Biden administration faces lawsuit from PhRMA regarding Medicare drug negotiations

The Biden administration is facing legal action from the pharmaceutical industry’s largest lobbying group, along with two other organizations, over Medicare’s new authority to lower drug prices for seniors under the Inflation Reduction Act.

The Pharmaceutical Research and Manufacturers of America (PhRMA), the National Infusion Center Association, and the Global Colon Cancer Association have filed a complaint in federal district court in Texas, arguing that the Medicare negotiations with drugmakers violate the U.S. Constitution.

PhRMA, which represents major drugmakers such as Eli Lilly, Pfizer, and Johnson & Johnson, seeks a declaration that the program is unconstitutional and aims to prevent the Department of Health and Human Services from implementing Medicare negotiations without appropriate procedural safeguards for drug manufacturers.

The Department of Health and Human Services has not yet responded to CNBC’s request for comment.

This lawsuit marks the fourth challenge to the controversial provision of the Inflation Reduction Act, which was signed into law last summer. The provision is intended to make medications more affordable for older Americans but is expected to impact pharmaceutical industry profits.

Merck and Bristol Myers Squibb, also represented by PhRMA, along with the U.S. Chamber of Commerce, previously filed separate lawsuits against the provision earlier this month. The latest lawsuit argues that the plan grants excessive authority to the Department of Health and Human Services.

The complaint further contends that the provision includes a burdensome excise tax aimed at compelling drugmakers to accept government-dictated prices, which violates the Eighth Amendment’s prohibition of excessive fines. Additionally, the policy is accused of violating due process by denying pharmaceutical companies and the public the opportunity to provide input on the implementation of Medicare negotiations.

In a statement, PhRMA CEO Stephen Ubl criticized the Inflation Reduction Act’s price setting scheme, stating that it endangers research and development efforts and patients’ access to medicines. Ubl also argued that the policy lacks transparency and accountability, grants the executive branch unrestricted power to set medication prices in Medicare, and relies on an impractical enforcement mechanism.

Starting in September, the first 10 drugs subject to the provision will be selected, and the agreed-upon prices will take effect in 2026.