or takings clause claims, hinging on the notion that drug companies have a protected property interest in obtaining reimbursement for drugs at the rate that the “market” will bear (whether or not there is any competition over particular products). The approach adopted by the Third Circuit in rejecting AstraZeneca’s due process arguments against the drug negotiation program — if carried over to the takings clause arguments as well — would suggest that industry may face the same headwinds they faced at the district court level when losing those cases.
However, as noted earlier, there are several pending lawsuits against the drug negotiation program. This is not even the end of litigation in the Third Circuit itself. The same three-judge panel held oral arguments in October 2024 in cases brought by Bristol Myers Squibb and Janssen Pharmaceuticals. In early April 2025, the same three-judge panel held oral arguments in cases brought by Novartis and Novo Nordisk. These cases raise additional constitutional and statutory claims that were not explicitly addressed in last week’s AstraZeneca decision.
A decision is also pending from the Second Circuit in an appeal brought by Boehringer Ingelheim (where the judges seemed highly skeptical of the company’s claims), as well as from the federal district court in D.C. in the case brought by Merck. Briefing is ongoing in other lawsuits at the district court level brought by PhRMA and industry allies in Texas, as well as Teva in D.C. (challenging their product’s selection for the second round of negotiations). Oral argument will also be held in the Sixth Circuit next month (June 11) in an appeal by the U.S. Chamber of Commerce and regional chapters concerning their standing to sue and whether Ohio is the right venue to bring the case.
With negotiated prices for the first round of negotiations slated to take effect in 2026, the industry is running out of time to obtain a ruling blocking the implementation of the program before then. Of course, the industry could still receive a favorable ruling down the road that could cause implementation challenges for 2026 and beyond. Meanwhile, negotiations for the second cycle of drugs selected that would take effect in 2027 are ongoing. On May 12, CMS also released new guidance that applies to the third cycle of negotiations and addresses other program implementation issues.
Press reports suggest that members of Congress and the Trump administration are also actively considering several policy approaches related to prescription drug affordability. Some of these policies under consideration in the reconciliation bill would extend certain exemptions under the negotiation program to allow drug companies to charge higher prices on certain orphan drugs and small-molecule products (and reduce federal savings). Other policies could result in greater savings for prescription drug spending under Medicaid. These discussions follow on the heels of President Trump’s April 15 executive order outlining different drug pricing plans that the executive branch and Congress should take, a May 5 executive order concerning domestic pharmaceutical manufacturing, and a May 12 executive order resurrecting a policy from the first Trump administration known as the “most favored nation” policy.
While the details of new policies under consideration remain in flux, we should expect many twists and turns over the course of reconciliation discussions on the Hill in the months ahead. In any case, if the administration follows through on policies alluded to in various executive orders opposed by the pharmaceutical industry, we can likely expect aggressive litigation to block such measures from going into effect.
