A federal judge has dismissed a lawsuit by pharmaceutical industry trade groups seeking to block the Biden administration’s new program that gives Medicare the authority to directly negotiate drug prices with manufacturers.
In an opinion handed down Monday, Senior U.S. District Judge David Ezra in Austin, Texas ruled that the National Infusion Center Association (NICA)—one of the plaintiffs—did not have standing to sue, since it does not make or sell drugs that would be affected by the Medicare negotiation program.
With NICA—the only plaintiff based in Texas—disqualified for lacking standing, Judge Ezra found the lawsuit no longer had a proper venue.
The plaintiffs also failed to offer any reason that the venue would still be proper in case of NICA’s dismissal, and neither party offered another venue to transfer to, according to the judge.
The lawsuit was filed in June 2023 by Pharmaceutical Research and Manufacturers of America (PhRMA) alongside NICA and the Global Colon Cancer Association. It challenges the constitutionality of the Medicare negotiation program, which comes as a part of President Joe Biden’s so-called Inflation Reduction Act (IRA), arguing that Congress has failed to include any safeguard against the governmental abuse of the newly gained price-controlling powers.
President Biden signed the IRA into law in August 2022 after the bill package narrowly passed in party-line votes. Under IRA, Medicare is negotiating prices for the first round of 10 prescription drugs and is set to publish the agreed-upon prices by this fall, which will go into effect in 2026.
“The Program involves no genuine negotiation at all,” it continued, claiming that the program instead “compels pharmaceutical manufacturers to accept prices that are capped at whatever price HHS chooses, while setting no meaningful constraints on HHS’s new price-setting powers.”
PhRMA’s lawsuit also highlighted the Medicare negotiation program’s non-compliance penalty. Under the IRA, drugmakers that do not enter into drug pricing agreements with Medicare must either withdraw altogether from Medicare or be subjected to an “excise tax,” ranging from 185 percent to 1,900 percent of the drug’s daily revenues.
Such severe penalty, PhRMA argued, infringes upon the Eighth Amendment’s Excessive Fines Clause, which prohibits the federal government from imposing unduly harsh penalties on criminal defendants, either as the punishment for crime or the price for obtaining pretrial release.
“By design, this tax functions as a penalty. And as a penalty, it is grossly disproportionate to the ‘offense’ it seeks to punish: a manufacturer’s unwillingness to agree to a government-mandated price,” PhRMA told the court, noting that even the Joint Committee on Taxation estimates it will generate zero revenue, since “no rational manufacturer would ever pay it.”
In response to Monday’s ruling, PhRMA said it was “disappointed,” adding that the dismissal based on venue “does not address the merits of our lawsuit.”
“We are weighing our next legal steps,” a spokesperson for the trade group said.
Several other lawsuits have been filed by major drugmakers, including Johnson & Johnson, Merck, Bristol Myers Squibb, and AstraZeneca. The U.S. Chamber of Commerce has also filed a similar lawsuit, questioning the IRA’s constitutionality, specifically under the First Amendment.
“This unprecedented regime of price controls and forced sales flouts bedrock principles of separation of powers and nondelegation, exceeds Congress’s enumerated powers, denies pharmaceutical manufacturers due process of law, imposes excessive fines, and compels speech in violation of the First Amendment,” the business association advocacy claimed in its suit.
The outcome of those lawsuits is expected to significantly impact drug pricing across the country. With more than 65 million Americans depending on their health insurance coverage, any changes to drug pricing policies could have far-reaching consequences for patients and the pharma industry.
