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Pharmaceutical CEOs testify before the Senate Finance Committee on “Drug Pricing in America: A Prescription for Change, Part Two” February 26, 2019 in Washington, DC. Left to right Richard Gonzalez, Chairman and CEO, AbbVie Inc.; Pascal Soriot, CEO and CEO, AstraZeneca; Giovanni Cavourio, Chairman and CEO, Bristol-Myers Squibb; Jennifer Taubert, Executive Vice President and Worldwide Chairman of Janssen Pharmaceuticals, Johnson & Johnson; Kenneth C. Frazier, Chairman and CEO, Merck & Co. Albert Bourla, CEO of Pfizer and Olivier Brandecourt, CEO of Sanofi.
Wayne McNamee | Getty Images News | Getty Images
Legal experts said the drug industry aims to kill Medicare’s historic new powers to lower drug prices for seniors with a Supreme Court ruling.
drug maker merckand the American Chamber of Commerce Bristol-Myers Squibb Separate lawsuits filed within days of each other this month asking federal courts in Washington, D.C., the Southern District of Ohio and New Jersey to declare price negotiations unconstitutional under the First and Fifth Amendments.
The lawsuits are the beginning of what will become a historic and likely decisive battle over the federal government’s efforts to control rising drug prices.
The Inflation Control Act, passed in a narrow partisan vote last year, gave Medicare the ability to negotiate rates for the first time in the program’s nearly 60-year history — a watershed moment that the Democratic Party has long fought for.
The drug industry views the program as a significant threat to revenue and profit growth. The companies claim that the program will hinder future drug development in the United States
Merck fears that the program will target its flagship cancer treatment Keytruda, which generated 35% of the company’s $59 billion in revenue for 2022, in the future. The company also fears the federal government will choose the type 2 diabetes drug Januvia, which brought in $2.8 billion in revenue in 2022, for negotiations this year.
drug maker ApveA member of the Chamber of Commerce chapter in Dayton, Ohio, is defending the blood cancer drug Imbruvica, which generated $4.6 billion in revenue last year, or about 8% of its total sales.
And Bristol Myers Squibb is trying to protect the Eliquis blood thinner, which brought in $11.8 billion in sales last year, or about 25% of the company’s $46 billion in 2022 revenue.
This is the first of the lawsuits challenging Medicare’s new powers, but it is unlikely to be the last.
The major drugmakers’ lobby group, Pharmaceutical Research and Manufacturers of America, told CNBC in a statement that it supports the allegations made in the lawsuits.
A PhRMA spokesperson said the organization is also considering filing a lawsuit against Medicare. PhRMA members include other major pharmaceutical companies such as Eli Lilly, Pfizer, and Johnson & Johnson.
Legal experts and financial analysts who cover the pharmaceutical industry said Merck, the Chamber and Bristol-Myers Squibb will try to take their cases to the Supreme Court.
“These lawsuits were written with the Supreme Court in mind,” said Robin Feldman, an expert in intellectual property and health law at the University of California, San Francisco School of Law.
The Supreme Court is “the big fish,” said Nicholas Bagley, a former Justice Department attorney. Any decision to overturn Medicare price negotiations should ultimately be made by the judges, said Bagley, former chief legal advisor to Michigan Gov. Gretchen Whitmer.
Chris Mickens, an analyst with Raymond James, noted that the four attorneys representing Merck previously worked as clerks for conservative Supreme Court justices: They’ve worked in the offices of Antonin Scalia, Brett Kavanaugh and Neil Gorsuch.
“This is noteworthy because it is clear to us that Merck is willing and willing to take this matter to the Supreme Court if necessary,” Myckins wrote in the analyst note.
We have a long legal battle ahead of us
Merck, Chamber and Bristol-Myers Squibb filed lawsuits before the two key deadlines.
Health and Human Services Secretary Xavier Becerra will publish a list by Sept. 1 10 drugs selected by Medicare for negotiation. The drug makers must then agree to participate and provide the manufacturing data to the Centers for Medicare and Medicaid Services the following month.
The actual price reductions that resulted from the negotiations, which expire in August 2024, will not take effect until January 2026.
Companies face severe financial fines that are several times more than the daily revenue of the property if they do not enter into negotiations and comply with the terms of the program. Drug makers can only avoid taxes if they withdraw their drugs from Medicare and Medicaid rebate programs.
Meekens said in his analysis note earlier this month that Merck may try to get federal courts to block the law before deadlines.
But Bagley noted that Merck and the Chamber did not apply for preliminary injunctions to prevent immediate enforcement of the law. Bristol-Myers Squibb didn’t either. He said the plaintiffs can’t reasonably claim immediate damage now because the rate cuts won’t take effect until 2026.
Bagley said parties could request an injunction linked to the October deadlines for when they sign agreements to participate in negotiations and begin providing data.
Odds are, Bagley said, the lawsuits will be a long slog. “Any fighting over appropriate remedy will come at the end of the case, once the legal grounds are finally resolved,” he said.
The judge assigned to the Merck case is Randolph Daniel Moss, who was appointed by former President Barack Obama. The Chamber’s case was assigned to Judge Thomas M. Rose, who was appointed by former President George W. Bush.
Bagley said both justices would likely be skeptical about the proposal for a preliminary injunction linked to the October deadlines, though perhaps Rose could be persuaded to allow it.
Expect more lawsuits this fall
More lawsuits are likely to come when HHS publishes the list of 10 drugs in September, said Kelly Bagby, AARP’s vice president of litigation.
AARP is the influential lobbying group representing people over the age of 50. The organization has vigorously defended Medicare’s new negotiating powers.
Bagby said drug companies whose drugs have been selected for negotiation will likely ask federal courts to issue preliminary injunctions to block enforcement when the list is published in September.
It can include a list of drugs subject to negotiation Pfizeriberancy, Johnson & Johnsonzarelto, Eli Lillyjardiance, AmgenEnbrel f AstraZenecaSymbicort, among others, according to a March analysis published in Journal of managed care and specialty pharmacy.
Pfizer CEO Albert Bourla told Reuters in May that he expected legal action against Medicare over the negotiations, though he said it was unclear whether drug companies would be able to stop enforcement of the law before the 2026 cuts take effect.
Eli Lilly, in a statement to CNBC, said the company shares the companies’ concerns and will evaluate negotiation implementation to “determine any potential actions.”
Bagby also believes the case is headed to the Supreme Court. She said the companies are likely to scatter their cases around the country — such as Merck, Chamber and Bristol-Myers Squibb — in an effort to get federal appeals courts to issue competing decisions.
Merck’s case will move in Washington, D.C., on appeal to the D.C. Circuit Court of Appeals, which has a majority of judges appointed by Democratic presidents.
Chamber’s case will be appealed to the US Sixth Circuit Court of Appeals, which has a majority of judges appointed by Republican presidents, notably Donald Trump.
The Bristol-Myers Squibb case will go to the US Third Circuit Court of Appeals, which also has a slight majority of Republican-appointed judges.
If circuit court decisions on this issue conflict with each other, Bagby said, the Supreme Court will step in to decide the case.
White House press secretary Karen Jean-Pierre said the Biden administration is confident it will succeed in the courts.
“There is nothing in the constitution that prevents Medicare from negotiating lower drug prices,” Jean-Pierre said in a statement.
Becerra added that we will “strongly defend the President’s Drug Price Negotiation Act, which is already working to lower health care costs for seniors and people with disabilities.”
“The law is on our side,” Becerra said in a statement.
Patents are at the heart of the battle
The success or failure of the pharmaceutical industry’s attempt to crack down on Medicare’s new powers will hinge largely on whether the courts consider patents to be a form of private property, said Feldman, an intellectual property and health law expert.
Merck claims in its complaint that the negotiations violate the Fifth Amendment, which prohibits the government from taking private property for public use without just compensation. Bristol-Myers Squibb made a similar argument in her complaint.
Merck and Bristol Myers Squibb argue that Medicare takes the proprietary property of drug companies – patented drug products – and forces them to accept a price well below market value for drugs. The Chamber made broader claims for legal action under Title V.
Feldman said the fifth was written with properties such as land in mind. She said patents are fundamentally different from land because they are issued by the federal government. She noted that drug prices are largely driven by the value derived from patents issued by the government.
The Supreme Court has not ruled that patents are proprietary under the fifth “seizure clause,” Feldman said, referring to the 2018 case Oil States Energy Services v. Greene’s Energy Group.
Justice Clarence Thomas said in the majority opinion in the case that the Supreme Court has long recognized patents as a matter of “public rights,” but the Court has not definitively explained the difference between these public rights derived from government and private rights.
“Application of the patent takeover clause would be like a shot heard around the world – it would be an extraordinary shift and companies would have a great effort to convince the courts that these words apply to patents,” Feldman said.
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