Pharma’s Procedural Attack Opens New Front in Drug Price War

The pharmaceutical industry is expanding its attack on President Joe Biden’s plan to lower Medicare drug prices into allegations that the administration violated procedural norms in implementing the program, a tactic legal experts say will run into roadblocks but that could ultimately prevail.

AstraZeneca PLC and Boehringer Ingelheim are suing the Biden administration, alleging it violated the Administrative Procedure Act by trying to institute the drug pricing program via agency guidance rather than the formal regulatory process.

The APA claims mark important additions to “the litigation saga” unfolding around drug pricing, said Margaux Hall, partner in Ropes & Gray LLP’s health-care practice.

“If an agency can implement a statute through guidance alone and functionally rewrite the terms of the statute through that guidance, that seems to present broader, potential enduring harms,” Hall said.

The companies are among the first to have drugs subject to Medicare price negotiations. They join five other pharmaceutical giants and several lobbying groups suing in federal courts to block the program, a litigation strategy that’s expected to grow.

Lawsuits like those brought by Merck & Co. Inc., Bristol-Myers Squibb Co. and Johnson & Johnson—all of which have products up for negotiation—allege the program violates the Constitution, forcing drugmakers to endorse the program, and taking their property for public use without offering just compensation.

AstraZeneca and BI, however, take their attacks into the procedural realm.

In its complaint filed in the US District Court for the District of Delaware, AstraZeneca says the Centers for Medicare & Medicaid Services guidance took steps to make certain drugs eligible for negotiations when they wouldn’t otherwise be. That, the company says, violates the APA.

Meanwhile, in a separate lawsuit, BI told the US District Court for the District of Connecticut that the drug program guidance was actually a legislative rule, meaning it required the agency to give stakeholders an opportunity to weigh in before enactment.

Procedural Problems

AstraZeneca and BI’s fellow drugmakers may amend their lawsuits to include APA challenges, said Laura Dolbow, a fellow at the University of Pennsylvania Law School who specializes in administrative law. Such claims, however, may run into a problem, she said.

The law enacting the drug pricing program, the Inflation Reduction Act, bars judicial review of the selection of drugs and the negotiated prices. And while courts are “conflicted” on review bars, Dolbow said US Court of Appeals for the D.C. Circuit precedents have interpreted them to include agency guidance or methodology on decision-making.

“It’s possible that a court could interpret the review bar to cover the guidance that the APA claims are now challenging,” she said.

APA suits require plaintiffs to show an agency action is final, Dolbow said, but often guidance isn’t considered to be final because “it’s just guidance about what the agency is going to consider.”

“The fact that this is a guidance document could create problems about whether or not it’s actually final action yet or whether they need to wait until there’s actually been like a selection and a price determined,” she said.

CMS Guidance

These issues, however, don’t mean the drugmakers won’t prevail.

Courts generally “are entering into a period where they’re skeptical of administrative action,” like those taken by the HHS, said Carmel Shachar, a Harvard Law professor.

That said, drugmakers “might meet with a more receptive audience by saying, ‘OK, well, the way that CMS has approached operationalizing this whole process doesn’t really stick closely enough to how Congress articulated what they wanted CMS to do’” under the IRA, she said.

The CMS issued its 198-page final guidance in June, laying out its process for negotiating lower prices with drug manufacturers. The document followed initial CMS guidance in March and the over 7,500 comments it solicited from patient groups, industry and others.

Andrew Twinamatsiko, associate director of the Health Policy & the Law Initiative at Georgetown University, noted that unlike with a rule, the CMS wasn’t required to go through the notice and comment process, in which a government agency proposes a rule and gives the public time to weigh in.

Nevertheless, Twinamatsiko said, the CMS took the thousands of comments into consideration and revised its guidance. This, along with other steps in the negotiation process involving drugmakers, amounted to more interfacing with CMS over the pricing process than notice and comment would, he said.

Still, BI claimed in its lawsuit that the CMS was “‘voluntarily’ permitting interested parties to comment on parts of an initial draft” of its guidance while refusing “to take public comment on other, centrally important parts of the guidance, including provisions that impose binding legal obligations on manufacturers and make them subject to substantial fines.”

“Those characteristics demonstrate that the guidance document is actually a legislative rule that must go through notice-and-comment rulemaking,” BI said. Specifically, the company took issue with a section of the guidance on how CMS would choose drugs for the first negotiations.

Some legal experts have noted the difficulty of taking down the guidance with an APA challenge, a process typically reserved for rulemaking.

But Hall said that shouldn’t complicate “the fundamental notion that an agency can’t act in excess of its statutory authority.”

Whether “acting through notice and comment rulemaking or through guidance, under either approach the agency needs to act within the confines of the statute it’s implementing,” Hall said.

Statutory Authority

AstraZeneca’s complaint in particular has gotten the attention of legal experts.

The company argues that the HHS overrides the statutory definition of Qualifying Single Source Drug, for which there’s no biosimilar or generic competition, and essentially lumps together separately approved products and justifies making them eligible for negotiations. Similarly, it alleges the CMS went beyond its authority and added a “bona fide marketing” test for drugs with generic competition that sweeps them into the process when they wouldn’t be otherwise.

“They’re claiming an excess of statutory authority,” and “they have a point,” said Robert Charrow, who served as HHS general counsel in the Trump administration.

Yet the fact that the program is being implemented through guidance cuts both ways, he noted, as the IRA calls for the CMS to implement the program via guidance documents, but that guidance doesn’t have the force and effect of law as would a legislative rule.

“The fact that it’s labeled as guidance strengthens the plaintiffs’ claims, but the fact that it’s to be implemented through guidance undermines their claims,” Charrow said. He did, however, add that the “wild card” is part of the Medicare law requiring changes that impact payments to be made through notice-and-comment rulemaking.

“There is nothing to indicate that the IRA meant to change that requirement,” Charrow said.

Roger Klein, faculty fellow at the Center for Law, Science and Innovation at Arizona State University’s Sandra Day O’Connor College of Law, noted that the APA arguments fit into the broader constitutional attacks being waged by drugmakers.

The APA claims do impact due process, Klein said, given the question of whether or not you can do this through guidance.

For drugmakers, the CMS “created obligations” with “punitive aspects,” Klein said. “Can an administrative agency really do this with a guidance document?”