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ASU scholar weighs in on legal backlash over drug negotiations

A stack of cash next to a pile of pills.
November 28, 2023

In the United States, sometimes being sick can be expensive. The prices of prescription drugs in the U.S. — including drugs that are essential for people living with diseases like diabetes or cancer — can be more than 100 times higher than those in other countries.

In 2022, for the first time in history, the Centers for Medicare and Medicaid Services were authorized by the Inflation Reduction Act to negotiate the price Medicare pays for pharmaceuticals. In August, the Biden administration announced the first 10 drugs on the negotiating table, which include drugs for diabetes, heart failure, blood cancers and more. 

These drugs cost those enrolled in Medicare nearly $3.4 billion in out-of-pocket costs in 2022. 

But pharmaceutical companies are striking back, and have filed multiple lawsuits challenging the legalities of the Medicare price negotiations due to profit concerns.

Erica White, a scholar at ASU, explores the legalities around the Inflation Reduction Act

Erica White, a research scholar at Arizona State University, is the lead author of a forthcoming article in the Journal of Law, Medicine and Ethics that evaluates the legal claims and policy implications of historic drug price negotiations. ASU News spoke with White, who is with the Center for Public Health Law and Policy at the Sandra Day O'Connor College of Law, about the issue. 

Editor's note: Answers have been edited for length and clarity.

Question: Why did you decide to take on the arguments around this issue?

Answer: We expect to see savings in the millions or billions for the government, Medicare beneficiaries and the rest of us as a result of the IRA (Inflation Reduction Act). But ... PhRMAPharmaceutical Research and Manufacturers of America: a trade group representing companies in the pharmaceutical industry in the United States. won’t accept that they have to sit down at the table with the federal government and agree to lower profits for some of their big money-making drugs. There are serious legal arguments to address. We're taking this issue on to research the legal landscape and future constitutional implications that could come from this case.

We also want to make our ASU health law students aware of this case and the important legal issues and consequences here. They will begin their careers with the legal arguments for and against CMS’ (Centers for Medicare and Medicaid Services) abilities to negotiate drug prices at the forefront. 

Just as the Affordable Care Act — Obamacare — was the preeminent health law issue in the last decades, I predict that the CMS drug price negotiation program will be equally as revolutionary.

Q: The drugs being negotiated are those that many simply cannot live without. How do exorbitant prescription prices impact the lives of diabetics, for example, or people with cancer or heart disease? 

A: Prescription drug prices in the United States consistently rank as the highest in the world. Estimates vary, but some reports find we have drug prices more than 250% higher than “similar” countries. 

You’ve mentioned diabetes, which is a great example. Insulin is so expensive. Fifteen years ago, a vial of insulin might have been $175. Today, it’s more than $1,500. People can’t afford this. They ration their insulin, risking it all over costs. People sell their insulin to afford food and other necessities. If you walk around downtown, you may see signs saying “call this number for insulin,” basically offering to buy people’s unopened insulin. It’s terrible.

The problem is that even though Medicare is a gigantic health care program managed by the federal government, legally, they can’t harness their collective bargaining powers and secure lower prices for everyone. We don’t have any kind of price control, whereas other countries do.

Q: Negotiations are voluntary for pharmaceutical companies, but if the excise tax is 95%, how could that be considered voluntary? 

A: You’re right that the fines are steep. Noncompliance fees, or excise taxes ... start at 65% and go up to 95% of that particular drug’s sales. Penalties are 10 times the difference of what they're selling the drug for and the new, lower negotiated price, once we have that.

Sanctions are up to $1 million per drug, per day, for not complying. It sounds like a lot, but federal courts uphold business penalties like this all the time. The manufacturers argue that this is an Eighth Amendment excessive fine violation, but courts are skeptical of applying that argument toward business profits.

Q: Drug companies argue that CMS is “taking” their property and negotiating it at prices lower than the market rate. How can it be lower than the market share if the Departments of Veterans Affairs and Defense already have discounted prices? Isn’t that a precedent for lowering prices?

A: It’s true that VA and the DOD already negotiate with drug manufacturers to get lower prices. But these are different programs. Legally, we often see different rules for military spending. Not to mention that the military is a big spender. And the military is buying drugs in bulk. You can get a discount for buying anything in bulk. 

Medicare wouldn’t necessarily be doing that. The big issue for PhRMA is the impact of these lower prices on the entire prescription drug market. We don’t really have that issue with the military because it's exclusive to them. 

Q: Is it constitutional for executive agencies to have legislative powers to ask that pricing for drugs be negotiated? Isn’t Congress the only branch that has the authority to legislate issues like this?

A: That’s the big concern here. These rights-based arguments, applying constitutional individual rights to big pharmaceutical manufacturers aren’t going to win. We have so many similar arguments in federal courts across the country that courts just don’t buy. 

The lurking arguments here are separation of powers violations. Over the past few years, the Supreme Court has denied federal administrative agencies, like the Environmental Protection Agency, the ability to regulate without explicit permission from Congress. 

In this case, Congress has given us the Inflation Reduction Act, directing CMS to negotiate lower prices. What could be more explicit than that?

Q: Will the fate of the lower Medicare drug prices ultimately be determined by the U.S. Supreme Court? 

A: The CMS drug price negotiation cases are begging for Supreme Court review. We have multiple cases filed by multiple drug companies in federal district courts across the country. These will eventually end up — on appeal from either the company or the government, depending on who wins at the district level — in federal appellate courts.

... I think it will come down to how they view this case. Is this about the Inflation Reduction Act, which Congress has written in response to a public health crisis of wildly expensive prescription drugs? Or, is it an aggressive regulation straight from the Biden White House, directing CMS to over-regulate business?

Top photo courtesy Pexels/Karolina Grabowska  

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