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Drugmakers Are ‘Throwing the Kitchen Sink’ to Halt Medicare Price Negotiations

The pharmaceutical industry, which suffered a stinging defeat last year when President Biden signed a law authorizing Medicare to negotiate the price of some prescription medicines, is now waging a broad-based assault on the measure — just as the negotiations are about to begin.

The law, the Inflation Reduction Act, is a signature legislative achievement for Mr. Biden, who has boasted that he took on the drug industry and won. Medicare is the federal health insurance program for older and disabled people; the provisions allowing it to negotiate prices are expected to save the government an estimated $98.5 billion over a decade while lowering insurance premiums and out-of-pocket costs for many older Americans.

On Tuesday, Johnson & Johnson became the latest drugmaker to take the Biden administration to federal court in an attempt to put a halt to the drug pricing program. Three other drug companies — Merck, Bristol Myers Squibb and Astellas Pharma — have filed their own lawsuits, as have the industry’s main trade group and the U.S. Chamber of Commerce.

The suits make similar and overlapping claims that the drug pricing provisions are unconstitutional. They are scattered in federal courts around the country — a tactic that experts say gives the industry a better chance of obtaining conflicting rulings that will put the legal challenges on a fast track to a business-friendly Supreme Court.

The legal push comes just weeks before the Centers for Medicare & Medicaid Services is scheduled to publish a long-awaited list of the first 10 drugs that will be subject to negotiations. The list is due out by Sept. 1; the makers of the selected drugs have until Oct. 1 to declare whether they will participate in negotiations — or face steep financial penalties for not doing so. The lower prices will not take effect until 2026.

Earlier this month, the chamber asked a federal judge in Ohio to issue an injunction that would block any negotiations while its case is being heard.

Lawrence O. Gostin, an expert in public health law at Georgetown University, said the Supreme Court might be sympathetic to some of the industry’s arguments. In particular, he pointed to a claim by drugmakers that by requiring them to negotiate or pay a fine, the law violates the Fifth Amendment’s prohibition on the taking of private property for public use without just compensation.

“The Supreme Court is openly hostile to any perceived violation of the Fifth Amendment,” Mr. Gostin said, adding, “It would not surprise me at all to see these cases go up to the Supreme Court and have them strike it down.”

For Mr. Biden and his fellow Democrats, that would be a painful blow. The president and Democrats have long campaigned on reducing drug prices and plan to make it a central theme of their 2024 campaigns. The White House press secretary, Karine Jean-Pierre, said in a statement that Mr. Biden was confident the administration would win in court.

“For decades, the pharma 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 opposed the drug pricing provisions, which they regard as a form of government price control. But the politics of the issue are treacherous for them. Because so many Americans are concerned about high drug prices, it is hard for Republicans to come to the industry’s defense, said Joel White, a Republican strategist with expertise in health policy.

Instead, Republicans are focused on another priority of the drug industry: scrutinizing the practices of pharmacy benefit managers, which negotiate prices with drug companies on behalf of health plans. The drug companies say that by taking a middleman’s cut, the pharmacy benefit managers are contributing to the high cost of prescription medicines.

For drugmakers, the stakes of the legal challenges are bigger than just their business with Medicare, their biggest customer. The industry fears that Medicare will, in effect, set the bar for all payers, and that once the government’s lower prices are made public, pharmacy benefit managers negotiating on behalf of the privately insured will have more leverage to demand deeper discounts.

In conjunction with its legal campaign, the pharmaceutical industry is waging a public relations offensive. The industry trade group that filed one of the lawsuits, the Pharmaceutical Research and Manufacturers of America, known as PhRMA, is running advertisements targeting pharmacy benefit managers, and industry executives are publicly arguing that the drug pricing provisions will lead to fewer cures. The implication is clear: Lower prices will mean a dent in revenues, which will discourage companies from developing certain drugs.

“You can’t take hundreds of billions of dollars out of the pharmaceutical industry and not expect that it’s going to have a real impact on the industry’s ability to develop new treatments and cures for patients,” said Robert Zirkelbach, an executive vice president at PhRMA. He cited an analysis funded by the drugmaker Gilead Sciences that asserted the industry would lose $455 billion over seven years if companies negotiated with Medicare.

A study released last month that was funded by the Biotechnology Innovation Organization, another trade group, warned that the pricing provisions would discourage innovation, resulting in as many as 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 that the law would result in only one fewer drug approval over a decade and about 13 fewer drugs over the next 30 years.

In addition, many new drugs “are not offering clinically meaningful benefit over existing drugs,” said Ameet Sarpatwari, an expert in pharmaceutical policy at Harvard Medical School. The Inflation Reduction Act, he said, might incentivize companies to focus more heavily on breakthrough therapies, instead of so-called me-too drugs, because the law requires the government to consider the clinical benefit of medications in determining the price Medicare will pay for them.

Until now, Medicare has been explicitly barred from negotiating prices directly with drugmakers — a condition the industry demanded 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 Inflation Reduction 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. More drugs will be added in the coming years.

Experts expect the initial list of drugs to include oft-prescribed medicines like the blood thinners Eliquis and Xarelto; cancer drugs like Imbruvica and Xtandi; Symbicort, which treats asthma and chronic obstructive disorder; and Enbrel, for rheumatoid arthritis and other autoimmune disorders.

Medicare already pays discounted prices for those drugs. In 2021, the most recent year for which data is available, Medicare spent about $4,000 per patient for Eliquis and Xarelto, which at the time had sticker prices of $6,000 per year. The lower price reflects discounts extracted from drugmakers by pharmacy benefit managers negotiating on behalf of the private companies that contract with the government to manage Part D plans.

But those negotiations are opaque and only modestly reduce Medicare’s spending. The rationale behind the Inflation Reduction Act’s drug pricing provisions is that because Medicare covers so many people, it can use its leverage to extract even deeper discounts.

The United States spends more per person on drugs than comparable nations, in part because other countries proactively control drug pricing. Surveys show that many Americans forgo taking their medicines because they cannot afford them.

Experts say the Medicare negotiation program is likely to translate into 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, that could mean lower out-of-pocket costs for seniors covered by traditional Medicare who do not have supplemental insurance.

Backers of the Inflation Reduction Act say that in addition to saving money for the government and patients, the negotiations will inject much-needed transparency into the complicated process of determining drug prices. If a company declines to negotiate, it must either pay a hefty excise tax or withdraw all of its drugs from both Medicare and Medicaid.

“This is not a ‘negotiation,’” Merck said in its complaint. “It is tantamount to extortion.”

Taken together, the lawsuits make a variety of constitutional arguments. In addition to the assertion that the government is violating the Fifth Amendment by unjustly taking property, they include claims that the law violates the First Amendment by compelling drug companies to agree in writing that they are negotiating a “fair price.” Another argument is that the excise tax amounts to an excessive fine that is prohibited by the Eighth Amendment.

“If the government can impose price controls in this fashion on drug companies,” said Jennifer Dickey, a deputy chief counsel at the chamber’s legal arm, “it could do the same thing to any sector of our economy.”

Biden administration officials say there is nothing compulsory about the law. They argue that the companies are free not to negotiate and that they can issue news releases or make other public statements disagreeing with the negotiated price. And they note that the government routinely negotiates for 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 should do,” said Mr. Gostin, the Georgetown professor. “It’s a huge buyer of a product, and it’s basically using that clout, that bargaining power, to get the best price.”

The drug industry “is throwing the kitchen sink at the government,” he added. “They’re looking for what sticks, and their arguments are directly targeted at the Supreme Court.”

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