By Sheela Ranganathan and Zachary Baron Health Affairs Introduction: This article is discussing the efforts of the pharmaceutical companies attempting to block Medicare and the government negotiations with them for pricing. Early on in the District Courts, the pharmaceutical companies are being denied standing. This is why I posted the article. The cases may still go to COA, in particular the 5th COA which has a reputation favoring locals and business against the federal government. It should get interesting. So far, the government is winning. A bit of a rewrite for easier reading. ~~~~~~~~ With Medicare negotiations between drug manufacturers and the Biden Administration continuing to proceed behind the scenes, litigation to stop the
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by Sheela Ranganathan and Zachary Baron
Introduction: This article is discussing the efforts of the pharmaceutical companies attempting to block Medicare and the government negotiations with them for pricing. Early on in the District Courts, the pharmaceutical companies are being denied standing. This is why I posted the article. The cases may still go to COA, in particular the 5th COA which has a reputation favoring locals and business against the federal government. It should get interesting. So far, the government is winning. A bit of a rewrite for easier reading.
~~~~~~~~
With Medicare negotiations between drug manufacturers and the Biden Administration continuing to proceed behind the scenes, litigation to stop the results of those negotiations from going into effect is also advancing through the courts. Previously written, even before the U.S. Department of Health and Human Services (HHS) selected the initial drugs to be negotiated under the Inflation Reduction Act (IRA); drug companies and industry allies have engaged in an aggressive legal strategy to block the implementation of the program.
Such legal challenges involve a range of constitutional, statutory, and agency authority claims. With briefing now complete at the district court level (for the time being), judges will issue a slew of opinions concerning the arguments by the pharmaceutical industry in the coming months.
In March, we wrote about two key losses the pharmaceutical industry suffered in district court.
- In the case brought by AstraZeneca in Delaware. The judge found the company lacked the ability to bring certain statutory claims and squarely rejected its Due Process arguments.
- In the challenge by PhRMA and allied associations in Texas. The judge dismissed the case for lack of jurisdiction, finding that Texas was not the right venue for the lawsuit. Both of these cases were appealed—and as discussed further below—the Fifth Circuit already heard oral argument in the case brought by PhRMA and allied associations.
In this article, we discuss an April 29, 2024 decision in New Jersey regarding cases brought by Bristol Myers Squibb (BMS) and Janssen Pharmaceuticals. The oral argument at the Fifth Circuit for the appeal by PhRMA and allied associations on May 1, 2024, and the next steps in the ongoing litigation.
April Decision In New Jersey Lawsuits
With several prominent drug companies headquartered in New Jersey, four separate lawsuits were brought there (by BMS, Janssen Pharmaceuticals, Novo Nordisk, and Novartis) related to different drugs. Drugs selected for the Medicare drug price negotiation program. All the cases were ultimately assigned to the same judge, Zahid N. Quraishi.
The cases brought a range of (some overlapping) constitutional, statutory, and agency authority claims: First Amendment, Fifth Amendment (Takings Clause and Due Process Clause), Unconstitutional Conditions of Participation in Medicare/Medicaid, Excessive Fines Clause, Nondelegation Doctrine, Administrative Procedure Act (APA), and ultra vires claims.
On March 7, 2024, in a lengthy oral argument that spanned multiple hours, Judge Quraishi pressed industry and government counsel regarding the claims in all four cases. The judge expressed skepticism regarding several pharmaceutical industry arguments; he questioned whether the pharmaceutical industry needed further protections from the federal government when it already enjoys favorable treatment and market exclusivity under the U.S. patent system.
On April 29, 2024, Judge Quraishi issued an opinion granting the summary judgment motions filed by the Department of Justice (DOJ) in the cases brought by BMS and Janssen Pharmaceuticals. Those lawsuits alleged:
1) The Medicare drug price negotiation program effects an unconstitutional taking of private property under the Fifth Amendment.
2) The program’s requirement that drug manufacturers sign certain agreements in connection with the negotiation process compels speech in violation of the First Amendment. and
3) The program violates the doctrine of unconstitutional conditions in Medicare and Medicaid by forcing the companies to give up their constitutional rights in order to participate in these federal programs.
On each issue, the judge rejected the claims by the drug companies and found in favor of the Administration.
Takings Clause Claim
The manufacturers argued the drug price negotiation program’s “forced sales are functionally equivalent to physically seizing the medicine from the warehouse.” Further stating the point of the program is for the government “to avoid paying just compensation by paying far less than market price” for the selected drugs. In his opinion. Judge Quraishi held;
1) the negotiation program does not constitute a physical taking, and
2) participation in the negotiation program is voluntary.
In reaching the first conclusion, Judge Quraishi contrasted this case to a recent Supreme Court case (Horne) where the federal government required raisin growers to set aside a percentage of their crop for government use or pay a fine. There, the only way to avoid the reserve requirement was to stop selling raisins altogether.
Judge Quraishi found the raisin growers case to be “inapposite to [the manufacturers’] plight,” since “there is no physical appropriation taking place” of the selected drugs. The drug companies had not shown that they were legally compelled to participate in the program. At the end of the day, the judge explained that the drug negotiation program “neither requires nor forces Plaintiffs to give or sell their drugs to Defendants.”
Next, Judge Quraishi examined whether participation in the program is voluntary. He explored how courts have treated Medicare participation more broadly, considering extensive precedent including recent district court decisions (in lawsuits brought by the Chamber of Commerce and AstraZeneca) finding participation in Medicare to be voluntary.
Despite the argument from the drug companies that they would incur massive penalties if they rejected Medicare’s negotiated price, Judge Quraishi found the companies had several alternatives “to explore should they choose.” The judge held that the negotiation program is akin to other Medicare reimbursement limits and “reflects a valid exercise of Congress’s constitutional authority to control the government’s spending as a market participant.” On one hand, the judge wrote that “[t]he government has the fundamental right to decide how it will spend taxpayer money.” At the same time, the companies “have the fundamental right to decide whether they want to sell their drug to a specific purchaser under the conditions set.”
The judge acknowledged that “[s]elling to Medicare may be less profitable than it was before the institution of the Program, but doing so does not make [a companies’] decision to participate any less voluntary.” Thus, he concluded, the program does not result in a physical taking nor a direct appropriation of the companies’ drugs.
First Amendment Claim
The companies alleged that the negotiation program requires them to engage in “sham negotiations resulting in faux agreements” because it requires them to sign an agreement expressing the negotiated price is “fair.”
As a threshold matter, Judge Quraishi found that because the program is voluntary, the companies could not rely on involuntariness as the basis of their compelled speech claim. He held that since the “primary purpose” of the negotiation program is to determine the maximum amount Medicare will pay for certain drugs. The negotiation program “permissibly regulates Plaintiffs’ commercial conduct, not their communication of information.”
Turning to the problems the companies have with the terminology Congress used in connection with the negotiation program’s agreements, the judge found the agreements are ordinary commercial contracts the companies can choose whether to execute. The terms offending the companies are defined by statute under the IRA. The judge noted—to accept the companies’ argument, he would need to interpret those terms beyond the scope of those statutory definitions. Additionally, Judge Quraishi found nothing in the statute prevents drug companies from publicly criticizing the negotiation program or final drug prices. The judge concluded the issues the companies face are “public relations problems and not constitutional problems.”
Ultimately, finding that because “the Program regulates conduct, not speech, and Plaintiffs are not engaging in expressive conduct by participating in the Program or by signing the agreements.” The judge rejected the companies’ First Amendment claims.
Unconstitutional Conditions Of Participation Claim
Lastly, Judge Quraishi considered whether the program violates the unconstitutional conditions doctrine. The manufacturers had argued that the program would violate this doctrine even if participation was voluntary because it requires them to;
1) publicly endorse the government’s preferred message in violation of the First Amendment and
2) transfer the right to access their drugs to third parties on government-dictated terms in violation of the Fifth Amendment.
Because Judge Quraishi had already rejected both of these underlying arguments, he concluded the doctrine was inapplicable. Echoing the point made by the DOJ during oral argument, the judge agreed that “‘there’s no constitutional right in danger of being trampled.”
May 1 Oral Argument On Appeal By PhRMA And Allied Associations
On May 1, 2024, a Fifth Circuit panel of judges heard oral argument on the expedited appeal brought by PhRMA, the Global Colon Cancer Association, and National Infusion Center Association (NICA). By way of background, this appeal was brought after a Texas district court judge granted the DOJ’s motion to dismiss the case back in February 2024. The decision did not address the merits of the constitutional claims brought by PhRMA and allied associations.
A good portion of the oral argument before the Fifth Circuit focused on technical issues related to the Medicare Act and the necessity of NICA (an association representing providers) pursuing these claims through administrative review first before heading to federal court. Counsel for industry and the government also sparred over whether NICA could demonstrate an adequate injury to establish standing to bring a case. The DOJ argued the plaintiffs lacked a constitutionally protected interest in liberty or property.
One of the judges on the panel, Judge Jennifer Elrod, asked several pointed questions to counsel for the DOJ and appeared to express hostility to the structure and operation of the Medicare drug price negotiation program in general. Repeatedly seeking to interject antitrust concerns, Judge Elrod called the negotiation program “a novel, unprecedented price-setting program.” When Judge Elrod pressed counsel for DOJ regarding any limitations on Medicare’s authority to negotiate prices as a “market participant,” the government’s attorney responded (as other courts have found recently) the challengers here do not have a right to sell their products to the government at a price the government does not want to pay.
The judges on the panel did not indicate when they might issue their ruling, but industry counsel explained that they would like a decision on the appeal, and ultimately the district court, by the end of 2024. The aggressive lines of questioning and statements critical of the drug negotiation program suggest that PhRMA and allied associations could secure a victory before the Fifth Circuit, sending the case back down to the district court in Texas for further proceedings.
Next Steps
To date, every district court judge that has weighed in has rejected the pharmaceutical industry’s arguments against the drug price negotiation program. The latest decision by Judge Quraishi, given the overlapping constitutional claims in various ongoing drug negotiation lawsuits (particularly the First Amendment And Takings Clause claims) truly strikes at the heart of the legal arguments brought by the pharmaceutical industry. But as oral argument before the Fifth Circuit showed, PhRMA, industry allies, and other drug companies may find more success (at least on procedural grounds) before certain sympathetic judges on appeal.
Even after the decision in the New Jersey cases brought by BMS and Janssen Pharmaceuticals, we still await two more decisions from Judge Quraishi in the cases brought by Novartis and Novo Nordisk.
Meanwhile, fresh off its latest win in court in New Jersey, the DOJ has also moved to flag the decision for judges in DC, Ohio, and Connecticut considering similar claims from other drug companies. As the government told the judge in DC, the arguments in the New Jersey cases were “at times, nearly word-for-word copies” of Merck’s arguments there.
The negotiation process remains ongoing until August 1, 2024. Absent any court order blocking the Administration, final negotiated prices (that take effect in 2026) will be published by September 1, 2024. While industry is running out of time to stop the negotiation process from reaching its completion in 2024, they still have many months to continue pursuing their legal efforts through the courts to block implementation of the negotiation program.