A district court judge in New Jersey heard oral arguments this week with respect to claims brought forth by four pharmaceutical companies that the Inflation Reduction Act’s drug price negotiation provision violates certain constitutional rights. According to Law360, the judge presiding over the case appeared “particularly doubtful about the companies’ position that the negotiation program amounted to an unconstitutional taking of their property.” Further, Endpoints News noted that the judge seemed “skeptical” of the plaintiffs’ arguments that participation in the program was not voluntary.
Legal challenges to the Medicare drug price negotiation provision contained in the IRA have thus far faced skeptical judges. The overarching theme of the court dismissals has been that negotiated prices for drugs cannot be considered confiscatory because drug makers who do not wish to participate Medicare can opt out. This implies, according to the judges involved in recent court decisions, that there is no legally protected right to sell products to the government at market rate prices, regardless of how important this may be from a business perspective. By extension, consequences connected to engaging with the government, such as lower prices of the goods being sold, can’t be considered a constitutional violation.
Earlier this month, a federal judge in Delaware ruled against AstraZeneca’s complaint that sought to halt ongoing negotiations of the price of its diabetes drug, Farxiga (dapagliflozin).
A federal district judge in Texas in February dismissed a similar lawsuit from the industry trade group Pharmaceutical Research and Manufacturers of America, and a district judge in Ohio ruled against the U.S. Chamber of Commerce’s in September 2023.
There are seven remaining lawsuits challenging Medicare drug price negotiations. In four of those cases, Bristol Myers Squibb, Johnson & Johnson, Novartis, and Novo Nordisk presented arguments together on March 7 in front of a district court judge in New Jersey contesting Medicare’s authority to negotiate drug prices. The companies collectively market six of the first 10 drugs that were selected for price negotiation in August 2023 and are currently going through an offer and counteroffer process.
Medicare Drug Price Negotiations
In the lawsuits in which decisions have been rendered as well as those still pending, plaintiffs raise similar claims and share lines of reasoning regarding what they view as a violation of the due process clause included in the Constitution’s Fifth Amendment.
Drug firms allege that the IRA takes away their right to sell their products at market prices “free from arbitrary and inadequately disclosed governmental constraints.”
In the AstraZeneca case, according to Goodwin’s Big Molecule Watch, the district court granted summary judgment for the government, maintaining that the ability to sell drugs to the Medicare program at prices above the “maximum fair prices” established under the IRA is not a “protected property interest.” Furthermore, “because AstraZeneca’s participation in Medicare is not involuntary, AstraZeneca does not have a protected property interest in selling drugs to the Government at prices the Government will not agree to pay.”
In a pending lawsuit, Merck asserts a right not to be compelled to sell its drugs to Medicare at a price dictated by the federal government. Though analogous to what AstraZeneca alleged, the wording is different in that it suggests Merck is being coerced to sell at a particular price the government favors.
It’s unclear if the court will view the maximum fair price as government-dictated. The IRA introduces a mix of both price controls (ceilings or upper limits of what the maximum fair price can be) and negotiations (an offer and counteroffer process stipulated in the law). The coercion argument may prove difficult to win over judges.
Moreover, even if the court is convinced of a coercive element in the negotiation process, this still leaves the voluntary nature of participation in Medicare as a possibly overriding grounds for rejection of the claims being made by the pharmaceutical manufacturers.
CMS Guidance
Several drug companies also allege faulty interpretation of the law by the Centers for Medicare and Medicaid Services as it implements the legislation. AstraZeneca, Boehringer Ingelheim and Novo Nordisk have challenged aspects of CMS’s interpretation, as laid out in the agency’s guidance, of the term “qualifying single source drugs,” which defines the universe of medications that are eligible to be selected for price negotiation.
The IRA defines qualifying single source drugs as medications that are approved under the New Drug Application or Biologics License Application regulations governing the Food and Drug Administration. Furthermore, they may not be selected if they have generic or biosimilars “approved and marketed” pursuant to an abbreviated NDA or BLA. And, a small molecule drug must be at least seven years past its FDA approval date, while a large molecule biologic must be more than 11 years removed from its FDA licensing date. Finally, each branded drug chosen must be in the top 50 in terms of Medicare expenditures.
CMS guidance adds that there has to be “bona fide marketing” of the generic or biosimilar products to make an originator product ineligible for price negotiation. To determine this, CMS says it examines Part D and Medicaid data for the generic or biosimilar over a rolling 12-month period.
But this does raise questions around what constitutes bona fide marketing and therefore which branded products can be selected and which cannot. To illustrate this ambiguity, note that Humira (adalimumab) wasn’t chosen by CMS for price negotiations despite it being a top-selling product more than 20 years past its first approval date. And although Humira faced biosimilar competition starting in 2023, when CMS made its decision on which drugs to select in August of last year Humira-referenced biosimilars combined to account for less than 1% of the market share of adalimumab products. Even now the aggregated market share of biosimilars is around 2%. Is less than 1% or 2% of market share bona fide marketing of biosimilars? Apparently CMS believed it was. But then the question becomes how can a company know what precisely determines bona fide competition. This supposed lack of clarity forms the basis for claims challenging CMS’s interpretation of the law.
Further, drug manufacturers have disputed CMS guidance in which the agency says it identifies qualifying single source drugs using “all dosage forms and strengths of the drug with the same active moiety and the same holder of an NDA, inclusive of products that are marketed pursuant to different NDAs.” For biologics this implies using “all dosage forms and strengths of the biological product with the same active ingredient and the same holder of a BLA inclusive of products that are marketed pursuant to different BLAs.”
In the instance of NovoLog and Fiasp, which were selected for price negotiation as part of the first group of medicines, CMS lumped in products approved under distinct BLAs. Fiasp (insulin aspart) is a newer formulation of NovoLog with niacinamide (vitamin B3) added. The final drug(s), NovoLog/Fiasp, on Medicare’s list of 10 released August 29, 2023, included three versions each of NovoLog and Fiasp. Critics, such as Scott Gottlieb, a former FDA Commissioner, questioned the decision to bundle a six insulin products from two brands into a single category, according to Bloomberg Law.
CMS has defended its statutory interpretations as valid and consistent with the IRA.
It seems, however, that in the decisions handed down by judges thus far the validity of such interpretations of the law isn’t deemed as being pertinent. Rather, “standing” is determined by whether there is concrete injury at present or imminently. In the AstraZeneca case, for example, the company maintained that CMS’s interpretation of what counts as a qualifying single source drug eliminates incentives for developing innovative new uses or formulations of a drug. The judge countered that diminishment of an incentive to do something is not a concrete injury, MedCityNews reports. The court concludes that the harm AstraZeneca asserts is “hypothetical” and could happen if and only if these new uses received FDA approval and were selected for price negotiation.
In sum, for now, whether on constitutional grounds alleging government overreach or CMS’s interpretation of the law, legal actions intended to derail the IRA drug price negotiations in Medicare appear to be hitting a dead end. Time will tell if future appeals and challenges are successful.
