Major drug price reforms head for Biden's signature as PhRMA weighs legal options
The fact that the new drug price negotiations for certain blockbuster Medicare drugs — due for a partisan thumbs up in the US House of Representatives on Friday and a signature from President Joe Biden soon after — don’t take effect until 2026 means there’ll be plenty of time for PhRMA and others in biopharma to weigh their legal options.
But what PhRMA or any biopharma company may potentially sue over will be the key, as legal experts point to the complicated negotiations side of the reconciliation bill, which beginning in 2026 would kick off these price concessions for 10 of the most expensive single-source drugs in Medicare’s Part D program, building up to about 60 drugs from both Part D and B by 2030, with prices generally capped by at least 40%.
Considerable attention by Congress has been paid to smaller companies and drugs and biologics with impending competition. For instance, in 2029 and 2030, there would be a maximum fair price floor of 66% of the average non-FAMP for small biotech companies’ biologics (compared to 75% for most drugs that have been on the market for less than 12 years), according to the law firm Hogan Lovells.
Still, if manufacturers fail or decline to comply with the negotiation process, they would be subject to a significant excise tax (building up from 65% of a drug’s sales to 95%), which is a stick so large that it could potentially run afoul of the excessive fines clause of the Eighth Amendment of the Constitution, legal experts said.
“Assuming the excise tax is not authorized by Congress’s taxing power alone and is actually a means of enforcing a regulatory drug pricing statutory scheme, it could be viewed as a punitive measure subject to the Excessive Fines Clause,” the Congressional Research Service wrote in a report back in 2019 on a similar drug pricing bill from House Speaker Nancy Pelosi. The CBO added:
On one hand, the excise tax could be viewed by a court as having the remedial function of clawing back a portion of a drug manufacturers’ gains derived from the sale of a drug during a non-compliance period, thus suggesting that it is not punitive. On the other, the size of the tax and the fact that it is imposed only when a manufacturer is in a state of non-compliance could lead a court to conclude that the tax is “at least in part …’punitive.'”
But Rachel Sachs, a law professor at Washington University in St. Louis, who thinks PhRMA may file suit over the negotiations provisions, noted there also may be a standing problem, particularly if a company can’t show with sufficient specificity that one of its drugs is likely to be the subject of negotiation.
That could take several years. If the bill passes, the HHS Secretary would have to publish the list of drugs selected for negotiation by Feb. 1 of the year which is two years before the year at issue (e.g., list released on Feb. 1, 2026, for price negotiations beginning in 2028), except the list would be published by Sept. 1, 2023, for negotiations starting in the first year, 2026.
Others like Baird analyst Brian Skorney told Endpoints that he thinks PhRMA et. al. “will try and find something” to sue over, and he’s not sure that they’ll be successful.
“Obviously if a semi-reasonable argument could find its way to the Supreme Court, I could see the provision getting struck down. But I just don’t see it,” he said.
Sean Dickson, director of health policy at West health, told Endpoints that “given that the Act’s approach is similar to the Medicaid program where manufacturers are required to sell their drug at $0.00 and will soon actually be taking a loss on certain drugs, it seems unlikely that the revenue reductions here would constitute a colorable claim while the long history of Medicaid rebates does not.”
A spokesperson from industry group BIO told Endpoints:
This is a large, complex piece of legislation that will have complicated implementation, unintended consequences, and powerful coercive penalties if it passes as expected. While it is premature to comment on any specific potential future litigation on a piece of legislation that hasn’t been signed into law, BIO will continue to explore all avenues to promote and defend innovative science in any venue.
“While it’s premature to speculate before the bill has passed, we will explore every opportunity – including legislative, regulatory and legal – to make sure patients have access to the medicines they need and our industry can continue to develop lifesaving cures and treatments,” a PhRMA spokesperson added to Endpoints.
PhRMA also recently took issue with the way in which Democrats added another option for companies that don’t want to comply with the negotiation process, which was first noted in a version of the bill circulated around July 28.
A PhRMA spokesperson told Endpoints and other media outlets that, “Buried in the bill passed by the Senate this past weekend, the legislation now includes a second non-negotiable ultimatum for manufacturers: pay the 95% tax or withdraw ALL their medicines from the Medicare and Medicaid programs.”
But some experts noted that while new, this either/or language may actually help smaller biopharma companies, especially for those with only one drug that doesn’t want to negotiate, or pay the tax, and can now just walk away from the table entirely.
Others who worked on crafting the bill also think that given PhRMA’s track record in fighting state-based drug pricing legislation, this time will be no different.
“Pharma never gives up. They will fight to the last second and spend to their last dollar to protect their racket. And still, we are going to beat them,” Alex Lawson, executive director of the nonprofit Social Security Works, told Endpoints.