Litigation Coverage: Chambers of Commerce Say Medicare Drug Price Negotiation Program Imposes Price Controls Without Legal Standard, Due Process; Agencies Say Manufacturers Can ‘Walk Away’ If Unwilling to Sell at Government’s Price

The program, administered by the U.S. Department of Health and Human Services, or HHS, and the Centers for Medicare & Medicaid Services, or CMS, seeks to reduce prescription drug costs for Medicare recipients and the federal government by empowering HHS and CMS to negotiate the prices of designated drugs. Pharmaceutical industry trade groups say this would slow innovation, reduce the availability of new medicines and undermine public health. The U.S. chamber (and three local chamber co-plaintiffs) assert the program “is a violation of America’s fundamental constitutional requirements of limited government, property rights, the rule of law, and the separation of powers.”

HHS and CMS respond that the chambers lack standing to sue on behalf of their member Abbvie or its affiliate Pharmacyclics LLC (the manufacturer of Imbruvica, one of the first 10 drugs designated for negotiation) and have failed to allege sufficiently imminent and irreparable harm from the program. The agencies also maintain that participation in government drug programs is entirely voluntary.

The parties argued the merits of their claims today in connection with the chambers’ preliminary injunction motion, which requires the chambers to prove a substantial likelihood of success on the merits to stop the negotiation program immediately. Although eight suits have been filed contesting the validity of the negotiation program, the chambers are the only challengers seeking a preliminary injunction.

Jeffrey Bucholtz of King & Spalding, counsel for the chambers, argued that manufacturers’ participation in federal drug programs is neither legally nor practically voluntary. As a legal matter, Bucholtz pointed out, the IRA imposes an 11-to-23-month waiting period for manufacturers to unilaterally withdraw from the programs, leaving them “trapped” in the IRA during that period.

As a practical matter, Bucholtz continued, the IRA provides that if a manufacturer does not agree to participate in the negotiation process or to the price eventually set by the agencies for a designated drug, it must withdraw all of its drugs from all Medicare programs. According to Bucholtz, this could cost manufacturers as much as half of the market for their drugs, which Bucholtz called “suicide.”

Bucholtz analogized the choice facing manufacturers under the IRA to the choice facing states under the Medicaid expansion provisions of the Affordable Care Act, or ACA. Under the ACA, Bucholtz explained, states had to either accept expanded Medicaid obligations or forfeit all of their federal Medicaid funding, which constituted as much as 50% of their budgets. Bucholtz pointed out that in National Federation of Independent Business v. Sebelius the U.S. Supreme Court struck down the Medicaid expansion provision as excessively coercive, calling it “a gun to the head” and “economic dragooning.”

Because participation in Medicare drug programs is not truly voluntary, Bucholtz concluded, the IRA drug negotiation program does not really contemplate negotiation - instead, the IRA gives the agencies an unchecked power to impose price controls without sufficient legal standards or due process to ensure such prices are not unfair or confiscatory. Manufacturers of the designated drugs must agree to abide by the agencies’ eventual unilateral price determination at the beginning of the process - by Oct. 1 - or face the loss of 50% of their market, Bucholtz said.

Deputy Assistant Attorney General Brian Netter, arguing for the agencies, countered that the chambers’ due process and takings claims both require proof of a protected property interest, and courts have repeatedly concluded that providers have no protected interest in continuing participation in Medicare - even if Medicare constitutes 80% to 90% of a provider’s business.

The IRA negotiation program does not impose price controls, Netter added, because the federal government is the purchaser. If manufacturers “wish not to provide goods or services” to the government at the price the government says it is willing to pay, Netter argued, then they can “walk away.” According to Netter, the IRA does not force manufacturers to “make any sale they don’t want to make.”

Netter also explained that the IRA’s 11-to-23-month waiting period for termination applies only to unilateral termination by a participant, and the agencies have issued guidance indicating the shorter 30-day waiting period for termination by the agencies would apply if manufacturers decline to participate in the negotiation program.

Argument on the agencies’ motion to dismiss focused on the chambers’ standing to bring suit on behalf of their members. Senior Department of Justice Trial Counsel Stephen Pezzi argued that the chambers lack standing to sue on behalf of member Abbvie because the IRA negotiation process applies only to Pharmacyclics, the “primary manufacturer” of the designated drug. Pharmacyclics, Pezzi pointed out, was not a member of any of the chambers when the complaint was filed, though it did join later.

Pezzi also argued that the chambers lack standing (or the irreparable harm necessary for a preliminary injunction) because the negotiation program may not in fact lead the manufacturers to “financial ruin.” The process is “not a zero sum game,” Pezzi said, and there is “a world in which Medicare beneficiaries are better off and manufacturers are no worse off” under the IRA.

Bucholtz responded that Abbvie has already suffered actual harm from the process in the form of unrecoverable costs to comply with the disclosure requirements of the IRA. Bucholtz also called a material reduction in the Medicare prices for the designated drugs a “moral certainty.”