The pharmaceutical industry, which suffered a crushing defeat last year when President Biden signed a law allowing Medicare to negotiate the price of some prescription drugs, is now waging a full-scale attack on the proposal — just as negotiations are about to begin.
The law, the Inflation Reduction Act, was a signature legislative achievement for Mr. Biden, who boasted that he had taken on the drug industry and won. Medicare is the federal health insurance program for the elderly and disabled; provisions that allow it to negotiate prices are expected to save the government an estimated at $98.5 billion for a decade while lowering insurance premiums and out-of-pocket costs for many older Americans.
On Tuesday, Johnson and Johnson became the latest drugmaker to take the Biden administration to federal court in an attempt to stop the drug pricing program. Three other drug companies – Merck, Bristol Myers Squibb and Astellas Pharma — filed their own lawsuits, as did the industry’s main trade group and the US Chamber of Commerce.
The lawsuits make similar and overlapping claims that the drug pricing provisions are unconstitutional. They are scattered in federal courts across the country — a tactic experts say gives the industry a better chance of getting an opposing ruling that would put legal challenges on a fast track to a business-friendly Supreme Court.
The legal push comes just weeks before the Centers for Medicare & Medicaid Services is scheduled to publish a long-awaited list of the first 10 drugs that will be subject to negotiations. The list should appear on September 1; makers of the selected drugs have until October 1 to declare whether they will participate in the negotiations — or face severe financial penalties for not doing so. The lower prices won’t take effect until 2026.
Earlier this month, the chamber asked a federal judge in Ohio to issue an order barring any negotiations while its case is heard.
Lawrence O. Gostin, an expert in public health law at Georgetown University, said the Supreme Court may be sympathetic to some of the industry’s arguments. In particular, he pointed to a claim by drugmakers that by requiring them to settle or pay a fine, the law violates the Fifth Amendment’s prohibition on taking private property for public use without just compensation.
“The Supreme Court is openly against any perceived violation of the Fifth Amendment,” Mr. Gostin said, adding, “I wouldn’t be surprised to see these cases go up to the Supreme Court and they stop it.”
For Mr. Biden and his fellow Democrats, that would be a painful blow. The president and Democrats have long campaigned on lowering drug prices and plan to make it a central theme of their 2024 campaigns. White House press secretary Karine Jean-Pierre said in a statement that Mr. Biden is confident the administration will win in court.
“For decades, the pharma lobby has blocked efforts to let Medicare negotiate lower drug costs,” he said. “President Biden is proud to be the first president to beat them.”
Republicans oppose the drug pricing provisions, which they see as a form of government price control. But the politics of the issue is treacherous for them. Because so many Americans are concerned about high drug prices, it’s hard for Republicans to come around to defending the industry, said Joel White, a Republican strategist with expertise in health policy.
Instead, Republicans have focused on another drug industry priority: studying the practices of pharmacy benefit managers, who negotiate prices with drug companies on behalf of health plans. Drug companies say that by taking the middleman’s cut, pharmacy benefit managers are contributing to the high cost of prescription drugs.
For drugmakers, the stakes of legal challenges are greater than their business with Medicare, their biggest customer. The industry fears that Medicare will, in effect, set a cap for all payers, and that when lower government prices are made public, pharmacy benefit managers who negotiate on behalf of the privately insured will have more leverage to demand deeper discounts.
Along with its legal campaign, the pharmaceutical industry is waging a public relations offensive. The industry trade group that filed one of the lawsuits, Pharmaceutical Research and Manufacturers of America, known as PhRMA, is running advertisements targeting pharmacy benefit managers, and industry executives publicly argue that the drug pricing provisions will lead to fewer cures. The implication is clear: Lower prices will mean lower profits, discouraging companies from developing certain drugs.
“You can’t take hundreds of billions of dollars from the pharmaceutical industry and not expect it to have a real impact on the industry’s ability to develop new treatments and cures for patients,” said Robert Zirkelbach, an executive vice president at PhRMA. He mentioned a review funded by drugmaker Gilead Sciences asserted that the industry would lose $455 billion over seven years if the companies negotiated with Medicare.
The studying released last month funded by the Biotechnology Innovation Organization, another trade group, warned that the pricing provisions would stifle innovation, resulting in 139 fewer drug approvals over the next 10 years.
But that assessment is at odds with an analysis by the Congressional Budget Office, which estimated that the law would result in only one fewer drug approvals over a decade and about 13 fewer drugs over the next 30 years.
In addition, many new drugs “do not offer a clinically significant benefit over existing drugs,” said Ameet Sarpatwari, a pharmaceutical policy expert at Harvard Medical School. The Inflation Reduction Act, he said, could prompt companies to focus more on breakthrough therapies, rather than so-called me-too drugs, because the law requires the government to consider the clinical benefit of drugs in determining the price Medicare will pay for them.
Until now, Medicare has been outright barred from negotiating prices directly with drugmakers — a condition the industry demanded in exchange for supporting the creation of Part D, Medicare’s prescription drug program, signed into law 20 years ago by President George W. Bush.
Under the Inflation Reduction Act, the government will select an initial set of 10 drugs for price negotiations based on how much the Part D program spends on them. More drugs will be added in the following years.
Experts expect the first drug list to include commonly prescribed drugs such as the blood thinners Eliquis and Xarelto; cancer drugs such as Imbruvica and Xtandi; Symbicort, which treats asthma and chronic obstructive disorder; and Enbrel, for rheumatoid arthritis and other autoimmune disorders.
Medicare already pays discounted prices for those drugs. In 2021, the most recent year for which data is available, Medicare spent about $4,000 per patient for Eliquis and Xarelto, which at the time had sticker prices of $6,000 per year. The lower prices reflect discounts obtained from drug makers by pharmacy benefit managers who negotiate on behalf of private companies that contract with the government to manage Part D plans.
But those negotiations are vague and partially reduce Medicare spending. The reasoning behind the drug pricing provisions of the Inflation Reduction Act is that because Medicare covers so many people, it can use its leverage to extract deeper discounts.
The United States spends more per person on drugs than comparable countries, in part because other countries actively regulate drug pricing. Surveys show that many Americans do not take their medications because they cannot afford them.
Experts say the Medicare negotiation program will likely translate into direct savings for seniors, initially in the form of reduced premiums made possible by reduced drug spending. And when lower prices go into effect in 2028 for drugs administered in clinics and hospitals under another Medicare program, known as Part B, that could mean lower out-of-pocket costs for seniors covered by traditional Medicare without supplemental insurance.
Proponents of the Inflation Reduction Act say that in addition to saving money for the government and patients, the negotiations will introduce much-needed transparency into the complex process of determining drug prices. If a company refuses to negotiate, it must pay a hefty excise tax or withdraw all of its drugs from Medicare and Medicaid.
“This is not a ‘negotiation,'” Merck said in its complaint. “It amounts to extortion.”
Taken together, the lawsuits make different constitutional arguments. In addition to the assertion that the government violates the Fifth Amendment by unjustly taking property, they include claims that the law violates the First Amendment by forcing drug companies to agree in writing that they are negotiating a “fair price.” Another argument is that the excise tax amounts to an excessive fine prohibited by the Eighth Amendment.
“If the government can impose price controls this way on drug companies,” said Jennifer Dickey, a deputy chief counsel in the chamber’s legal arm, “it can do the same thing to any sector of our economy.”
Biden administration officials said there was nothing mandatory about the law. They argue that companies are free not to negotiate and that they can issue news releases or make other public statements disagreeing with the negotiated price. And they note that the government regularly negotiates for the purchase of other products and that the Department of Veterans Affairs already negotiates drug prices with pharmaceutical companies.
“To me, Medicare is doing what it’s supposed to do,” said Mr. Gostin, the Georgetown professor. “It’s a big buyer of a product, and it usually uses that power, that power to negotiate, to get the best price.”
The drug industry is “throwing the kitchen sink at the government,” he added. “They’re looking for what remains, and their arguments are aimed squarely at the Supreme Court.”
