Appeals Court Revives Lawsuit Against Medicare Drug Price Negotiation Requirement

A high-speed production line of insulin at the factory of Novo Nordisk, a global health care company, in Chartres, France, on Feb. 17, 2014. Jean-Francois Monier/AFP/Getty Images

A federal appeals court has revived a legal challenge to the first-ever U.S. law requiring pharmaceutical companies to negotiate drug prices with Medicare, the government’s health insurance program that covers 66 million people.

The U.S. Court of Appeals for the Fifth Circuit on Sept. 20 reversed an earlier decision from a federal judge.

U.S. District Judge David Ezra ruled in February that the only plaintiff in the case based in Texas lacked standing, and he threw out the challenge. The lawsuit argued that the program, which was implemented by the Inflation Reduction Act and forces manufacturers to deal with the government or face escalating fines, violated the U.S. Constitution by giving too much power to federal regulators and imposing excessive fines on companies that refuse to participate.

Ezra also said that the suit failed because the plaintiffs did not present their complaints first to the U.S. Department of Health and Human Services (HHS), which was placed in charge of the drug price negotiations. Under the Medicare and Medicaid Act, courts cannot consider complaints unless they’re first presented to the HHS.

Fifth Circuit judges said that the February ruling was incorrect on both counts.

The National Infusion Center Association, the only plaintiff based in Texas, does have standing to pursue the case, U.S. Circuit Judges Jennifer Walker Elrod and Kyle Duncan said.

The association has presented sufficient allegations to establish that its members will likely be injured by the drug pricing requirement, Elrod wrote for the majority.

Since the claims stem from the Inflation Reduction Act, rather than the Medicare and Medicaid Act, the federal court system can consider the suit without requiring the plaintiffs to first present their allegations to HHS, the majority stated.

The ruling sends the case back to Ezra to consider the merits of the suit.

U.S. Circuit Judge Irma Ramirez said in a dissent she would have upheld Ezra’s dismissal of the case.

“We are pleased the 5th Circuit agreed that the merits of our lawsuit challenging the [Inflation Reduction Act’s] drug pricing provisions should be heard,” a spokesperson for PhRMA, another plaintiff in the case, said in a statement.

The other two plaintiffs, the Global Colon Cancer Association and the National Infusion Center Association, also praised the decision.

Plaintiffs say the program does not involve negotiations but forces manufacturers to accept prices set by the HHS. The law “attempts to disguise price controls set by government fiat” through the deceptively named drug price negotiation program, they said in their suit.

The case is one of at least eight lawsuits seeking to block the program. So far, none has been successful.

The first round of price negotiations was allowed to proceed, with the government announcing negotiated price cuts last month, ranging from 79 percent to 38 percent on 10 drugs, including Merck & Co.’s diabetes drug Januvia and Novo Nordisk’s insulin products. These new prices will take effect in 2026.

The HHS declined to comment.

Reuters contributed to this report.