Drugmakers are throwing the sink to stop Medicare pricing negotiations

The pharmaceutical industry, which suffered an embarrassing defeat last year when President Biden signed a bill authorizing Medicare to negotiate the price of some prescription drugs, is now waging a broad assault on the measure — just as negotiations are about to begin.

The bill, the Inflation Reduction Act, is a signature legislative achievement for Mr Biden, who boasted that he took on the drug industry and won. Medicare is the federal health insurance program for the elderly and disabled; the provisions that allow it to negotiate prices are expected to save the government an estimated $98.5 billion more than a decade while lowering insurance premiums and out-of-pocket costs for many older Americans.

On Tuesday, Johnson & Johnson became the latest drugmaker to take the Biden administration to federal court in an attempt to halt its drug pricing program. Three other pharmaceutical companies — Merck, Bristol Myers Squibb And Astellas Pharma – have filed their own lawsuits, as have the the industry’s most important trading group and the American Chamber of Commerce.

The lawsuits make similar and overlapping claims that the drug pricing provisions are unconstitutional. They are scattered in federal courts across the country — a tactic that experts say gives the industry a better chance of securing conflicting rulings that will accelerate legal challenges to a business-friendly Supreme Court.

The legal push comes just weeks before the Centers for Medicare & Medicaid Services releases a long-awaited list of the first 10 drugs to be negotiated. The list will be out on September 1; the makers of the selected drugs have until October 1 to announce whether they will participate in the negotiations – or face heavy financial penalties if they fail to do so. The lower prices will not take effect until 2026.

Earlier this month, the chamber asked a federal judge in Ohio to issue an injunction that would block all negotiations while the case is heard.

Lawrence O. Gostin, a public health law expert at Georgetown University, said the Supreme Court could be sympathetic to some of the industry’s arguments. In particular, he pointed to a claim by drug companies that by requiring them to negotiate or pay a fine, the law violates the Fifth Amendment’s prohibition against taking private property for public use without just compensation.

“The Supreme Court is openly hostile to any alleged violation of the Fifth Amendment,” Mr. Gostin said, adding, “I wouldn’t be at all surprised if these cases go to the Supreme Court and have them strike it down.”

For Mr. Biden and his fellow Democrats, that would be a painful blow. The president and Democrats have long campaigned to lower drug prices and plan to make it a central theme of their 2024 campaigns. White House press secretary Karine Jean-Pierre said in a statement that Mr. Biden was confident the administration would win in court.

“For decades, the pharma lobby has blocked efforts to get Medicare to negotiate lower drug costs,” she said. “President Biden is proud to be the first president to defeat them.”

Republicans oppose the drug pricing provisions, which they view as a form of government price control. But the politics of the issue are treacherous to them. Because so many Americans are concerned about high drug prices, it’s hard for Republicans to defend the industry, said Joel White, a Republican strategist with expertise in health policy.

Instead, Republicans are focusing on another drug industry priority: scrutinizing the practices of pharmacy administrators, who negotiate prices with drug companies on behalf of health plans. The drug companies say that the pharmacy benefit administrators contribute to the high cost of prescription drugs by taking a middleman.

For drugmakers, the stakes of the legal challenges extend beyond their dealings with Medicare, their largest customer. The industry fears that Medicare will effectively set the bar for all payers, and that once the government’s lower prices are made public, pharmacy benefit administrators negotiating on behalf of the privately insured will have more clout to demand bigger discounts.

Along with its legal campaign, the pharmaceutical industry is on a PR offensive. The industry group that filed one of the lawsuits, the Pharmaceutical Research and Manufacturers of America, known as PhRMA, is running ads aimed at pharmacy fee administrators and industry executives are publicly claiming that drug pricing provisions will lead to fewer cures. The implication is clear: lower prices will put a dent in revenue, which will discourage companies from developing certain drugs.

“You can’t take hundreds of billions of dollars out of the pharmaceutical industry and expect it to have a real impact on the industry’s ability to develop new treatments and treatments for patients,” said Robert Zirkelbach, an executive vice president at PhRMA. He quoted an analysis funded by the drugmaker Gilead Sciences that claimed the industry would lose $455 billion over seven years if companies negotiated with Medicare.

An investigation released last month which was funded by the Biotechnology Innovation Organization, another trade group, warned that the pricing policies would discourage innovation, resulting in as many as 139 fewer drug approvals over the next 10 years.

But that assessment is at odds with an analysis by the Congressional Budget Office, which estimated the law would result in just one fewer drug approval in a decade and about 13 fewer drugs over the next 30 years.

In addition, many new drugs offer “no clinically meaningful advantage over existing drugs,” said Ameet Sarpatwari, an expert in pharmaceutical policy at Harvard Medical School. The Inflation Reduction Act, he said, could encourage companies to focus more on breakthrough therapies, rather than so-called me-too drugs, because the law requires the government to consider the clinical benefit of drugs when determining the price Medicare will pay for them.

Until now, Medicare has been explicitly barred from directly negotiating prices with drugmakers — a condition the industry demanded in exchange for supporting the creation of Part D, the Medicare prescription drug program, signed into law 20 years ago by President George W. Bush.

Under the Inflation Reduction Act, the government will select an initial set of 10 drugs for price negotiations based on how much the Part D program spends on them. More drugs will be added in the coming years.

Experts expect the initial drug list of commonly prescribed drugs such as the blood thinners Eliquis and Xarelto; anticancer drugs such as Imbruvica and Xtandi; Symbicort, which treats asthma and chronic obstructive disorder; and Enbrel, for rheumatoid arthritis and other autoimmune diseases.

Medicare already pays discounted prices for those drugs. In 2021, the most recent year for which data is available, Medicare spent about $4,000 per patient on Eliquis and Xarelto, which at the time had sticker prices of $6,000 per year. The lower price reflects rebates obtained from drug makers by pharmacy benefit administrators negotiating on behalf of the private companies contracted with the government to administer Part D plans.

But those negotiations are opaque and only modestly reduce Medicare spending. The rationale behind the drug pricing provisions of the Inflation Reduction Act is that because Medicare covers so many people, it can use its clout to get even bigger discounts.

The United States spends more on drugs per person than peer countries, in part because other countries proactively monitor drug pricing. Surveys show that many Americans are refraining from taking their medications because they cannot afford them.

Experts say the Medicare negotiation program is likely to translate into direct savings for seniors, initially in the form of lower premiums enabled by lower drug spending. And when lower prices take effect in 2028 for drugs administered at clinics and hospitals under another Medicare program, known as Part B, that could mean lower out-of-pocket costs for seniors covered by traditional Medicare who don’t have supplemental insurance.

Supporters of the Inflation Reduction Act say the negotiations will not only save money for the government and patients, but also bring much-needed transparency to the complicated process of setting drug prices. If a company refuses to negotiate, it must either pay a hefty excise tax or withdraw all its drugs from both Medicare and Medicaid.

“This is not a ‘negotiation,'” Merck said in his complaint. “It amounts to extortion.”

Taken together, the lawsuits represent a variety of constitutional arguments. In addition to claiming that the government violates the Fifth Amendment by improperly taking property, they include claims that the law violates the First Amendment by forcing drug companies to agree in writing to negotiate a “fair price.” Another argument is that the excise tax amounts to an excessive fine prohibited by the Eighth Amendment.

“If the government can impose price controls on pharmaceutical companies in this way,” said Jennifer Dickey, deputy lead attorney in the chamber’s legal division, “the same thing could happen to every sector of our economy.”

Biden administration officials say there is nothing mandated by law. They argue that the companies are free not to negotiate and that they can issue press releases or make other public statements disagreeing with the negotiated price. And they note that the government routinely negotiates the purchase of other products and that the Department of Veterans Affairs already negotiates drug prices with drug companies.

“For me, Medicare does what it’s supposed to do,” says Mr. Gostin, the Georgetown professor. “It’s a huge buyer of a product, and it’s basically using that clout, that bargaining power, to get the best price.”

The pharmaceutical industry “throws the sink at the government,” he added. “They look for what sticks, and their arguments are aimed directly at the Supreme Court.”