Biden admin revises drug negotiation program amid legal onslaught

The Centers for Medicare and Medicaid Services (CMS) announced Friday it has revised its guidance for the Medicare drug price negotiation program set up within the Inflation Reduction Act (IRA), seemingly in response to the several lawsuits challenging the program’s constitutionality.

Negotiations under the Medicare Drug Price Negotiation Program are set to take place over course of 2023 and 2024. Before those talks could get very far, several organizations filed lawsuits seeking to block the program and void any agreements that might be reached.

Merck, Bristol Myers Squibb, the Chamber of Commerce and the pharmaceutical trade group PhRMA have all filed lawsuits against the Biden administration, alleging the program violated the First, Fifth and Eighth amendments of the Constitution.

CMS responded to some of the claims of unconstitutionality. Several plaintiffs had argued the implication that companies believe the negotiation process to be fair to be a violation of their First Amendment right.

While legal experts have found this claim to be dubious, CMS said it would publicize a “narrative explanation of the negotiation process” for the sake of “balancing transparency and confidentiality.”

The agency also directly stated it does believe the program violates the Fifth Amendment, which states private property may not be taken for public use “without just compensation.”

When reached for comment, a spokesperson for Merck said, “We are reviewing the guidance, but it does not and cannot cure the fundamental constitutional problems with the statute.”

A Bristol Myers Squibb spokesperson said they too were reviewing the guidance.

“We believe CMS guidance cannot correct constitutional flaws in the Inflation Reduction Act, including the program that requires pharmaceutical companies like BMS, under the threat of significant penalties, to sell innovative medicines at government-dictated prices,” they said.

PhRMA said it saw “very few substantive changes” in the revisions, accusing CMS of treating the updates as a “box checking exercise, not an opportunity to mitigate the negative impacts this price setting policy.”

The plaintiffs in the other cases did not immediately respond when reached for comment.

PhRMA’s lawsuit was filed most recently and the organization’s CEO Steve Ubl argued the negotiation program lacked transparency when it came to deciding the price of negotiation.

The IRA states that the drugs that are chosen for negotiation shall not be subject to judicial or administrative review, which plaintiffs in the numerous cases argue gives the Department of Health and Human Services (HHS) too much unchecked power.

CMS provided additional details Friday on how it plans to identify drugs eligible for price negotiations. The agency laid out how it will define the drugs up for negotiation, what data it will take into account and how the data will be used.

Much of the revisions announced Friday sought to clarify how CMS planned to carry out the negotiations.

If a manufacturer does not wish to take part in negotiation it can either face potential, heavy excise taxes on its products or end its relationship with Medicare, losing out on the lucrative income stream. The excise tax penalty was particularly grievous to the plaintiffs as it can go as high as 95 percent on a product’s sales in the U.S.

Among the revision, CMS said it had set up a process in which a manufacturer can “expedite its termination” from the Medicare program. Industry stakeholders had complained that the options presented were not easy and leaving Medicare was not a quick process.

CMS also stated that before any civil monetary penalties are put into effect, manufacturers will be given the opportunity for “corrective action in applicable circumstances.”

The agency also clarified that manufacturers may avoid an excise tax by submitting notice and a termination request at least 30 days before the excise taxes are set to go into effect.

“The Biden-Harris Administration isn’t letting anything get in our way of delivering lower drug costs for Americans,” HHS Secretary Xavier Becerra said in a statement.

“Pharmaceutical companies have made record profits for decades. Now they’re lining up to block this Administration’s work to negotiate for better drug prices for our families,” he said. “We won’t be deterred. President Biden made it possible for Medicare to negotiate prescription drug prices. Today’s action is a critical step in reaching that goal.”

The first 10 drugs selected for negotiation will be announced Sep. 1, and the negotiated prices will go into effect beginning in 2026.