Trump’s Drug Pricing Proposals Draw Legal Questions From Pharma

The Trump administration’s plan to lower US drug costs through two new pricing models is prompting legal concerns from the pharmaceutical industry over the government’s authority to implement programs that favor foreign drug prices.

The Centers for Medicare & Medicaid Services’ Innovation Center last month introduced two pricing demos that would test whether alternative methods for calculating Medicare rebates, based on international pricing metrics, reduces drug costs.

The models, which are mandatory for manufacturers to participate in, are a key component of President Donald Trump’s most-favored-nation plan that attempts to align US drug prices with cheaper ones abroad.

The demonstrations have a high chance of running up against legal challenges as the pharmaceutical industry remains uncertain of the government’s authority to implement them, attorneys say. While some of the world’s largest manufacturers have formed deals with Trump to slash drug costs, the industry has long pushed back on policies that mandate foreign price controls.

“It’s reasonable to wonder if CMS has the authority to unilaterally dictate this change without congressional support,” said John Shakow, co-chair of King & Spalding LLP’s life sciences and health-care industry group.

“I am certain, however, that creative counsel will rigorously challenge the administration’s unorthodox and norm-bending use of CMMI authority,” said Shakow, who represents pharmaceutical and biotech companies.

Trump faced legal opposition in 2020 during his first attempt to propose a most-favored-nation pricing model. The drug and health-care industry sued the administration, alleging the government failed to go through the notice-and-comment procedure before issuing rulemaking to implement it. Federal courts enjoined the rule and it was rescinded by the Biden administration.

The CMS this time around introduced the models as proposed rulemaking, with public comments due Feb. 23.

Trump on Jan. 15 also unveiled his health-care roadmap, featuring a list of priorities, including the most-favored-nation plan that the president wants Congress to codify in law, which would bring additional legal protections.

Examining Authority

In its proposals, the CMS said it will exercise its authority under Section 1115A of the Social Security Act, which allows it to test new payment and service delivery models aimed at reducing costs and improving quality of care.

Under that authority, the CMS said it can waive requirements related to Medicare drug price inflation rebates under the Inflation Reduction Act and other regulations. The two models would require that manufacturers pay an incremental rebate, in addition to the current inflation rebate they must pay, if the Medicare price for a drug exceeds an international benchmark price.

That proposition could be a tipping point for lawsuits as some drugmakers may argue the “programs exceed the demonstration and waiver authority granted to the Center for Medicare & Medicaid Innovation,” said Theresa Carnegie, a member at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC.

The proposals appear to step out of line with the types of payment and delivery models the agency can implement, other attorneys say.

“When you look at the statute, it talks about demonstrations of alternative methods of service delivery—a very long list of things that they can do demonstrations on,” said Joseph Metro, counsel in the life sciences health industry group at Reed Smith LLP.

“In many ways, this is a little different than the typical demonstrations—it’s strictly a financial model,” Metro said. “It’s not really a payment model.”

Other challenges may question the agency’s power to implement the programs and whether it’s in their jurisdiction.

One argument could rest under the the major questions doctrine—a principle employed by the US Supreme Court that prevents federal agencies from making major policy decisions with broad economic and political significance without clear congressional authorization.

“Congress has to take first cut,” Metro said. “There’s a big question of whether this is a revenue raising thing.”

Drugmakers might also claim the agency unlawfully amended existing law to implement the models, pricing experts say.

“One could argue it violates the concept of nondelegation,” said Heath Ingram, a partner at Goodwin Procter LLP’s life sciences group."Congress doesn’t delegate to CMS unlimited authority to rewrite law.”

“They’re creating a new requirement to pay incremental rebates on top of the Part D or Part B inflation rebates,” Ingram added. “It’s almost like CMMI is rewriting those inflation rebate statutes to make it fit this new MFN concept.”

Companies could bring these arguments before the models are implemented, Ingram said, but it’s likely that drugmakers would first raise Administrative Procedure Act violation claims that allege the programs exceed the agency’s authority.

“Some of it will have to wait until after the rules are in place and actually negatively impact the manufacturer’s bottom line and is no longer hypothetical,” he said.

Program Shield

Any court challenge brought against the models, however, would run into the issue that federal statute bars judicial review of certain elements of the CMMI’s actions.

It’s “a heavy curtain behind which CMS is shielded from scrutiny and oversight,” Shakow said.

Still, drugmakers have challenged drug pricing controls in court despite a judicial review bar for some policies, such as the Biden-era Medicare Drug Price Negotiation Program.

In one of the cases that challenged the Trump administration’s demo in 2020, a federal judge ruled that Section 1115A of the Social Security Act didn’t prevent challenges based on violations of the rulemaking process.

“It’s always difficult to sue the government where there’s a conclusion of judicial review,” Metro said. “But I imagine that this is going to add to the list of drug price litigation matters that are out there.”