PhRMA and other groups sue HHS over drug pricing provisions of the IRA

Photo: Willie B. Thomas/Getty Images

The National Infusion Center Association, the Global Colon Cancer Association and the Pharmaceutical Research and Manufacturers of America have filed a lawsuit in federal court over what they call the price setting provisions of the Inflation Reduction Act.

The civil case filed in the U.S. District Court for the Western District of Texas on Wednesday calls the IRA provisions in the Medicare drug price negotiation program unconstitutional.

"(It) is no negotiation at all," the lawsuit stated. "It is a government mandate disguised as negotiation. And it is unconstitutional, on several grounds."

This includes what the groups call an excise tax threat for noncompliance to agree to the prices set by the federal government.  The tax can reach as high as 1,900% of a manufacturer's total U.S. revenues for a drug, they said.

The lawsuit seeks a permanent injunction against enforcement of the drug pricing program and excise tax.

WHY THIS MATTERS

The Inflation Reduction Act authorized Medicare to directly negotiate drug prices for select medications. Part B drugs may be eligible to be selected for negotiation starting in 2026 for prices effective in 2028. 

Manufacturers are required to pay a rebate to Medicare if a drug's price increase exceeds the rate of inflation. The Centers for Medicare and Medicaid Services said it intends to send the first invoices in 2025 to manufacturers for the rebates owed to Medicare in 2023 and 2024. 

Earlier this month, CMS released the list of 43 prescription drugs for which Medicare Part B beneficiaries' coinsurances may be lower, starting July 1 through September 30.

Last week, on a call with J.P. Morgan analysts, the CEOs of PhRMA, Eli Lilly and Sage Therapeutics said the Inflation Reduction Act was destabilizing investment in innovation to the extent that it would create patient "winners and losers" for drug access.

The lawsuit asks the court to declare the provisions in the Inflation Reduction Act unconstitutional because: 

• Congress has impermissibly delegated broad authority to the Department of Health and Human Services to set prices within Medicare with no meaningful constraints on the agency's exercise of this new price-setting authority. This is in conflict with the separation-of-powers in the Constitution.
•  Unlike virtually any other statutory program affecting the public, the Medicare pricing program did not allow for stakeholder input, which violates the Fifth Amendment's due process rights.
•  The excise tax aims to force manufacturer compliance with a penalty that violates the Eighth Amendment's Excessive Fines Clause. 

THE LARGER TREND

Medicare has traditionally encouraged pharmaceutical innovation through market-based mechanisms, the lawsuit said. Congress sought to ensure that Medicare reimbursed the costs of these drugs at rates based on prices negotiated in real market transactions.  

However, the IRA upends the market-based system that encouraged innovation and instead, Congress established a system of price controls.

"Had Congress made clear that it was mandating price controls, the resulting drug shortages, rationing, and declining innovation would be clearly attributable to the elected officials who supported the law," the complaint states. 

ON THE RECORD

Senate Finance Committee Chair Ron Wyden, D-Ore., said, "It's no surprise that Big Pharma wants to stop Medicare from negotiating lower drug prices on behalf of American seniors. I expect the Biden Administration to vigorously defend Medicare's bargaining power so seniors will see the lower drug prices they expect."

Ways and Means Committee Ranking Member Richard E. Neal (D-MA) said, "Last year, Democrats stood up for America's seniors with the Inflation Reduction Act and delivered a major blow to Big Pharma's practice of profits over people: opening the door to Medicare negotiation, putting money back in Americans' pockets, and capping lifesaving insulin at $35 per month. Now, PhRMA and other special interest groups are running scared. Today's lawsuit seeks to undo our progress and baselessly prevent Medicare from being able to negotiate lower drug prices. It's single-mindedly focused on their bottom line."

NICA Chief Executive Officer Brian Nyquist stated: "The government price setting provisions in the IRA may inadvertently set reimbursement below acquisition cost, exacerbating existing consolidation trends and reducing our nation's community-based infusion capacity. This would leave patients with the hospital as their only option – which is by far the most expensive setting."
 

Twitter: @SusanJMorse
Email the writer: SMorse@himss.org