Unconstitutional Drug Pricing Demands Fifth Circuit Intervention

I clerked for Judge Jennifer Walker Elrod on the US Court of Appeals for the Fifth Circuit. I later served at the Department of Justice under three administrations, defending the government in regulatory and constitutional challenges and working on the confirmation teams for Justices Neil Gorsuch and Brett Kavanaugh.

From where I sit, National Infusion Center Association v. Kennedy is one of the most consequential legal challenges to come before the Fifth Circuit in years. And I worry that the current administration—despite its sharp instincts on agency overreach in other contexts—may not have fully reckoned with the constitutional dimensions of the Biden-era Inflation Reduction Act and the command-and-control pricing regime it imposes on American medicine.
    
The Trump administration inherited this litigation midstream. And while DOJ’s defense of the Biden-era policy likely stems from the executive branch’s reflexive instinct to defend existing statutes, it’s not the same as a reasoned judgment that the statute is constitutional. The Inflation Reduction Act’s drug pricing scheme is a textbook example of Congress delegating sweeping authority to an unaccountable agency. That isn’t a democratic value, and it doesn’t need to be defended as one.

No Real ‘Negotiation’

At issue in National Infusion Center Association  is the Inflation Reduction Act’s Medicare drug negotiation program. Despite being titled the “Drug Price Negotiation Program,” it isn’t a negotiation in any real sense. Negotiation requires parties who can walk away; the Inflation Reduction Act denies manufacturers that option.

A manufacturer that refuses to sign an agreement to negotiate, refuses to accept the government’s maximum fair price, or fails to submit demanded information faces an excise tax that begins at an effective rate of roughly 186% of the drug’s total US revenue and escalates to as high as 1900%.

Manufacturers that sign the agreement but refuse to honor the dictated price face civil monetary penalties equal to 10 times the difference between the price it charges and the price the government deems fair. The only escape is to withdraw every drug the manufacturer makes—not just the targeted one—from Medicare and Medicaid altogether, foreclosing nearly half the US prescription drug market. 

A law that enables the government to force manufacturers to accept its preferred pricing or face extinction doesn’t foster negotiation; it destroys it. Even Congress’ own scorekeepers understood this: Both the Joint Committee on Taxation and the Congressional Budget Office projected that the excise tax would raise no revenue, because no manufacturer could afford to pay it.

The Nondelegation Problem

The constitutional concerns here are layered and serious. The Inflation Reduction Act vests sweeping authority in the Department of Health and Human Services to designate which drugs are subject to price controls and dictate their maximum fair price.

The statute set a ceiling on prices, but not a floor, and imposed no meaningful guardrails to constrain the agency’s discretion. The law also shields agency price controls from public input by exempting them from notice-and-comment rulemaking and insulates the agency’s determinations from after-the-fact legal challenges by foreclosing judicial review.

This is the kind of unbounded, unaccountable delegation that should make any supporter of the separation of powers queasy. Though the nondelegation doctrine has been dormant for decades, the statute’s unlawful pricing scheme is so egregious that it may just be the vehicle for its revival.

Excessive Fines Clause

The Inflation Reduction Act’s coercive pricing mechanisms also violate the Eighth Amendment, which forbids the imposition of excessive fines. The law’s excise tax penalties are so severe that they can dwarf the value of the drugs themselves. It’s effectively a punishment for exercising the legal right not to participate in a government pricing program.

The plaintiffs in this case, led by the National Infusion Center Association, have raised these constitutional concerns. The Fifth Circuit has the institutional mandate to take them seriously.

Supreme Court’s Denials

On May 18, the US Supreme Court declined to grant certiorari in several parallel Inflation Reduction Act drug-pricing challenges. Some commentators have read those denials as a verdict on the constitutional merits or a signal that further litigation is futile. Both readings misunderstand how the Supreme Court works. 

A denial of certiorari isn’t necessarily a message about the merits of the case. The Supreme Court may decline review because a record is underdeveloped, because the issues aren’t yet ripe, or—most relevant here—because no circuit split has yet emerged to demand its intervention.

Two other circuit courts, the Second and Third Circuits, have rejected constitutional challenges to the Inflation Reduction Act. But with a more developed set of arguments on the non-delegation and excessive fines arguments, the Fifth Circuit is well-positioned to be the first court of appeals to disagree.

Our court system depends on the circuits analyzing constitutional issues carefully, developing reasoned disagreement where the law warrants it. A circuit that defers to other courts’ analyses simply because they came first abdicates its role under Article III. 

Fifth Circuit’s Moment

The Fifth Circuit has already signaled that it understands the stakes. In September 2024, it delivered an important appellate victory to the plaintiffs, holding that their constitutional claims could proceed directly in federal court without first navigating HHS’s administrative process.

That ruling did more than open the courthouse door. It positioned the Fifth Circuit to do what no other court of appeals has yet been willing to do: examine the constitutional constraints that the Inflation Reduction Act’s drug pricing program ignores.

The merits panel now has before it a fully developed record, serious constitutional claims, and a unique opportunity to apply originalist and textualist principles to rein in one of the most significant unlawful expansions of federal price-setting authority in modern US history. 

The Fifth Circuit has never shied away from difficult questions when the Constitution demanded answers. It shouldn’t start now.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Alice Shih LaCour is a partner at Hilgers with extensive courtroom experience from nearly a decade of litigating cases for the Department of Justice.

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