The Centers for Medicare and Medicaid Services (CMS) have announced revisions to their guidance for the Medicare drug price negotiation program, which was established under the Inflation Reduction Act (IRA). These changes appear to be a response to multiple lawsuits challenging the program’s constitutionality.
The negotiations for the Medicare Drug Price Negotiation Program are scheduled to take place throughout 2023 and 2024. However, before these talks could progress, several organizations filed lawsuits seeking to block the program and invalidate any agreements that may be reached.
Merck, Bristol Myers Squibb, the Chamber of Commerce, and the pharmaceutical trade group PhRMA have all filed lawsuits against the Biden administration, claiming that the program violates the First, Fifth, and Eighth amendments of the Constitution.
In response to some of the constitutional claims, CMS stated that it would provide a “narrative explanation of the negotiation process” to balance transparency and confidentiality.
CMS also explicitly acknowledged that the program violates the Fifth Amendment, which prohibits private property from being taken for public use without just compensation.
Merck, when approached for comment, stated that they were reviewing the guidance but did not believe it addressed the fundamental constitutional issues with the statute. Bristol Myers Squibb expressed a similar sentiment.
PhRMA criticized the revisions, stating that they saw few substantive changes and accused CMS of treating the updates as a mere “box checking exercise” rather than an opportunity to mitigate the negative impacts of the price setting policy.
The plaintiffs in the other cases have yet to respond to requests for comment.
PhRMA’s lawsuit, the most recent one filed, argues that the negotiation program lacks transparency in determining the price of negotiation.
The IRA states that drugs chosen for negotiation shall not be subject to judicial or administrative review, which the plaintiffs argue grants the Department of Health and Human Services (HHS) excessive unchecked power.
CMS has released additional details on how it plans to identify drugs eligible for price negotiations, including definitions, data considerations, and utilization.
The revisions announced by CMS aimed to clarify how the negotiations would be carried out.
Manufacturers who choose not to participate in negotiation may face heavy excise taxes on their products or terminate their relationship with Medicare, forfeiting the lucrative income stream. The plaintiffs particularly opposed the excise tax penalty, which can reach up to 95 percent of a product’s sales in the U.S.
To address concerns, CMS has established a process for manufacturers to expedite their termination from the Medicare program. Previously, industry stakeholders felt that the options presented were not straightforward and that leaving Medicare was a time-consuming process.
CMS also stated that manufacturers will have the opportunity for corrective action before any civil monetary penalties are imposed.
The agency clarified that manufacturers can avoid excise taxes by providing notice and a termination request at least 30 days before the taxes take effect.
HHS Secretary Xavier Becerra expressed determination to deliver lower drug costs for Americans despite the opposition from pharmaceutical companies. He highlighted President Biden’s efforts to empower Medicare to negotiate prescription drug prices and emphasized that the revisions taken are critical steps toward achieving that goal.
The first ten drugs selected for negotiation will be announced on September 1, and the negotiated prices will go into effect in 2026.
Overall, CMS’s revisions aim to address constitutional concerns and provide clarity in carrying out the Medicare drug price negotiation program. However, the lawsuits and opposition from pharmaceutical companies continue to challenge the implementation of the program.
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