Chief executive officers of pharmaceutical companies testify before the Senate Finance Committee on “Drug Pricing in America: A Prescription for Change, Part II” on February 26, 2019 in Washington, DC. From left to right are Richard A. Gonzalez, Chairman and CEO of AbbVie Inc; Pascal Soriot, Executive Director and CEO of AstraZeneca; Giovanni Caforio, Chairman and CEO of Bristol-Myers Squibb Co.; Jennifer Taubert, executive vice president and global chairman of Janssen Pharmaceuticals, Johnson & Johnson; Kenneth C. Frazier, Chairman and CEO of Merck & Co. Inc.; Albert Bourla, CEO of Pfizer and Olivier Brandicourt, CEO of Sanofi.
Win Mcnamee | Getty Images News | Getty Images
The pharmaceutical industry is seeking to overturn Medicare’s historic new powers to lower drug prices for seniors through a Supreme Court ruling, legal experts say.
Drug maker Merckthe American Chamber of Commerce and Bristol Myers Squibb filed separate lawsuits within days of each other this month asking federal courts in Washington, DC, the Southern District of Ohio and New Jersey to declare the price negotiations unconstitutional under the First and Fifth Amendments.
The lawsuits are the opening salvo in what will go down as a historic and possibly decisive battle over the federal government’s efforts to contain rising drug prices.
The Inflation Reduction Act, passed last year with a narrow party line, gave Medicare the power to negotiate prices for the first time in the program’s nearly 60-year history — a watershed moment the Democratic Party had long fought for.
The pharmaceutical industry views the program as a major threat to sales growth and profits. The companies claim the program will hinder future drug development in the US
Merck fears its blockbuster cancer therapy Keytruda, which generated 35% of the company’s $59 billion in 2022 revenue, will be targeted by the program going forward. The company also worries that the federal government will select its type 2 diabetes drug Januvia, which generated $2.8 billion in revenue by 2022, for negotiations this year.
Drug maker Closeda member of the Dayton, Ohio, chapter of the Chamber of Commerce is defending its blood cancer drug Imbruvica, which generated $4.6 billion in revenue last year, or about 8% of total sales.
And Bristol Myers Squibb is trying to protect its blood thinner Eliquis, which brought in $11.8 billion in sales last year, or about 25% of the company’s total sales of $46 billion for 2022.
These are the first lawsuits to challenge Medicare’s new powers, but it probably won’t be the last.
The major drugmaker lobbying group, the Pharmaceutical Research and Manufacturers of America, told CNBC in a statement that it supports the claims in the lawsuits.
A PhRMA spokesperson said the organization is also considering a lawsuit against Medicare. PhRMA members include other major drug companies such as Eli Lilly, Pfizer, and Johnson & Johnson.
Legal experts and financial analysts covering the pharmaceutical industry said Merck, the Chamber and Bristol Myers Squibb will try to litigate their claims all the way to the Supreme Court.
“These lawsuits were written with the Supreme Court in mind,” said Robin Feldman, an intellectual property and health law expert at the University of California College of the Law in San Francisco.
Nicholas Bagley, a former Justice Department attorney, said the Supreme Court is the “big fish.” Any decision to halt Medicare pricing negotiations would ultimately have to be made by the judges, said Bagley, former chief attorney for Michigan Gov. Gretchen Whitmer.
Chris Meekins, an analyst with Raymond James, noted that all four attorneys representing Merck previously served as clerks to conservative Supreme Court justices: They were clerks for Antonin Scalia, Brett Kavanaugh and Neil Gorsuch.
“That is remarkable because it is clear to us that Merck is ready and willing to take this all the way to the Supreme Court if necessary,” Meekins wrote in an analyst note.
Long legal battle ahead
Merck, the Chamber and Bristol Myers Squibb filed their lawsuits before two important deadlines.
Xavier Becerra, Secretary of Health and Human Services, will publish a list by September 1 10 Drugs Medicare Selected for Negotiations. The drug manufacturers must then agree to participate and submit manufacturing data to the Centers for Medicare and Medicaid Services the following month.
The actual price reductions resulting from the negotiations, which will be concluded in August 2024, will not take effect until January 2026.
The companies face severe financial penalties many times the daily revenue of their drug if they fail to participate in the negotiations and comply with the terms of the program. Drugmakers can avoid the taxes only if they take their drugs out of the Medicare and Medicaid rebate programs.
Meekins said in his analyst note earlier this month that Merck could try to get federal courts to block the law before the deadlines.
But Bagley noted that Merck and the chamber have not filed motions for preliminary injunctions to immediately block the law’s implementation. Neither does Bristol Myers Squibb. He said the plaintiffs cannot now claim immediate injury because the price cuts would not take effect until 2026.
Bagley said the parties can ask for a court order tied to the October deadlines when they sign agreements to participate in the negotiations and begin filing data.
Chances are the lawsuits will be long, Bagley said. “Any argument over the right remedy comes at the end of the matter, once the legal merits are finally resolved,” he said.
The judge assigned to Merck’s case is Randolph Daniel Moss, who was appointed by former President Barack Obama. The chamber’s case has been assigned to Judge Thomas M. Rose, who was appointed by former President George W. Bush.
Bagley said both justices would likely be skeptical of a request for a preliminary injunction tied to the October deadlines, though Rose might be persuaded to grant it.
Expect more lawsuits this fall
Kelly Bagby, vice president of litigation at the AARP Foundation, said more lawsuits will almost certainly follow when HHS releases the list of 10 drugs in September.
AARP is the influential lobby group that represents people over the age of 50. The organization has strongly advocated for Medicare’s new negotiating powers.
Bagby said pharmaceutical companies whose drugs have been selected for negotiation will likely ask federal courts for preliminary injunctions to block implementation of the law when the list is published in September.
The list of negotiable drugs could include Pfizer‘s Ibrance, Johnson & Johnson‘s Xarelto, Eli Lillyfrom Jardiance, Amgen‘s Enbrel and AstraZeneca‘s Symbicort, among others, according to a March analysis published in the Journal of Managed Care and Specialty Pharmacy.
Albert Bourla, CEO of Pfizer, told Reuters in May that he expects legal action to be taken against Medicare over the negotiations, though he said it’s unclear whether the drugmakers can halt implementation of the law before the 2026 budget cuts. become strong.
Eli Lilly said in a statement to CNBC that the company shares the company’s concerns and will evaluate the conduct of the negotiations to “determine possible actions.”
Bagby also believes the issue is headed to the Supreme Court. She said the companies will likely spread their cases across the country — as Merck, the Chamber and Bristol Myers Squibb did — in an effort to get federal appeals courts to make competing decisions.
The Merck case in Washington, D.C. District Court would be referred on appeal to the D.C. Circuit Court of Appeals, which has a majority of judges appointed by Democratic presidents.
The chamber’s case would be appealed to the U.S. Sixth Circuit Court of Appeals, which has a majority of judges appointed by Republican presidents, most notably Donald Trump.
And Bristol Myers Squibb’s case would go to the U.S. Third Circuit Court of Appeals, which also has a slim majority of Republican-appointed judges.
If the courts’ decisions on this matter contradict each other, the Supreme Court would step in to decide the matter, Bagby said.
White House press secretary Karine Jean-Pierre said the Biden administration is confident it will succeed in the courts.
“There is nothing in the Constitution that prevents Medicare from negotiating lower drug prices,” Jean-Pierre said in a statement.
And Beccera added that “we will vigorously defend the president’s negotiated bill, which already lowers health care costs for seniors and people with disabilities.”
“The law is on our side,” Becerra said in a statement.
Patents at the heart of the battle
Feldman, the expert on intellectual property and health law, said the success or failure of the drug industry’s attempt to knock down Medicare’s new powers will depend in large part on whether the courts recognize patents as consider it a form of private property.
Merck alleges in its complaint that the negotiations violate the Fifth Amendment, which prohibits the government from taking private property for public use without just compensation. Bristol Myers Squibb made an identical argument in its complaint.
Merck and Bristol Myers Squibb argue that Medicare is taking private property from pharmaceutical companies – patented drugs – and forcing them to accept a price much lower than the market value of the drugs. The chamber made broader claims for due process under the Fifth.
Feldman said the Fifth was written with properties such as land in mind. Patents vary significantly by country because they are issued by the federal government, she said. And, she noted, drug prices are largely determined by the value derived from government-issued patents.
The Supreme Court has not ruled that patents are private property under the “receipt clause” of the Fifth, Feldman said, referring to the 2018 case Oil States Energy Services v. Greene’s Energy Group.
Judge Clarence Thomas said in his majority opinion in the case that the Supreme Court has long recognized patents as a “public rights” case, but the court has not definitively explained the difference between these government-derived public rights and private rights.
“Applying the inclusion clause to patents would be like the gunshot heard around the world – it would be an extraordinary shift and the companies will have a tough job convincing the courts that those words apply to patents Feldman said.