Judge skeptical of government 'price setting' in PhRMA's Medicare drug negotiation lawsuit

A U.S. Court of Appeals for the Fifth Circuit judge seemed skeptical Wednesday of a new Medicare drug price negotiation program meant to lower prescription costs, which pharmaceutical manufacturers and related groups across the country are challenging as unconstitutional.

“This is challenging to a novel, unprecedented drug-price setting program in an industry that the government is the 800-pound gorilla [in], the purchaser with the most monopsony power in the United States,” Judge Jennifer Walker Elrod said during oral arguments in New Orleans.

However, the Fifth Circuit has not been asked to zero in on constitutional questions in the underlying appeal. Instead, the court is being asked to decide whether the National Infusion Center Association, PhRMA and the Global Colon Cancer Association could even bring their challenge in the first place.

Last year, these groups sued the government, claiming the program violated the Constitution by giving too much power to federal regulators and imposing excessive finds on companies that refuse to negotiate. In February, a federal judge in Texas dismissed the lawsuit – the first time a court has thrown out a lawsuit to overturn the program.

U.S. District Judge David Alan Ezra of the Western District of Texas said they could not because their claims arise under the Medicare Act and therefore must be reviewed by the Department of Health and Human Services first. NICA and the groups appealed to the Fifth Circuit.

The challenge to the Medicare drug pricing program is the first to be heard by a federal appeals court and seems to be a part of a larger legal strategy to target the program in different courts in hopes of creating a circuit split, thus increasing chances of U.S. Supreme Court review, said Andrew Twinamatsiko, director of the Health Policy and the Law Initiative at the O’Neill Institute.

NICA is a Texas-based trade association of member providers, including BioTek, which gets reimbursed for providing the selected drug Stelara. NICA contends the program, created by the federal 2022 Inflation Reduction Act, violates the nondelegation doctrine and the Constitution’s excessive fines and due process clauses—arguments drugmakers have made in other courts.

The program lets HHS negotiate prices with makers of certain selected Medicare-covered high-cost drugs, and manufacturers of those drugs face a fine if they do not enter the talks. Data submitted by the companies are used to help the government make an initial offer on a drug’s maximum fair price.

John Elwood, pressing NICA’s appeal, said Wednesday that federal statutes require reimbursement for benefits claims under Medicare to initially be channeled through HHS. But he said that doesn’t apply to NICA’s challenge to the constitutionality of the Inflation Reduction Act’s negotiations program.

“The government still has not told us what earthly good it does for us to present our facial constitutional challenge to an administrative panel that will take whatever time it takes and then say we did not decide your question, now you can go and sue,” said Elwood, who heads Arnold & Porter’s appellate and Supreme Court practice. “The only purpose of this is to delay.”

Elrod seemed doubtful that a challenge to the program’s constitutionality should get reviewed by HHS before the judiciary.

“So how exactly would you challenge this in a benefits determination proceeding when you’re trying to say that you shouldn’t be participating in this price-setting process to begin with? How would that ever be cognizable in that proceeding?” she asked.

U.S. Department of Justice attorney Catherine Padhi responded that administrative procedure provides for expedited review of constitutional claims, which the plaintiffs should follow.

Takeaways

A handful of similar lawsuits challenging the constitutionality of the program have been brought in district courts across the country. Many of the complaints allege the program violates the First Amendment by compelling speech; the due process clause of the Fifth Amendment; the excessive fines clause of the Eighth Amendment; and the nondelegation doctrine, which holds that Congress may not delegate its legislative authority to federal agencies.

“What I think is at the heart of this matter is forum shopping, because the Fifth Circuit has been a mecca for anti-governments litigants,” said Twinamatsiko, who has been tracking the Inflation Reduction Act lawsuits and attended Wednesday’s arguments. ”I think one of the strategies was to come to this Fifth Circuit for potentially finding a favorable decision, just like they have done in other cases, for example, against the Affordable Care Act [and] against FDA approval for mifepristone.”

Ezra, the lower court judge, also ruled in February that the venue wasn’t proper because the two other plaintiffs—the Global Colon Cancer Association and Pharmaceutical Research and Manufacturers of America—aren’t based in the states that encompass the Fifth Circuit. Ezra dismissed the suit without prejudice.

Manufacturers spearheading lawsuits in other courts have found little success so far on the merits.

Related: Judge tosses PhRMA lawsuit over Medicare drug price negotiations

A federal judge in Delaware said in March that AstraZeneca lacked standing to sue and did not identify a property interest protected by the Constitution that the program threatens.

And U.S. District Judge Zahid N. Quraishi of the District of New Jersey ruled against Janssen Pharmaceuticals and Bristol Myers Squibb Co. on Monday, saying the program neither regulates their speech nor imposes a physical taking under the Constitution because companies can choose not to sell their drugs to the federal government and thus not be fined for failing to negotiate.

The companies have filed notices of appeal with the Third Circuit.