LegiStorm

Summary:

Congress created the Medicare Drug Price Negotiation Program (the program) through the budget reconciliation measure known as the Inflation Reduction Act (IRA; P.L. 117-169), which became law on August 16, 2022. The program allows Medicare to negotiate the prices of certain Medicare drugs directly with drug manufacturers for the first time. The Centers for Medicare and Medicaid Services (CMS), the division of the U.S. Department of Health and Human Services (HHS) tasked with administering the program, has issued guidance to explain the program’s initial implementation. On August 29, 2023, CMS selected the first 10 Medicare Part D drugs that will be subject to negotiated prices in 2026. The agency announced the negotiated prices for those drugs on August 14, 2024. In summer 2023, several drug manufacturers and trade associations representing manufacturers challenged the law before federal district courts across the country. The plaintiffs made various arguments in different lawsuits, including that the law is unconstitutional under the First, Fifth, and Eighth Amendments. They also alleged violations of the Nondelegation Doctrine, the Spending Clause, and the Administrative Procedure Act. The plaintiffs argued that the IRA violates the First Amendment because it forces manufacturers to sign a pricing agreement with the Secretary of HHS that characterizes the negotiated price of the drug as “fair,” which amounts to compelled speech. The plaintiffs also argued that the IRA violates the Fifth Amendment, both the Due Process Clause and the Takings Clause. First, the plaintiffs claimed that the IRA violates the Due Process Clause because it lacks the requisite procedural safeguards, including notice, the opportunity to be heard, and the potential for judicial review. Second, the plaintiffs alleged that the law constitutes a taking of both tangible property (drugs) and intangible property (patents). Some of the plaintiffs claimed that the program amounts to a per se taking, while others argue that it constitutes a regulatory taking. A few of the plaintiffs argued that the IRA violates the Eighth Amendment Excessive Fines Clause because the excise tax to which manufacturers of selected drugs that do not comply with the statute will be subjected is really a punishment disguised as a tax. The trade association plaintiffs argued that the IRA violates the Nondelegation Doctrine by ceding too much power to the Secretary of HHS to set drug prices. Finally, several plaintiffs argued that the IRA cannot be justified on the basis of Congress’s Spending Clause power because the IRA does not condition the receipt of federal funding on a manufacturer’s participation in the program. The plaintiffs further alleged that even if the IRA could be said to impose such a condition, the statute does not provide adequate notice of the condition, the condition is not related to the purpose of the spending and is unconstitutionally coercive, and compliance with the condition would violate manufacturers’ other rights under the Constitution. Of the 10 cases initially filed, one was voluntarily dismissed, two remain pending in federal district court, and seven have been decided at the federal district court level. Some of the decisions issued so far were appealed and, to date, one appeal has been decided; the appellate court remanded the case to the district court. Thus, there are three cases pending in federal district courts at the time of this writing. Of the district court cases decided so far, two did not reach the merits of the constitutional claims because they were dismissed for procedural reasons. As discussed in this report, the other decisions reached the merits of some of the plaintiffs’ constitutional challenges, but none of the plaintiffs’ constitutional claims have been successful to date. Six of the decisions issued were appealed to the U.S. Courts of Appeals for the Second, Third, Fifth, and Sixth Circuits, and the cases before the Second, Third, and Sixth Circuits remain pending. Thus far, attempts to enjoin CMS’s implementation of the program have been unsuccessful. Some stakeholders predict that the litigation could eventually reach the U.S. Supreme Court. This report explains and contextualizes the plaintiffs’ constitutional claims by analyzing relevant U.S. Supreme Court jurisprudence, and it discusses the federal district courts’ resolution of the claims thus far. The Administrative Procedure Act claims are outside the scope of this report but are discussed in other CRS products. The report concludes by identifying relevant considerations for the 118th Congress as the litigation proceeds.