A lawsuit filed by the Pharmaceutical Research and Manufacturers of America, which claims the Inflation Reduction Act’s Medicare Drug Price Negotiation Program is unconstitutional, now goes back to a lower Texas court.
The Fifth Circuit Court of Appeals on Friday took the side of PhRMA, ruling that the district court has jurisdiction over the case and sending the trade group’s legal complaint against the Inflation Reduction Act back to a lower Texas court.
PhRMA sued the Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) in June 2023, alleging that the government’s drug price negotiation program is unconstitutional. The complaint was filed, alongside the National Infusion Center Association (NICA) and the Global Colon Cancer Association as plaintiffs, in the U.S. District Court for the Western District of Texas.
At the time, PhRMA called the program a “sham,” claiming that it does not involve true negotiations. Instead, the Inflation Reduction Act (IRA) “compels pharmaceutical manufacturers to accept prices that are capped at whatever price HHS chooses.”
However, in February 2024, Senior U.S. District Judge David Alan Ezra dismissed the case, ruling that NICA had no standing because it does not manufacture or sell drugs that would be affected by the Medicare negotiations. Since NICA is the only plaintiff based in Texas, its disqualification ultimately put the complaint in an improver venue, according to Ezra.
“With NICA dismissed, no defendant would reside in this district, no plaintiffs reside in this district, and nothing suggests that a substantial part of the events or omissions giving rise to the claim occurred in this district,” the judge wrote, noting that the plaintiffs failed to say why venue would still be appropriate in case NICA was disqualified
However, in Friday’s appeals ruling, the Fifth Circuit contends that NICA has satisfied the criteria for standing, agreeing with the group that the IRA drug negotiation program not only poses its members financial harm, but also threatens procedural injury by preventing its members the “procedural right to protect its concrete interests.”
The case will now go back to the District Court for the Western District of Texas, which will weigh the merits of the arguments against the IRA.
Jefferies analyst Akash Tewari in a Monday note to investors wrote that “while the focus of appeal was on jurisdiction, there’s some interesting comments from the Court of Appeals on due process and excessive fines” as “the court believes that plaintiffs have demonstrated economic and procedural injury” from the IRA.
Last month, CMS revealed the final agreed-upon maximum fair prices for the first 10 drugs subject to the Medicare negotiation program. The final prices were reached after months of back-and-forth and will be implemented starting in 2026. At the time, senior government officials said these discounts are expected to save Medicare $6 billion just in their first year of implementation.
Analysts were skeptical, however, pointing out that many of these negotiated drugs were already effectively cheaper than their list prices due to rebates and other existing discounts.
Last week, Sen. Bill Cassidy (R-La.) introduced a bill seeking to exempt smaller biotech companies—defined according to their R&D expenditure—from the Medicare negotiations. The bill is unlikely to pass this year but might be a sign of what Republicans are planning to do on the legislative front with the IRA if they win the elections in November.
