Later this year, the federal government is supposed to start a serious attempt to rein in drug prices: For the first time, Medicare will negotiate with pharmaceutical companies over the prices it’s willing to pay for a short list of drugs. It’s a long-awaited change that is supposed to save the government and patients billions of dollars over time.
But the drug industry is now launching a legal fight aimed at stopping Medicare’s negotiations over prescription drug prices before they begin. The stakes are higher than just a drug price reform: The case could set an important precedent for the government’s authority to try to constrain health care prices.
Last week, the pharma giant Merck and the US Chamber of Commerce filed lawsuits arguing that the provisions authorizing Medicare negotiations on a select number of medications next year are unconstitutional. The lawsuits were filed a few months before an upcoming September 1 deadline for the federal government to finalize the list of the 10 drugs for negotiations starting in 2026.
Litigation had been expected since the pharmaceutical lobby failed to stop the Medicare negotiation policies from being included in the Inflation Reduction Act. And more lawsuits are expected, legal experts say. The cases should not be seen in isolation, but rather as an all-out offensive using different tactics to try to stop the negotiations.
Something similar happened after the Affordable Care Act was passed: A flurry of lawsuits tried in various ways to undermine or invalidate the law. And some did.
The Merck lawsuit focuses on the Constitution’s takings (or compensation) clause in the Fifth Amendment, which protects private owners from having property taken without “just compensation” by the government. It also raises First Amendment claims centered on the law’s requirements that drugmakers not disclose information they receive from the government as part of the negotiations. The Chamber of Commerce’s case rests on a constitutional right to due process, arguing that, because the Medicare negotiations are exempt from review by the courts under the IRA, drugmakers are being denied due process.
Taken together, the lawsuits give any judges predisposed to side with private industry over the federal government a few options for a legal foundation upon which to base a decision in pharma’s favor.
A number of legal experts say they are skeptical of these arguments. Merck’s takings clause case turns on defining a patent — an issuance from the government — as private property subject to the just compensation clause, said Robin Feldman, a law professor at UCSF, a difficult assertion. She also said the premise present in both cases — that the federal government as a health care purchaser through Medicare can’t say no to the companies it purchases drugs from and can’t dictate prices as the consumer — is “problematic.”
“It can’t be that the government as a buyer has to pay whatever a seller wants to charge,” she said. “That the government could be forced to spend itself into bankruptcy.”
Regarding the chamber’s due process claim, several legal experts have pointed out that Medicare’s various contracts with health care providers are already often generally exempted from judicial review. It is understood that this is necessary to allow the program to function; the government, as the administrator of the program, needs that authority without each of its decisions being subject to litigation.
But it is simply a reality of the modern American judicial system that interested parties can often find a sympathetic judge in the right jurisdiction, and more libertarian-minded legal experts are unsurprisingly more positive on the merits of these cases. Feldman said she is expecting one or both of them to eventually reach the Supreme Court.
“The stakes are just higher,” said Zachary Baron, a law professor at Georgetown. “The ability for savvy and sophisticated stakeholders to be creative in where they bring these suits with ideologically aligned judges, the ability to affect policy in this way is really just unmatched.”
And if the courts were ultimately to side with drugmakers, Feldman said, it could be “a shot heard around the world,” with potentially enormous implications for the future of health care policy.
The long-term stakes of the litigation over Medicare drug negotiations
It’s premature to presume anything about where this case is going or how it might be resolved. Legal experts expect Justices John Roberts and Brett Kavanaugh — arguably the most important swing votes on a Supreme Court dominated by conservatives — would press questions about whether this new Medicare authority is substantially different from others already present in the program.
There are examples of the Court issuing ideologically surprising decisions recently, however. Feldman also pointed out that it is possible the courts could give the government an opportunity to “cure” constitutional defects in the IRA without invalidating the provisions entirely.
But it is, without question, within the realm of possibility that the IRA’s Medicare drug negotiations policy will be overturned. And depending on the particulars of such a ruling, it could seriously hinder future attempts by Congress to regulate medical costs.
Such a ruling could certainly set an important precedent in the government’s ability to set or constrain prices for prescription drugs specifically. But experts say the precedent could extend to other health care policies, too. Baron gave the example of a public option like the one considered for the ACA and still favored by many Democrats. Existing state-level public options rely on capping payments to insurers (if they play a part in administering the public plan) and to doctors and hospitals.
Could such a policy stand at the national level? There would be a lot more uncertainty about that if the Supreme Court were to set this new precedent by siding with pharma in the IRA case.
“This would be quite chilling to policymakers on a host of policies thinking about how to manage costs,” Baron said.
Feldman said a decision that recognized patented products as private property under the Fifth Amendment’s takings clause would threaten “Congress’s ability to engage in any type of reform related to products protected by patents.” She said those protections were generally understood to apply to land and other personal material goods, not goods produced for sale by a business.
“That’s where the seismic shifts could come,” she said, though she added, “I find it hard to believe the court would do that.”
Andrew Twinamatsiko, a law professor at Georgetown, also said the consequences of the courts siding with the drug industry in this case would be uncertain but potentially expansive, extending not only across health care but to other sectors in which the federal government is a major purchaser.
“If you’re going to go down that route, using this constitutional doctrine to cut back on politically negotiated programs, a lot of things can fall,” he said. “Where do you draw the outer limits? You can go back and start cutting back on other programs.”