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The pharmaceutical industry, which suffered a crushing defeat last year when President Biden signed legislation allowing Medicare to negotiate the price of certain prescription drugs, is now waging an all-out assault on the measure — just as negotiations are about to begin.
the law, the Inflation Reduction Act, is an iconic legislative achievement for Mr. Biden, who boasted of taking on the pharmaceutical industry and winning. Medicare is the federal health insurance program for the elderly and disabled; provisions allowing it to negotiate prices should save the government estimated at $98.5 billion for a decade while reducing insurance premiums and out-of-pocket expenses for many older Americans.
Tuesday, Johnson & Johnson became the latest drugmaker to take the Biden administration to federal court in a bid to end the drug pricing program. Three other pharmaceutical companies — Merck, Bristol Myers Squibb And Astellas Pharmaceuticals – filed their own lawsuits, as did the leading industry trade group and the United States Chamber of Commerce.
The lawsuits make similar and overlapping claims that the drug pricing provisions are unconstitutional. They’re scattered in federal courts across the country — a tactic that experts say gives the industry a better chance of getting conflicting rulings that will speed up legal challenges to a pro-corporate Supreme Court.
The legal push comes just weeks before the Centers for Medicare & Medicaid Services releases a long-awaited list of the first 10 drugs to be negotiated. The list must be published by September 1; the manufacturers of the selected drugs have until October 1 to declare whether they will participate in the negotiations – or face heavy financial penalties if they do not. The lower prices will only come into effect in 2026.
Earlier this month, the chamber asked a federal judge in Ohio to issue an injunction that would block any negotiations while his case is heard.
Lawrence O. Gostin, a public health law expert at Georgetown University, said the Supreme Court may favor some of the industry’s arguments. In particular, he pointed to a claim by the drugmakers that by requiring them to bargain or pay a fine, the law violates the Fifth Amendment prohibition on taking private property for public purposes without just compensation.
“The Supreme Court is openly hostile to any perceived violation of the Fifth Amendment,” Gostin said, adding, “It wouldn’t surprise me at all to see these cases go all the way to the Supreme Court and have them overturned.”
For Mr. Biden and his fellow Democrats, that would be a painful blow. The president and Democrats have long campaigned to lower drug prices and plan to make it a central theme of their 2024 campaigns. White House press secretary Karine Jean-Pierre said in a statement that Biden was confident the administration would win in court.
“For decades, the pharmaceutical lobby has blocked efforts to let Medicare negotiate lower drug costs,” she said. “President Biden is proud to be the first president who beat them.”
Republicans have opposed the drug pricing provisions, which they see as a form of government price control. But the politics of the question is treacherous for them. Because so many Americans are concerned about high drug prices, it’s hard for Republicans to come to the defense of the industry, said Joel White, a Republican health policy strategist.
Instead, Republicans are focusing on another pharmaceutical industry priority: examining the practices of drug benefit managers, who negotiate prices with drug companies on behalf of health plans. Pharmaceutical companies claim that by accepting a middleman cut, pharmacy benefit managers are contributing to the high cost of prescription drugs.
For drugmakers, the stakes of legal challenges are higher than their dealings with Medicare, their biggest customer. The industry fears that Medicare is effectively setting the bar for all payers and that once lower government prices are made public, drug benefit managers negotiating on behalf of private policyholders will have more leverage to demand greater discounts.
Alongside its legal campaign, the pharmaceutical industry is waging a public relations offensive. The industry trade group that filed one of the lawsuits, Pharmaceutical Research and Manufacturers of America, known as PhRMA, is broadcast advertisements targeting drug benefit managers, and industry leaders publicly argue that drug pricing provisions will lead to fewer cures. The implication is clear: lower prices will mean lower revenues, which will discourage companies from developing certain drugs.
“You can’t take hundreds of billions of dollars out of the pharmaceutical industry without expecting it to have a real impact on the industry’s ability to develop new treatments and cures for patients,” said Robert Zirkelbach, executive vice president of PhRMA. He quoted analysis funded by drugmaker Gilead Sciences which claimed the industry would lose $455 billion over seven years if companies negotiated with Medicare.
A study released last month which was funded by the Biotechnology Innovation Organization, another trade group, warned that pricing provisions would discourage innovation, resulting in up to 139 fewer drug approvals over the next 10 years.
But that assessment is at odds with an analysis by the Congressional Budget Office, which estimated the law would result in only one fewer drug approvals over a decade and about 13 fewer drugs over the next 30 years.
In addition, many new drugs “do not offer clinically meaningful advantages over existing drugs,” said Ameet Sarpatwari, a drug policy expert at Harvard Medical School. The Cut Inflation Act, he said, could spur companies to focus more on breakthrough therapies, rather than so-called me-too drugs, because the law requires the government to consider the clinical benefits of drugs when determining the price Medicare will pay for them.
Until now, Medicare has been explicitly prohibited from negotiating prices directly with drug manufacturers – an industry requirement in exchange for supporting the creation of Part D, the Medicare prescription drug program, which was signed into law 20 years ago by President George W. Bush.
Under the Reducing Inflation Act, the government will select an initial set of 10 drugs for price negotiations based on how much the Part D program spends on them. Other drugs will be added in the years to come.
Experts are waiting the initial medication list should include commonly prescribed medications such as the blood thinners Eliquis and Xarelto; cancer drugs like Imbruvica and Xtandi; Symbicort, which treats asthma and chronic obstructive disorders; and Enbrel, for rheumatoid arthritis and other autoimmune diseases.
Medicare already pays reduced prices for these drugs. In 2021, the most recent year for which data is available, Medicare spent about $4,000 per patient on Eliquis and Xarelto, which at the time had list prices of $6,000 per year. The lower price reflects discounts obtained from drugmakers by pharmacy benefit managers negotiating on behalf of private companies that contract with the government to manage Part D plans.
But these negotiations are opaque and only modestly reduce Medicare spending. The rationale for the drug pricing provisions of the Inflation Reduction Act is that since Medicare covers so many people, it can use its leverage to obtain even greater discounts.
The United States spends more per person on drugs than comparable countries, in part because other countries proactively control drug prices. Surveys show that many Americans forgo taking their medications because they cannot afford them.
Experts say Medicare’s negotiation program will likely result in direct savings for seniors, initially in the form of reduced premiums made possible by reduced drug spending. And when lower prices take effect in 2028 for drugs administered in clinics and hospitals under another Medicare program, known as Part B, it could mean lower payouts for seniors covered by traditional health insurance who don’t have supplemental insurance.
Proponents of the Cut Inflation Act say that in addition to saving money for the government and patients, the negotiations will inject much-needed transparency into the complicated drug pricing process. If a company refuses to negotiate, it must either pay a high excise tax or withdraw all of its drugs from Medicare and Medicaid.
“This is not a ‘negotiation,'” Merck said in its complaint. “That amounts to extortion.”
Taken together, the lawsuits make a variety of constitutional arguments. In addition to the claim that the government violates the Fifth Amendment by unfairly taking property, they include claims that the law violates the First Amendment by requiring drug companies to agree in writing that they negotiate a “fair price.” Another argument is that the excise tax amounts to an excessive fine which is prohibited by the Eighth Amendment.
“If the government can impose price controls in this way on pharmaceutical companies,” said Jennifer Dickey, deputy chief counsel for the chamber’s legal branch, “it could do the same thing in any sector of our economy.”
Biden administration officials say the law is not mandatory. They argue that companies are free not to negotiate and can issue press releases or make other public statements that disagree with the negotiated price. And they note that the government regularly negotiates the purchase of other products and that the Department of Veterans Affairs already negotiates drug prices with pharmaceutical companies.
“To me, Medicare is doing what it needs to do,” said Mr. Gostin, a professor at Georgetown. “He’s a huge buyer of a product, and he’s basically using that clout, that bargaining power, to get the best price.”
The pharmaceutical industry is “throwing the kitchen sink at the government”, he added. “They’re looking for what sticks, and their arguments are aimed directly at the Supreme Court.”
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