Prescription drug prices in the U.S. are two-to-three times higher than peer nations. Why? Most peer countries use their purchasing power to negotiate prices with pharmaceutical companies. By law, Medicare has been prohibited from negotiating drug prices. That changed in August 2022, when Congress authorized negotiation for certain drugs. Protecting their bottom line, pharmaceutical companies launched a blizzard of lawsuits to block drug pricing negotiations.
Prescription drugs are critical to health, but for many people who depend on medications to manage chronic and life-threatening conditions — especially seniors, low-income individuals, and racial and ethnic minorities — drug costs remain a major barrier. Drug prices have skyrocketed. The average net price for Medicare outpatient brand-name prescription drugs more than doubled between 2009 and 2018, from $149 to $353, with each Medicare enrollee spending $2,700 on average. While several factors contribute to high costs, congressional investigations, expert analyses, and leading journalists point to industry practices, such as gaming the patent system to extend market monopolies, suppressing competition, abusing citizen petitions, and price fixing.
The Inflation Reduction Act (IRA) empowers the Department of Health and Human Services — through the Centers for Medicare & Medicaid Services (CMS) — to negotiate the price of certain single source brand-name drugs. This historic achievement was accomplished despite fierce industry lobbying. The Congressional Budget Office estimates the Drug Price Negotiation Program will save Medicare $100 billion over 10 years — decreasing the net price of drugs by 50% on average.
Negotiation Program
Under the new program, CMS must identify a specified number of negotiation-eligible drugs each year. After negotiating — considering various factors, data, and a counteroffer — CMS makes a final offer to the manufacturer, reflecting the drug’s maximum fair price. The number of drugs subject to negotiation is staggered, with the first 10 drugs starting January 1, 2026. Manufacturers’ participation is voluntary — they can either agree to negotiate or withdraw from Medicare and Medicaid. A manufacturer who refuses to negotiate but still chooses to sell its drugs to Medicare and Medicaid is subject to an excise tax that increases over time.
Industry Litigation
Drug manufacturers, their trade association, and industry allies have filed six lawsuits across the country challenging the drug negotiation program, making a host of constitutional claims, many of which overlap. First, the pharmaceutical companies claim the IRA “takes” its property without just compensation under the Fifth Amendment by requiring sales below “market rates.” This argument seems untenable. Participation is voluntary. For that reason, courts have held that cuts in Medicare payments do not violate the Fifth Amendment’s takings clause. The IRA does not physically expropriate drugs, but simply establishes price thresholds that Medicare cannot exceed for certain high-cost drugs. And while pharmaceutical companies complain about “market rates,” recall that they sell the same drug for a lower rate in most other countries.
Second, some drug manufacturers argue the negotiation program compels them to endorse speech with which they disagree in violation of the First Amendment — arguing that they are forced to communicate that price of the drug is “fair.” Remember, drug companies enter negotiations voluntarily, and the resulting price is not a form of compelled speech. More importantly, the industry is free to publicly criticize the government for creating and implementing the drug negotiation program. In fact, pharmaceutical companies put out multiple press releases on its challenges to the IRA.
Third, some lawsuits claim that Congress granted CMS broad, unfettered discretion to set drug prices, violating the so-called “non-delegation” doctrine, which prohibits the legislature from delegating its legislative powers to other agencies. This argument holds no water because the IRA states, in detail, how CMS should implement the negotiation program. It spells out the class of drugs eligible for negotiation; the factors that CMS must consider in determining the maximum fair price; and timelines for implementation.
Fourth, some manufacturers argue the negotiation program does not provide sufficient procedural safeguards against “price controls,” therefore violating due process. The Constitution’s due process clause requires the government to go through a fair process — typically notice and hearing — before depriving any person of life, liberty, or property. But selling drugs to Medicare is not a constitutionally protected property right under the due process clause. And even if it were, Supreme Court precedent gives the government flexibility in the procedures it uses, and does not require agencies go through the elaborate procedures that the manufacturers claim the negotiation program lacks.
The other claims made in these lawsuits — including those based on the Eighth Amendment’s excessive fines clause and that the IRA exceeds Congress’s enumerated powers — are equally unsupported by existing case law.
The Same Playbook
Challenges to Medicare drug negotiations follow the same playbook that pharmaceutical companies, health insurers, and other interest groups have used to try to overturn hard-won health legislation, such as the Affordable Care Act and the No Surprises Act. Drug manufacturers have turned to the courts as the final frontier in the fight against skyrocketing prescription drug costs. In these lawsuits, for-profit private companies rely on constitutional doctrines that are meant to protect personal liberties against governmental abuse to insulate themselves from economic regulation.
There was a time when judges understood it was not their role to be the arbiters of public policies; they recognized this was best left to the politically accountable branches of government. In enacting the IRA, Congress was responding to a grave social issue that affects the health and well-being of millions of Americans. It aligned with similar price negotiations in other federal programs and other democracies. But the time of judicial restraint has long passed. These claims, as unconventional as they are, could find a sympathetic ear among the conservative super-majority on the Supreme Court. In fact, the manufacturers and their allies seem to be counting on it. Its tactics are crystal clear: launch six cases in varied jurisdictions around the country, and employ a long laundry list of constitutional claims. One of the manufacturers’ possible strategies is to get a circuit court split and speed the case to the Supreme Court.
While claims in these lawsuits find minimal support in prevailing precedent, this Supreme Court is demonstrably pro-business, anti-regulatory, and anti-administrative state. It has been hawkish on commercial speech and on “takings.” Over the last two terms, the Supreme Court has deployed the newly minted major questions doctrine to frustrate administrative agencies seeking to combat climate change, mitigate the COVID-19 pandemic, and address the student loan debt crisis. With the Supreme Court’s recent defenestration of decades of precedent on abortion and affirmative action, the foundation of our American legal system is less certain. When the pharmaceutical industry “throws the kitchen sink” at the Medicare drug negotiation program, it is hoping something will stick. And with this Supreme Court the industry may find a receptive audience.
Lawrence O. Gostin, JD, is Distinguished University Professor, Georgetown University’s highest academic rank, where he directs the O’Neill Institute for National & Global Health Law. He is also director of the World Health Organization Collaborating Center on National & Global Health Law. He is the author of the book, Global Health Security: A Blueprint for the Future. Andrew Twinamatsiko, JD, is an associate director of the Health Policy and the Law Initiative at the O’Neill Institute. Zachary Baron, JD, is an associate director of the Health Policy and the Law Initiative at the O’Neill Institute.
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