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Pharma Lobby Readies Legal Firepower for Drug Pricing Measures

Aug. 9, 2022, 4:33 PM

Measures to lower prescription drug prices will inevitably end up being challenged by pharmaceutical companies, even as they have yet to become law, attorneys say.

The congressional package of climate, tax, and health-care measures passed by the Senate Sunday contains provisions to allow Medicare to negotiate drug prices and cap out-of-pocket drug costs for seniors. It also includes a requirement that drug companies pay Medicare a rebate for prices that increase faster than inflation. The House needs to pass the bill before it can become law, and the measures wouldn’t take effect until the Health and Human Services Department issues regulations on how they will be implemented.

The Pharmaceutical Research and Manufacturers of America has already come out in strong opposition to the negotiation provision. President and CEO Stephen Ubl said in a statement after the Senate passed the bill that it “gives the government unchecked authority to set the price of medicines,” and “will lead to fewer new cures and treatments for patients battling cancer, Alzheimer’s and other diseases.”

The provisions are a rare opportunity for lawmakers to make good on their promises to rein in soaring drug costs, an issue that has seized the attention of Congress for years. These proposals are estimated to save the federal government $88 billion over 10 years and will be used to pay for enhanced Affordable Care Act subsidies to keep more Americans insured.

“Nobody should be surprised that there will be litigation” resulting from this, said Rachel Sachs, a law professor at the Washington University in St. Louis who studies drug pricing. “The pharmaceutical industry has sued to challenge very mundane state laws about transparency. Absolutely, this is the type of thing they’re going to sue to challenge.”

They’ll have to wait until the HHS issues its rules and sue the agency as one cannot sue Congress over laws.

There are two types of claims that can be made against these types of laws: “did Congress have the power to regulate the industry in the way it has and to control prices” and whether the administration put out regulations “with the full authorization of Congress,” said Lawrence Gostin, faculty director of the O’Neill Institute for National and Global Health Law at Georgetown University.

Industry often finds support from the judiciary, which “sees the federal government’s regulatory role as extraordinarily narrow,” Gostin said. In this case, the administration rules “will have a wind at its back because the legislation is so recent, and so specifically targeted to the purposes for which the regulation is intended,” he said.

Vulnerabilities

Attorneys disagreed over whether Congress gave enough guidance on which drugs should be negotiated so as to prevent litigation over the issue.

“There are many ways in which this proposal is extremely specific, and some of them are designed to provide as much guidance to HHS as possible,” Sachs said, such as how and when the federal government should negotiate, which drugs are eligible, and factors to consider.

Congress “provided a lot of structure, both procedural and substantive, in how that negotiation process ought to be created,” Sachs said.

But Gostin said it could be that the guidance from Congress was too vague and that “the danger is that some courts might think the administration overreached, and that they didn’t have a clear enough signal for Congress.”

“Within both the negotiation and the inflation penalty sections, they put in specific clauses saying that some of these determinations are not subject to judicial review. So that really forecloses some litigation opportunities there,” said Sean Dickson, director of health policy at the research organization West Health Policy Center.

There could also be litigation around whether Congress can even control and set drug prices, Gostin said.

“One might argue that Congress doesn’t have the power to delegate such sweeping authority and discretion to a federal agency,” Gostin said. “That’s another potential weakness. But at least until now, the non-delegation doctrine hasn’t gotten a lot of traction.”

Decisions on Medications

Another potential vulnerability for these provisions could be which medications the HHS chooses to negotiate. “They would need to have a very strong, evidentiary record about why they chose particular drugs or particular areas to regulate, as opposed to others,” to prevent arguments about whether they were chosen arbitrarily, Gostin said.

The HHS could also face litigation over the formulas used to calculate the average manufacturer price and average sales price. The provisions in the law use these formulas to determine which drugs are eligible for negotiation and the maximum price the drug companies can charge Medicare.

“While there hasn’t been litigation yet, it might come to that down the road if those formulas are used for broader activities” than their current use, which is for determining reimbursement for Medicaid and Medicare Part B, Dickson said. “As that formula gets used more, you have the possibility that CMS will try to enforce specific calculations more where manufacturers may have had leeway to do certain things, and those kinds of determinations could become more subject to litigation.”

Pharmaceutical companies will also try to shape the rules that implement these measures before they come out. Sachs expects drug companies to attempt to influence the regulatory process by providing comments as part of the notice and comment process and meet with agency officials.

“The pharmaceutical industry will certainly have a lot of comments throughout the regulatory process,” Dickson said.

To contact the reporter on this story: Shira Stein in Washington at sstein@bloomberglaw.com

To contact the editor responsible for this story: Brent Bierman at bbierman@bloomberglaw.com