PhRMA to Revive Medicare Drug Price Lawsuit Before Fifth Circuit

A health provider trade association, a patient advocacy group, and a top drug lobby will attempt to restore their case against a government drug price-setting program before a federal appeals court Wednesday.

Attorneys for the National Infusion Center Association, the Global Colon Cancer Association, and the Pharmaceutical Research and Manufacturers of America will take to the US Court of Appeals for the Fifth Circuit to argue their case against the Biden administration’s Medicare Drug Price Negotiation Program.

At issue is whether the groups’ claims arise under a certain Medicare statute and if they have Article 3 standing to challenge the program’s constitutionality. A lower court in February dismissed the case for lack of jurisdiction and improper venue but didn’t address whether the groups have or will face harm in order to bring the challenge.

The expedited case is the first to reach an appeals court among the slew of lawsuits against the US Department of Health and Human Services, but the Fifth Circuit will first need to answer questions of jurisdiction—holding off for now a decision on the merits.

“The issue of administrative policymaking and delegation looms over this one,” said Simon Haeder, an associate professor in the Department of Health Policy & Management at the Texas A&M University School of Public Health. “It hasn’t gotten enough attention, but it’s obviously a very critical issue.”

The legal battle may also be “the most important of all the cases simply because it’s in the Fifth Circuit,” said William Sarraille, a former pharmaceutical defense lawyer, in regard to how the appeals court has recently tackled cases on government administrative powers.

“It would be pretty embarrassing for PhRMA not to get to the merits in a case this important for the industry, so the stakes are quite high,” said Sarraille, who’s now a regulatory consultant at Sarraille & Associates.

The Medicare Act

The groups challenged the negotiation scheme in June 2023 under various constitutional claims, but pressed in their argument that the program harms NICA’s members because of the decrease in Medicare Part B and Part D reimbursements.

The US District Court for the Western District of Texas tossed the lawsuit because the plaintiffs’ claims “arise under” the Medicare Act, specifically subchapter XVIII, Ch. 7, Title 42.

Congress divested federal courts’ jurisdiction over any claim arising under this act, unless the claim has been presented to an agency and administrative remedies have been exhausted.

The district court affirmed the Department of Justice’s exhaustion argument, which requires plaintiffs’ reimbursement claims for benefits under Medicare to be channeled through the agency before bringing a challenge to federal court.

NICA in its opening brief wrote its claims aren’t “inextricably intertwined,” and that the “relevant provisions” of the Inflation Reduction Act are codified in subchapter XI of chapter 7, not subchapter XVIII.

Channeling would be inappropriate because it’s required only “if both the standing and the substantive basis for the presentation of the claim is the Medicare Act” or if the claim is “inextricably intertwined with a claim for Medicare benefits,” according to the brief.

This lawsuit doesn’t fall into any of those categories, the groups wrote.

But the “channeling issue arises only because the infusion association represents providers that have administrative rights,” Sarraille said. “That is not true of PhRMA’s manufacturer clients that clearly cannot seek administrative review.”

“Ironically, a step taken to strengthen its litigation position by filing in the Fifth Circuit opened the door to the government responding with this channelling attack and putting PhRMA in a tough spot,” he added.

Nonetheless, plaintiffs will argue that its standing is grounded in constitutional harm from the operation of the Inflation Reduction Act, which is codified outside of the Medicare statute.

‘Harm’ to Members

The Fifth Circuit can expect “lots of discussion about the harm NICA members have suffered and the procedures available to challenge reimbursement payments in the future,” said Laura Dolbow, a fellow at the University of Pennsylvania Law School who specializes in administrative law.

Plaintiffs ask the court to address whether they have Article 3 standing—a vital requirement for any lawsuit to proceed to show that a party has suffered a concrete, non-speculative injury.

Plaintiffs say the program will inflict economic injuries by reducing NICA’s reimbursement payments and undermining its members’ “ability to raise debt and equity financing on favorable terms.” They identified identified BioTek as one of its members who administers Stelara—one of the 10 drugs selected in the first negotiation round used to treat plaque psoriasis and psoriatic arthritis.

NICA said its members are reimbursed under Part B and Part D, and when negotiated prices begin in 2026 for Stelara, margins earned on the drug will decrease and cause them to “incur losses on services to Medicare patients.”

But the government argues plaintiffs’ “theory” rests on speculation that falls short of establishing Article 3 standing and “provides no information regarding the cost at which BioTek acquires Stelara or any other drug.”

Despite the case being the first to reach a circuit court among the several lawsuits fighting the program, the issues on appeal are “unique” to NICA and will have “relatively little impact on the other cases,” said Rachel Alexander, a health law attorney for Mintz.

“The Fifth Circuit’s decision on the pending appeal is significant as it will determine whether this case, the only one challenging the Medicare Drug Negotiation Program currently filed in the Fifth Circuit, survives procedural challenge,” Alexander said.

“If the court determines that NICA has standing and that the claims do not need to be administratively exhausted, then the case will be sent back to the district court for further proceedings on the merits of the underlying claims challenging the negotiation program,” Alexander added.