Team Biden May Not Have Last Laugh on Drug Price Controls

The U.S. Chamber of Commerce, Boehringer, Merck, Bristol Myers Squibb, Johnson & Johnson, and a host of other drug companies are suing to strike down the Inflation Reduction Act's Medicare drug pricing provisions.

But senior Biden administration officials evidently believe those lawsuits stand little chance of success — because they're charging ahead with the law's implementation.

According to recent reports, the Centers for Medicare and Medicaid Services (CMS) has already filled the majority of the 96 positions in its new drug pricing group. And CMS announced the first 10 drugs subject to Medicare price controls on Tuesday — including the blood-thinners Eliquis and Xarelto. Eliquis is a Bristol Myers Squibb drug and Xarelto is a Bayer drug.

Those controls take effect in 2026, followed by 15 more drugs in 2027, another 15 in 2028, and 20 more annually after that.

Officials' confidence may well be misplaced. The lawsuits allege serious violations of biotech companies' constitutional rights.

The IRA empowers the federal government to "negotiate" the price that Medicare pays for certain prescription drugs. At least, that's how the law's proponents characterize these talks.

In reality, federal officials will simply dictate the prices of a wide range of medicines under Medicare. If pharmaceutical firms refuse the government's "offer," they'll face an excise tax equal to 95% of their total sales on that drug — and not just sales to government insurance programs, but private plans too.

It's no exaggeration to call this arrangement "extortion," as at least one of the lawsuits does.

Given this unprecedentedly heavy-handed treatment, it's easy to see why so many drug firms — as well as several trade organizations — are taking the government to court.

A recent legal challenge from the U.S. Chamber of Commerce, for instance, attacks the law on several constitutional grounds. According to that filing, the IRA "centralizes vast, unreviewable power in the hands of an administrative agency," in clear violation of the separation of powers.

The chamber also argues that the law's excise tax is precisely the kind of "excessive fine," which the Eighth Amendment specifically bans.

By requiring that drug companies say that they "agreed" to the government dictated price, the law also abridges the First Amendment protection on free speech, the Chamber claims.

For these and several other reasons, the Chamber has sought an injunction to halt the law's implementation.

Unsurprisingly, the Biden administration wants the case thrown out.

Earlier this month, the Department of Health and Human Services filed an official request that the Chamber's case be dismissed.

The Department of Justice, meanwhile, continues to insist that the law's price controls are, in fact, negotiations.

As the DOJ put it in their recent filing, "like other market systems, the Negotiation Program . . . gives a manufacturer a choice: it can sell its wares at prices a buyer is willing to pay, or it can take its business elsewhere."

This simply isn't true.

In any other market, when a buyer and a seller can't agree on a price, the buyer doesn't then confiscate 95% of the seller's revenues as punishment.

There's more at stake in this case than a high-minded dispute over constitutional rights.

Once pharmaceutical firms lose the freedom to price their inventions as they wish, investing billions of dollars to develop the next life-saving treatment will be a lot harder to justify.

Medical breakthroughs will become far rarer.

This dynamic is already having an effect on the industry.

Numerous drug companies have canceled or scaled back work on various therapies in response to the IRA's drug pricing policies.

And those cutbacks will continue — unless the courts intervene to halt the administration's implementation of the law.

Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All," (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes' Reports — More Here.