In June, the Supreme Court overturned the decades-old Chevron doctrine that empowered a federal agency’s “reasonable interpretation of ambiguous federal laws.” This ruling could constrain regulatory agencies, specifically with respect to their latitude in interpreting and operationalizing laws as they see fit.
Since 1984, the Chevron doctrine has served as a framework for federal courts in deciding disputes between federal agencies and private parties over the legality of executive branch decisions and statutory regulations. For example, Congress has granted the Centers for Medicare and Medicaid Services considerable discretion in making policy decisions based on laws that were passed in Congress.
To illustrate, under the Inflation Reduction Act, CMS has been given the authority to select and then negotiate the prices of a subset of prescription drugs each year. In accordance with the law, ten were selected in 2023 and their maximum fair prices determined in August 2024. Selection of the next batch of 15 therapeutics is scheduled to be disclosed in February 2025.
Despite the election of Donald Trump as president along with Republican control of House and Senate, the popularity of prescription drug pricing provisions contained in the IRA makes it unlikely that the Medicare price negotiation component will be repealed.
Still, in light of the Supreme Court decision, it’s possible CMS may be challenged legally regarding its interpretation and operationalization of the IRA, particularly as it pertains to the selection of products subject to price negotiation.
The legislation lays out three main selection criteria: Any drug chosen for price negotiation must be in the top 50 of Medicare gross expenditures for outpatient (Part D) or physician-administered (Part B) drugs; it must be seven or 11 years post approval, depending on whether it is a small (chemical entity) or large (biologic) molecule; it must not face generic or biosimilar competition.
Further, the text in the IRA states that if an originator biologic faces biosimilar* competitors or such competition is likely to occur within two years of the point in time that a branded biologic could be chosen for negotiation, selection will be delayed.
CMS is tasked with establishing specific guidance in this regard. Currently, CMS declares that the availability and “bona fide” marketing of a biosimilar will exempt the originator biologic from selection for Medicare price negotiation. But the determination of marketing on a bona fide basis is unclear. CMS does not opt for a quantitative definition or a numeric threshold, such as the percentage of market share a biosimilar must have to be considered as fitting some description of bona fide marketing. Rather, the agency uses the phrase “totality of circumstances,” which entails examination of unspecified utilization and sales data, assessment of whether a biosimilar is “readily available for purchase” and ascertainment of the existence of any agreements between makers of the originator brand and biosimilar which might limit availability of competitors. In turn, CMS will evaluate whether “meaningful” competition exists.
Here, besides the lack of clarity, the phrases “bona fide,” “totality of circumstances” and “meaningful competition” don’t appear in the IRA law but do show up in CMS guidance. As such, CMS could be construed as having gone beyond its remit. Using phrases not found in the legislation, they may be deemed arbitrary.
And now, in another instance in which CMS may have overstepped its mandate, the pharmaceutical manufacturer Novo Nordisk appears to be changing strategy in its legal battle against Medicare drug price negotiations. Rather than deploying broad constitutional arguments against the principle of the federal government negotiating drug prices—these were rejected by a judge in July—the company is challenging elements of the program’s implementation. Novo Nordisk’s appeal, filed last month in the Third Circuit, claims that CMS exceeded its authority by grouping six of the company’s insulin products as a single item for negotiation—Fiasp, Fiasp FlexTouch, Fiasp PenFill, NovoLog, NovoLog FlexPen, and NovoLog PenFill.
The company asserts that CMS violated the IRA law when it set the price for “more than 10 negotiation-eligible drug or biologic products” in August 2024. NovoLog and Fiasp were considered by CMS to represent one of ten products for which an MFP was determined, based on their sharing the same active ingredient. But not only could NovoLog and Fiasp be construed of as two distinct products, despite having the same active ingredient, the others listed in Novo Nordisk’s appeal may also be viewed as distinguishable. The products each underwent separate clinical trials with different patient populations and obtained Food and Drug Administration approval at different times.
A similar argument could be made if in February 2025, Rybelsus, Ozempic and Wegovy are selected as is expected as one item, according to CNBC. All three are semaglutide-based products made by Novo Nordisk, but Rybelsus and Ozempic have different indications from Wegovy. And the three products went through separate clinical trials with different patient populations and obtained FDA marketing authorization at different times.
Courts have long deferred to CMS’s decisions concerning implementation of laws and statutory stipulations that govern the Medicare program. But this could change moving forward. The Supreme Court decision to overturn the Chevron doctrine could open the door to challenges to actions taken by health agencies, such as CMS.
