The CEO of a pharmaceutical company testified before the Senate Finance Committee on “Drug Pricing in America: A Prescription for Change, Part II,” February 26, 2019 in Washington, DC. From left to right are Richard A. Gonzalez, Chairman and CEO of AbbVie; Pascal Soriot, Executive Director and CEO of AstraZeneca; Giovanni Caforio, Chairman and CEO of Bristol-Myers Squibb; Jennifer Taubert , executive vice president and chairman of Janssen Pharmaceuticals, Johnson & Johnson; Kenneth C. Frazier, chairman and chief executive officer of Merck & Co.; Albert Bourla, chief executive officer of Pfizer; and Olivier Brandicourt, chief executive officer of Sanofi.
Win McNamee | Getty Images News | Getty Images
Legal experts say the drug industry is aiming to pass a Supreme Court ruling that repeals Medicare’s historic new power to slash drug prices for seniors.
drug maker Merckamerican chamber of commerce and Bristol-Myers Squibb The lawsuits, filed separately over days this month, are asking federal courts in Washington, D.C., the Southern District of Ohio and New Jersey to declare price negotiations unconstitutional under the First and Fifth Amendments.
The lawsuits are the opening salvo of a historic and potentially decisive battle against the federal government’s efforts to rein in rising drug prices.
The Lower Inflation Act, which passed on a narrowly partisan vote last year, gave Medicare the power to negotiate prices for the first time in the program’s nearly 60-year history — a watershed moment long sought by Democrats.
The pharmaceutical industry sees the plan as a major threat to revenue growth and profits.The companies claim the program will stifle future drug development in the U.S.
Merck is concerned that its blockbuster cancer treatment Keytruda, which accounts for 35% of the company’s $59 billion in revenue in 2022, will be targeted by the plan in the future. The company is also concerned that the federal government will select its type 2 diabetes drug Januvia, which generates $2.8 billion in revenue in 2022, for negotiations this year.
drug maker AbbVieMembers of the Dayton, Ohio, chapter of the U.S. Chamber of Commerce are defending its blood cancer drug Imbruvica, which generated $4.6 billion in revenue last year, or about 8% of its total sales.
Bristol Myers Squibb is trying to protect its blood thinner Eliquis, which generated $11.8 billion in sales last year, about 25% of the company’s $46 billion in total revenue in 2022.
These are the first lawsuits challenging Medicare’s new powers, but they’re unlikely to be the last.
The Pharmaceutical Research and Manufacturers of America, a lobby group for big drugmakers, told CNBC in a statement that it supports the claims in the lawsuit.
A spokesman for PhRMA said the group is also considering a lawsuit against Medicare. PhRMA’s membership includes Eli Lilly, Pfizer and Johnson & Johnson, among other big drugmakers.
Legal experts and financial analysts covering the pharmaceutical industry say Merck, the Chamber of Commerce and Bristol-Myers Squibb will try to take their claims all the way to the high court.
“These lawsuits were crafted with the Supreme Court in mind,” said Robin Feldman, an intellectual property and health law expert at the University of California School of Law in San Francisco.
Former Justice Department prosecutor Nicholas Bagley said the high court was “big fish.” Bagley, former chief counsel to Michigan Gov. Gretchen Whitmer, said any decision to overrule Medicare price negotiations would ultimately have to be made by a judge.
Raymond James analyst Chris Meekins noted that all four of the lawyers representing Merck had previously clerked for conservative Supreme Court justices: Antonin Scalia, Brett Kavanaugh, and Neil Gorsuch served as clerks.
“It’s worth noting that it’s clear to us that Merck is ready and willing to take this matter all the way to the Supreme Court if need be,” Meekins wrote in an analyst note.
lengthy legal battle
Merck, the Chamber of Commerce and Bristol-Myers Squibb filed suit ahead of two key deadlines.
HHS Secretary Xavier Becerra will release a list by Sept. 1 Medicare’s selection of 10 drugs for negotiation. Drugmakers must then agree to participate and submit manufacturing data to the Centers for Medicare and Medicaid Services next month.
Negotiations ended in August 2024, and the actual price cuts won’t take effect until January 2026.
If these companies do not participate in the negotiations and abide by the terms of the scheme, they will face severe financial penalties many times higher than the daily revenue of their drugs. Drugmakers can avoid the tax only if they pull their drugs out of the Medicare and Medicaid tax rebate programs.
Meekins said in his analyst note earlier this month that Merck would likely try to get a federal court deadline to block the law.
But Bagley noted that Merck and the Chamber of Commerce did not file a preliminary injunction motion to immediately block the law. Neither did Bristol-Myers Squibb. Plaintiffs cannot reasonably claim immediate harm now because the price cuts will not take effect until 2026, he said.
Bagley said the injunction tied to the October deadline could be requested when the parties sign an agreement to participate in the negotiations and start submitting data.
The lawsuit is likely to be a long, drawn-out battle, Bagley said. “Any fight over an appropriate remedy will be fought at the conclusion of the case, once the legal grounds are finally resolved,” he said.
The judge in charge of the Merck case is Randolph Daniel Moss, an appointee of former President Barack Obama. The chamber’s cases are assigned to Judge Thomas M. Ross, who was appointed by former President George W. Bush.
Bagley said the two justices are likely to be skeptical about the motion for a preliminary injunction tied to the October deadline, though Ross could be persuaded to allow it.
Expect more lawsuits this fall
When HHS publishes its 10-drug list in September, more lawsuits will almost certainly follow, said Kelly Bagby, vice president of litigation at the AARP Foundation.
AARP is an influential lobby group representing the over-50 population. The group strongly advocated for Medicare’s new negotiating powers.
Drug companies whose drugs have been selected for negotiation could ask a federal court for a preliminary injunction to block the law when it publishes the list in September, Bagby said.
The list of medications that need to be negotiated can include PfizerIbrance, Johnson & JohnsonXarelto, Eli LillyJardiance, AmgenEnbao and AstraZenecaSymbicort et al., according to March published in Journal of Managed Care and Specialty Pharmacy.
Pfizer CEO Albert Bourla told Reuters in May that he expected legal action against Medicare in the talks, but he said it was unclear whether the drugmaker would be able to halt the law before the cuts take effect in 2026.
In a statement to CNBC, Eli Lilly said the company shares the concerns of the two companies and will evaluate the implementation of the negotiations to “determine any possible actions.”
Bagby also believes the issue will go to the Supreme Court. The companies could spread their cases across the country — as Merck, the Chamber of Commerce and Bristol-Myers Squibb have done — in an attempt to get competing decisions from federal appeals courts, she said.
The Merck case in D.C. District Court will be appealed to the D.C. Circuit Court of Appeals, which has a majority of judges appointed by Democratic presidents.
The chamber’s case will be appealed to the U.S. Court of Appeals for the Sixth Circuit, which has a majority of judges appointed by Republican presidents, most notably Donald Trump.
Bristol Myers Squibb’s case will go to the U.S. Third Circuit Court of Appeals, which also has a narrow majority of Republican-appointed judges.
If the circuit courts have conflicting rulings on the matter, the Supreme Court will step in to decide the issue, Bagby said.
White House press secretary Karin Jean-Pierre said the Biden administration is confident of success in court.
“There is nothing in the Constitution that prevents Medicare from negotiating lower drug prices,” Jean-Pierre said in a statement.
Beccera added, “We will vigorously defend the President’s Drug Price Negotiation Act, which is already reducing health care costs for the elderly and disabled.”
“The law is on our side,” Becerra said in a statement.
Patents at the Center of the Fight
Feldman, an expert on intellectual property and health law, said the success or failure of the pharmaceutical industry’s attempt to undo the new powers in Medicare will depend largely on whether courts treat patents as a form of private property.
Merck claimed in its complaint that the negotiations violated the Fifth Amendment, which prohibits the government from using private property for public purposes without just compensation. Bristol Myers Squibb made the same argument in its complaint.
Merck and Bristol Myers Squibb argue that Medicare is seizing private property from drug companies—patented medicines—and forcing them to accept prices that are much lower than the drug’s market value. The Chamber has introduced broader due process requirements under Title V.
Article 5 was written with property such as land in mind, Feldman said. Patents are very different from land because they are issued by the federal government, she said. And, she points out, drug prices are largely driven by the value generated by government-issued patents.
The Supreme Court has not ruled that patents are private property under the Fifth Court’s “expropriation clause,” Feldman said, referring to the 2018 Petroleum State Energy Services Corp. v. Green Energy Group case.
In his majority opinion in the case, Justice Clarence Thomas said the high court had long recognized patents as a matter of “public rights,” but the court had not clearly explained the distinction between these government-derived public rights and private rights.
“Applying expropriation clauses to patents is like gunshots being heard around the world — it would be a remarkable turnaround, and companies would have a good chance of convincing the courts that these clauses apply to patents,” Feldman said.
