On August 29, the Biden Administration announced the 10 first drugs, whose prices would be negotiated this year and the next with pharmaceutical companies. Lower prices would take effect in 2026. Both the American taxpayer and patients are at stake. Medicare patients who took the 10 drugs in question in 2022 paid $3.4 billion out of pocket. Medicare spent $50.5 billion on these 10 drugs between June 1, 2020 and May 31, 2023. For President Biden, lowering the price of drugs is an important issue, particularly as we approach the election in 2024. Lower drug prices are popular with both parties. Nearly 1 in 3 Americans say that they don’t take their medication as prescribed because of the cost. More than 3 out 4 Americans believe that prescription drug costs are too high.
Yet, the stakes for pharmaceutical companies are also high. They include some of their most profitable blockbuster medications to treat blood clots(Eliquis and Xarelto), diabetes (Jardiance & Januvia), and drugs for cancer and cardiovascular disease. To defend its right to set drug pricing, the industry will literally go to war. Drug companies have already brought multiple legal challenges in different parts of the country, forming the battle lines. It is likely that the issue will reach a conservative Supreme Court, which has been hostile to federal agencies trying big things for American citizens.
The outcome of the current litigation depends on the Inflation Reduction Act of 2020, which for first time ever granted the Centers for Medicare & Medicaid Services power to negotiate drug price, starting with the 10 drugs. Over time, dozens more drugs will also be added. CMS spent months drafting regulations that required drug manufacturers to negotiate fair price. If price negotiations fail Congress has given the agency the authority to set a reasonable price that companies must adhere to in order to be eligible for Medicare.
CMS, in essence, requires companies to negotiate fair prices, or they will face exorbitant fines and taxes. Drug companies can refuse to sell their drugs to CMS, if CMS does not agree to negotiate. Companies will not want to leave a government program that pays for prescription drugs and often represents a large portion of their profit. CMS’s program will cost pharmaceutical manufacturers more than $25 billion by 2031. Instead of walking away from the issue, the industry launched a blizzard across the nation, and more are likely to follow. The industry’s arguments are based on constitutional grounds. However, they also raise administrative law claims claiming that CMS has exceeded its authority, or that Congress failed to properly delegate powers to the agency. The gist is that CMS took control of drug pricing without adequate authorization from Congress, and at the expense of manufacturers. It is claimed that consumers could be hurt by the lack of access to new drug innovations. The industry also argues that it is being forced to state something they don’t agree with, namely that the price negotiated for the drug is “fair”. Finally, the argument is that the government “takes” their property and does not compensate them. The industry’s arguments seem weak to us. Drug manufacturers have had to deal with federal agencies before over drug pricing. The Veterans Administration has been negotiating drug prices for decades with the industry. In the Inflation Reduction Act, Congress explicitly stated that CMS has the authority to negotiate the price Medicare will pay for drugs. The industry is still trying to fight it.
Drug companies’ litigation strategy is transparent. The industry’s litigation strategy is transparent. They bring a plethora of cases from across the country and use a series of conservative legal arguments. They seek split judicial rulings. And they force the Supreme Court into action in the hope — or even the expectation — that their conservative supermajority will lend a sympathetic ear. Let’s not forget that the U.S. pays twice as much per prescription as other countries. In 2019, the latest year that data is available, the U.S. averaged $1,126 in prescription medicine spending per person, while other comparable nations spent an average of $552. The average amount spent on prescribed medicines per capita in the U.S. increased by 69 percent between 2004 and 2019, while it grew by 41 percent in countries comparable. How do other countries manage to save so much money on drug costs compared to us? One of the main reasons is that other countries negotiate drug prices and set limits on what their government can spend on health care. CMS, as a large drug purchaser, has tremendous bargaining power. CMS anticipates lowering the cost of prescription drugs to tens and millions of beneficiaries just like it did with insulin earlier this summer. In essence, U.S. tax payers and mainly elderly patients subsidise lower prescription drug costs in other countries. The industry’s reliance on huge profits in America allows it to sell drugs at lower prices to other countries. It’s unfair and not sustainable. This has been going on for decades. Congress agreed with this when it passed the Inflation Reduction Act. The courts have no right to substitute their opinion for the elected branches of government when they are faced with weak constitutional arguments. Most Americans and almost all of the health policy experts that we know are passionate about lowering drug costs. The Supreme Court will be the most likely place for President Biden to win this battle.
Lawrence O.Gostin, Jr., is Professor of Law and Founding O’Neill Professor in Global Health Law, at Georgetown University Law Center, Washington, D.C.
James Hodge, Jr., is Professor of Law, Peter Kiewit Foundation, at Arizona State University, Phoenix, AZ. All rights reserved.
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