Constitutional Challenges to Inflation Reduction Act Head to Courts of Appeals

No legislation has garnered more attention in the life sciences industry in recent past than the so-called Drug Price Negotiation Program of the Inflation Reduction Act (the "Program"). Enacted in 2022 during the Biden administration, the Program, under the guise of "negotiations" between the Department of Health and Human Services ("HHS") and manufacturers of select medications, mandates discounted prices at which the manufacturers must sell certain of their most innovative and successful medicines to Medicare under threat of significant penalties. In 2023, HHS selected the first 10 medicines (or 15, depending on how one counts each product) subject to the Program, and at the beginning of this year, HHS selected an additional 15 medicines (or 19, depending again on how one counts each product). The selections were based on total Medicare expenditures as well as the number of years since the medicine's first approval.[1] Each year, HHS will select additional medicines to be included in the Program.

In advance of and on the heels of the 2023 selections, every manufacturer of a selected drug—either on its own or through an association—challenged the Program under the United States Constitution or the Administrative Procedure Act ("APA").[2] In connection with the 2025 selections, an additional manufacturer filed suit.[3] The 10 lawsuits, filed in six different jurisdictions across the country, are currently in different phases. In six of the lawsuits (four before the same court—the District of New Jersey), the district court rejected the pharmaceutical manufacturers' claims on the merits. Each of those cases is on appeal—five before the Third Circuit and a sixth before the Second Circuit. The remaining four cases (pending in the District of Columbia, Ohio, and Texas) have not reached a merits determination.

In October 2024, the Third Circuit heard oral argument on appeals filed by Bristol Myers Squibb ("BMS"), Janssen Pharmaceuticals, and AstraZeneca Pharmaceuticals. BMS and Janssen challenge the constitutionality of the Program under the Fifth and First Amendments.[4] Specifically, the manufacturers allege that the Program results in a taking of their property (namely the selected medicines) without just compensation in violation of their Fifth Amendment rights because manufacturers are compelled to provide access to their medicines at prices below fair market value. In addition, the manufacturers allege that the Program compels them to speak—i.e., by requiring manufacturers to express their "agreement" to a "maximum fair price" for their drugs—in violation of their First Amendment rights. According to the manufacturers, the government accomplishes its objectives in the Program by threat of crippling fines and penalties or by requiring manufacturers who do not "agree" to exit Medicare and Medicaid for all of their products (not just the selected medicine), which the manufacturers claim is an unconstitutional condition. The government, on the other hand, claims that participation in the Medicare program is voluntary and that manufacturers can choose not to sell their medicines to the program. Therefore, the government argues that there is no constitutional violation. To date, the district courts to have considered these challenges have disagreed that the Program violates the Constitution, agreeing with the government that Medicare participation is voluntary, but no appellate court has reached the issue.

The Third Circuit is expected to render a decision in the first quarter of 2025 and should be the first appellate court to address the constitutionality of the Program. Other appellate courts, likely starting with the Second Circuit, will follow afterwards. In each case, whatever the outcome, the losing party will likely appeal the case to the Supreme Court, though it is unclear how the new administration will approach the Program. And these cases challenging the Program will have a fundamental impact on the government's ability to impose prices under the Medicare program for the selected medicines as well as those medicines selected in the Program's future rounds. The cases could also impact how the government may permissibly attach conditions to participation in government spending programs.