Drugmakers want Supreme Court to block Medicare drug price negotiations

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Pharmaceutical CEOs testify before the Senate Finance Committee on “Drug Prices in America: A Prescription for Change, Part II” on February 26, 2019 in Washington, DC. From left to right are Richard A. Gonzalez, Chairman and CEO of AbbVie Inc; Pascal Soriot, CEO and Managing Director of AstraZeneca; Giovanni Caforio, Chairman and CEO of Bristol-Myers Squibb Co.; Jennifer Taubert, Executive Vice President and Global President of Janssen Pharmaceuticals, Johnson & Johnson; Kenneth C. Frazier, Chairman and CEO of Merck & Co. Inc.; Albert Bourla, CEO of Pfizer and Olivier Brandicourt, CEO of Sanofi.

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The pharmaceutical industry wants to reduce Medicare’s historic new powers drug prices for the elderly with the Supreme Court ruling, legal experts say.

Drug manufacturer MerckAmerican Chamber of Commerce and Bristol Myers Squibb filed separate lawsuits within days of each other this month asking federal courts in Washington, DC, the Southern District of Ohio and New Jersey to declare the price negotiations unconstitutional under the First and Fifth Amendments.

The lawsuits are the opening salvo in what will go down as a historic and potentially decisive battle over the federal government’s efforts to control rising drug prices.

Inflation Reduction Act, completed last year, in a narrowly partisan vote, gave Medicare the power to negotiate prices for the first time in the program’s nearly 60-year history — a watershed moment long fought for by the Democratic Party.

The pharmaceutical industry sees the program as a major threat to revenue and profit growth. The two companies argue that the program will stifle future drug development in the US

Merck fears that its blockbuster cancer treatment Keytruda, which accounted for 35% of the company’s $59 billion in 2022 revenue, will be targeted by the program in the future. The company also worries that the federal government will pick up its type 2 diabetes drug Januvia, which generated $2.8 billion in 2022 revenue, for negotiations this year.

Drug manufacturer Abbviea member of the Dayton, Ohio, chapter of the Chamber of Commerce, defends its blood cancer drug Imbruvica, which generated $4.6 billion in revenue last year, or about 8% of total sales.

and Bristol Myers Squibb is trying to protect its blood thinner Eliquis, which generated $11.8 billion in sales last year, or about 25% of the company’s total 2022 revenue of $46 billion.

These are the first lawsuits challenging Medicare’s new mandates, but they likely won’t be the last.

Pharmaceutical Research and Manufacturers of America, a lobbying group for major drug manufacturers, told CNBC in a statement that it supports the claims in the lawsuits.

A PhRMA spokesperson said the organization is also considering a lawsuit against Medicare. Other major drug manufacturers, such as Eli Lilly, Pfizer and Johnson & Johnson, are also PhRMA members.

Legal experts and financial analysts who cover the pharmaceutical industry said Merck, the chamber and Bristol Myers Squibb will try to push their claims all the way to the high court.

“These lawsuits were written with the Supreme Court in mind,” said Robin Feldman, an intellectual property and health law expert at the California School of Law in San Francisco.

Nicholas Bagley, a former trial lawyer, said the High Court was a “big fish”. Any decision to end Medicare price negotiations would ultimately have to be made by judges, said Bagley, former chief legal counsel to Michigan Gov. Gretchen Whitmer.

Chris Meekins, an analyst at Raymond James, noted that all four lawyers representing Merck previously clerked for conservative Supreme Court justices: Antonin Scalia, Brett Kavanaugh and Neil Gorsuch.

“This is noteworthy because it is clear to us that Merck is ready and willing to take this all the way to the Supreme Court if necessary,” Meekins wrote in an analyst note.

We have a long legal battle ahead of us

Merck, the chamber and Bristol Myers Squibb filed the lawsuits before two key deadlines.

The Minister of Health and Social Affairs, Xavier Becerra, will publish the list by September 1 10 medicines that Medicare has chosen to negotiate. Drug manufacturers must then agree to cooperate and provide production data to the Centers for Medicare and Medicaid Services next month.

The actual price cuts resulting from the negotiations, which conclude in August 2024, will not take effect until January 2026.

Companies face severe financial penalties, several times their daily drug revenue, if they do not enter into negotiations and comply with the terms of the program. Drug manufacturers can avoid taxes only by withdrawing their drugs from the Medicare and Medicaid rebate programs.

Meekins said in an analyst note earlier this month that Merck may try to get federal courts to block the law ahead of schedule.

But Bagley noted that Merck and the chamber have not filed motions for preliminary injunctions to immediately block implementation of the law. Neither did Bristol Myers Squibb. He said plaintiffs cannot now credibly seek immediate damages because the price cuts will not take effect until 2026.

Bagley said the parties could seek the ban, which is tied to October deadlines when they sign agreements to participate in negotiations and begin sending data.

The lawsuits are likely to be lengthy, Bagley said. “Any fight over an appropriate remedy will come at the end of the case when the legal merits are finally resolved,” he said.

The judge assigned to Merck’s case is Randolph Daniel Moss, appointed by former President Barack Obama. The Senate case is assigned to Judge Thomas M. Rose, who was appointed by former President George W. Bush.

Bagley said both judges would likely be skeptical of a motion for a preliminary injunction tied to the October deadlines, although Rose might be able to be persuaded to allow it.

Expect more lawsuits in the fall

In a statement to CNBC, Eli Lilly said the company shares the companies’ concerns and will evaluate the conduct of the negotiations to “determine possible actions.”

Bagby also believes the case is headed to the Supreme Court. She said the companies are likely to spread their cases across the country — as Merck, the Chamber and Bristol Myers Squibb have done — in an attempt to get federal appeals courts to issue competing decisions.

The Merck case in Washington, D.C. District Court would move on appeal to the D.C. Circuit Court of Appeals, which has a majority of judges appointed by Democratic presidents.

The Senate case would be appealed to the U.S. Court of Appeals for the Sixth Circuit, which has a majority of judges appointed by Republican presidents, particularly Donald Trump.

And Bristol Myers Squibb’s case would go to the U.S. Court of Appeals for the Third Circuit, which also has a slight majority of judges appointed by Republicans.

If the district courts’ rulings on the case conflict, the Supreme Court will decide the case, Bagby said.

White House spokeswoman Karine Jean-Pierre said the Biden administration is confident it will succeed in the courts.

“Nothing in the Constitution prevents Medicare from negotiating lower drug prices,” Jean-Pierre said in a statement.

And Beccera added that “we will vigorously defend the President’s Drug Price Negotiation Act, which already lowers the cost of health care for seniors and people with disabilities.”

“The law is on our side,” Becerra said in a statement.

Patents at the heart of the fight

Feldman, an expert in intellectual property and health law, said the success or failure of the pharmaceutical industry’s attempt to strip Medicare of new powers will largely depend on whether courts view patents as a form of private property.

In its complaint, Merck claims the negotiations violate the Fifth Amendment, which prohibits the government from taking private property for public use without just compensation. Bristol Myers Squibb made the same argument in its complaint.

Merck and Bristol Myers Squibb argue that Medicare takes private property from drug companies — patented drug products — and forces them to accept a price far below the drugs’ market value. The Chamber made broader due process claims under the Fifth.

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Feldman said the fifth was written with property such as land in mind. Patents are fundamentally different from land because they are issued by the federal government, she said. And as she noted, drug prices are largely driven by the value derived from government-issued patents.

The Supreme Court has not ruled that patents are private property under the “Takings Clause,” Feldman said, noting the 2018 case Oil States Energy Services v. Greene’s Energy Group.

In his majority opinion in the case, Justice Clarence Thomas said the high court had long recognized patents as a matter involving “public rights,” but the court had not definitively clarified the distinction between those public rights, which derive from the government, and private rights.

“Applying the receipt clause to patents would be like a gunshot ringing around the world — it would be an extraordinary move, and companies will have a tough time convincing the courts that those words apply to patents,” Feldman said.

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