Recent guidance from the Centers for Medicare and Medicaid Services reveals how seriously the Biden administration views constitutional attacks on what it claims is its signature health-care accomplishment, the Inflation Reduction Act’s Drug Price Negotiation Program.
Drugmakers, trade organizations, and the US Chamber of Commerce maintain the DPNP is unconstitutional. In six lawsuits filed in multiple jurisdictions, different plaintiffs argue the program violates their Fifth and First Amendment rights by “taking” their property without just compensation and compelling speech with which they disagree. CMS’s guidance fails in its attempt to address these constitutional defects.
The DPNP forces drug makers to accept massive discounts on medicines they produce. Adding insult to injury, the program requires drugmakers to feign participation in pretend negotiations and to publicly “agree” to unfair drug prices they strongly oppose.
Companies refusing to accept the DPNP’s CMS-dictated prices face draconian, unaffordable penalties and are prohibited from selling any other drugs to Medicare and Medicaid. Penalties start at 186% and rise to as much as 1,900% of daily drug revenues. In two lawsuits, the plaintiffs argue these penalties, which could reach hundreds of millions of dollars per day, violate the Eighth Amendment’s protection against the imposition of excessive fines.
In acknowledgement of the DPNP’s coercion, CMS’s non-binding guidance purports to allow dissenting drug makers to speedily cancel their Medicare and Medicaid agreements for the other medicines they sell, thereby avoiding DPNP’s non-participation penalties. However, the timing of permissible withdrawal from these programs is established by law, and CMS likely can’t ignore statutory timetables.
Nevertheless, using a legal sleight of hand, CMS says it will treat a dissenting manufacturer’s decision to end its previous relationships with Medicare and Medicaid as if it were the Secretary of Health and Human Services who is terminating the manufacturer. This would shorten or eliminate the otherwise lengthy period during which dissenting companies would accrue penalties. But even under the agency’s proposed scheme, companies would be at risk of accruing financial liability until termination has been completed.
Irrespective, because Medicare and Medicaid account for over 40% of US drug spending, withdrawing from Medicare and Medicaid is not a realistic option for pharmaceutical manufacturers.
To remedy the DPNP’s First Amendment infirmities, CMS included a disclaimer in its take-it-or-leave-it negotiation agreement stating, “the Manufacturer does not make any statement regarding or endorsement of CMS’ views.”
However, statements in an obscure document don’t cure the gross First Amendment violations of the DPNP, which requires manufacturers to “agree” to prices labeled as “fair,” but which they unequivocally oppose. After all, the Biden administration has regularly touted the program as creating unprecedented “negotiations” between pharmaceutical companies and the government.
The DPNP has insurmountable constitutional deficiencies. It also represents bad policy. Drug manufacturers discover, develop, and produce vital products that save, prolong, or otherwise improve the lives of patients afflicted with the gamut of human disease.
Millions of Americans depend on prescription medications for their comfort and survival. These drugs are the fruits of enormous investments made at great risk. Despite researchers’ best efforts, most drug candidates never make it to the market.
The imposition of price controls risks shortages of essential medicines and will curtail investment in one of our most valuable industries. It will reduce the number of new breakthrough medicines at a time when pharmaceutical science can yield greater benefits than at any time in human history. This is why the Biden administration and Congress concealed their price controls within an elaborate subterfuge masquerading as negotiation.
Enhancing competition in the drug arena—rather than imposing price controls—will achieve optimal pricing, preserve our supply of essential therapeutics, and encourage the development of novel medicines.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Roger D. Klein is a faculty fellow at the Center for Law, Science and Innovation at Arizona State University’s Sandra Day O’Connor College of Law, and a policy adviser to the Heartland Institute.
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