by Michael Hiltzik
The pharmaceutical industry’s all-out attack on President Joe Biden’s drug negotiation initiative for Medicare — comprising nine federal lawsuits (so far) and lots of heavy breathing by lobbyists — has just run into a major snag.
That it came from a judge appointed by Donald Trump is just one of its man-bites-dog aspects. Another is the forceful skepticism expressed by a federal judge in normally business-friendly Delaware in his ruling, issued March 1 against the British drugmaker AstraZeneca.
“Understandably, drug manufacturers like AstraZeneca don’t like the IRA,” wrote Judge Colm F. Connolly, referring to the Inflation Reduction Act of 2022, which authorized Medicare to negotiate with drugmakers over how much it would pay for prescription drugs taken by its enrollees.
“Lower prices mean lower profits,” Connolly continued. “Drug manufacturers like AstraZeneca desire the old pricing regime, and they lobbied and perhaps expected Congress not to pass the IRA in 2022.”
However, he wrote, “No one is entitled to sell the Government drugs at prices the Government won’t agree to pay.”
Connolly tossed out the lawsuit by granting the government summary judgment. His opinion has no sway over the federal judges hearing the other lawsuits, which have been brought by Merck, Johnson & Johnson, Novo Nordisk, Bristol Myers Squibb, Novartis, Boehringer Ingelheim, the industry lobbying arm Phrma and the U.S. Chamber of Commerce.
But his opinion can serve as a window into how the other judges might view those lawsuits, most of which bear such strong resemblance to AstraZeneca’s that they might all have been spit out by ChatGPT if it were asked to draft any industry lawsuit over any distasteful government regulation.
That makes it a useful counterbalance to the claims in those cases, which I earlier described as “windows into the mind of Big Pharma, revealing the industry’s grotesque level of entitlement and its cynical exploitation of Americans’ desire for better health care in order to claim profits well beyond the level that any thinking person would consider moral.” Those cases have been filed in federal courts in Ohio, New Jersey and the District of Columbia.
A quick primer on the IRA’s Medicare negotiation initiative will be useful here. This implemented a long-cherished idea of drug price reformers, which is to give Medicare, the largest buyer of prescription drugs, the right to dicker over prices with drugmakers, overcoming a prohibition that Congress imposed on Medicare in 2003, when it created Medicare’s Part D prescription drug benefit.
The negotiation system also applies to drugs administered to patients under Medicare Part B, which typically are administered in hospitals or doctors’ offices, not at home. Medicaid can also benefit from price cuts reached through the Medicare process. Here’s how it works:
In September, the Department of Health and Human Services compiled a list of 10 branded, non-generic drugs from the roster of those on which Medicare spends the most; 30 more drugs will be added in 2025 and 2026, and more in subsequent years.
Drug companies have 30 days after the selection to agree to negotiations on a price, which must be at least a 25% to 60% discount from a drug’s average price on the non-federal market. For the first round, the negotiation process will last through July, with prices to take effect in 2026.
Companies that refuse to participate in this process or reject Medicare’s designation of a “fair” price will be subject to an excise tax starting at 65% of a drug’s U.S. sales and rising over time to 95%. To avoid the penalty, those companies have the option of pulling out of Medicare and Medicaid entirely.
AstraZeneca filed its lawsuit in August 2023. That was before HHS named the first 10 drugs to be negotiated, so the company couldn’t assume it would be directly affected by the program.
But it plainly had an inkling that its diabetes and kidney disease drug Farxiga would be on the list, because Medicare was spending about $3.3 billion a year to provide it to about 800,000 patients, so it mentioned the drug in its legal complaint, almost in passing. When Farxiga indeed was named as one of the first 10 drugs, the company amended its complaint with a three-word change to bring it up to date. About a week later, the company agreed to participate in the negotiation process, though it continued to pursue the lawsuit. I believe this is known in courthouse corridors as “hedging your bets.”
In its lawsuit, AstraZeneca asserts that the negotiation process hurts it in several ways — assertions aimed at showing that the company suffered concrete injuries from the IRA, the threshold established by the Constitution for allowing lawsuits to be heard in federal court — the principle known as “standing.”
The company claimed that the government’s plan to treat all permutations of a drug, including the conditions it can be used to treat, as a single drug will sap it of the incentive to search for new uses, “which in turn will narrow patient access to new treatments.” It also said that its “decision-making about other drugs” will be affected by the government’s negotiation rules, in part because how the negotiations will unfold is so uncertain “we don’t know the impact” of the process “on our ability to negotiate.”
Connolly found both claims to be too vague to give AstraZeneca standing. In any event, he wrote, AstraZeneca plainly does know how the negotiations will be conducted, since it described the process in detail in its 44-page legal complaint and 100 pages of briefs.
“The only uncertainty,” Connolly found, “comes from the filing of this lawsuit,” which calls for the IRA to be found unconstitutional. That won’t do, he observed. “A plaintiff,” he wrote, “cannot create standing to file a suit by filing the suit.”
The meat of AstraZeneca’s case is its contention that the negotiation provision of the IRA represents government coercion — that the threat of penalizing drugmakers with steep taxes for not coming to the negotiating table is tantamount to “a gun to the head.”
Connolly dismissed that out of hand by pointing to a flaw in the argument remarked on by other legal experts: For drug companies, selling their products to Medicare is an entirely voluntary choice. No law requires them to participate.
It’s true, as he noted, that by commanding 40% of the prescription drug market in the U.S. — nearly 50%, including Medicaid — Medicare is a customer crucial, perhaps even indispensable, to every drug company’s business model.
But here’s the trade-off: Reaching the 49 million Medicare and Medicaid members provides an incentive that the government is fully within its rights to use to extract better prices from the manufacturers. There’s “nothing sinister” about it, Connolly wrote.
He’s right, of course. It’s not as if drug companies themselves haven’t used their monopoly rights over blockbuster drugs to demand parasitic prices for those products. That’s the impulse, after all, that drove Gilead Sciences in 2015 to demand $100,000 per treatment for Harvoni, its miracle cure for hepatitis C, when it could have made a healthy profit at half that price, or less. AstraZeneca, by the way, reported an operating profit of $14.5 billion in its 2023 fiscal year on revenue of nearly $46 billion.
Aware that Connolly’s ruling might be used as a road map by the judges hearing the other drug industry lawsuits, HHS Secretary Xavier Becerra made sure that it was entered into the record in the other courts. One can expect the other plaintiffs to do what they can to distinguish their claims from AstraZeneca’s.
Merck, which was the first to sue to overturn the IRA, responded promptly. On Monday, it notified the judge in its case that it “does not assert a right to sell its drugs to Medicare at a market price; rather, it asserts a right not to be compelled to sell its drugs to Medicare at the government-dictated price.”
To non-lawyers, this may seem to cut the baloney mighty thin. To lawyers, perhaps it cuts to the essence of the case. One way or another, it’s a signal that the pharmaceutical industry isn’t about to give up. Why would it, with billions of dollars at stake, never mind access to life-giving drugs for millions of Americans.
