On Aug. 29, the Biden administration announced the first 10 drugs whose prices will be negotiated with pharmaceutical companies this year and next, with lower prices becoming effective in 2026. The stakes are huge for American taxpayers and patients. Medicare enrollees taking the 10 selected drugs paid $3.4 billion in out-of-pocket costs in 2022. These 10 drugs cost Medicare $50.5 billion between June 1, 2022 and May 31, 2023.
For President Biden, lowering drug prices is a signature issue, especially approaching the 2024 election. And lower drug prices are hugely popular across party lines. More than 3 in 4 Americans think the costs of prescription drugs are unaffordable and nearly 1 in 3 say they haven’t taken their medications as prescribed due to cost.
Yet the stakes are equally high for pharmaceutical companies, involving some of their most lucrative blockbuster drugs to treat blood clots (Eliquis and Xarelto) and diabetes (Jardiance and Januvia), as well as drugs for cardiovascular disease and cancer. The industry will figuratively go to war to defend the right to set drug prices. Already the battle lines have been forged, with drug companies bringing multiple legal challenges across the country. The issue is highly likely to reach a conservative Supreme Court that has shown hostility to federal agencies trying to do big things for the American public.
Outcomes of current litigation rest on the Inflation Reduction Act of 2022, which for the first time in history granted the Centers for Medicare & Medicaid Services the power to negotiate drug prices, starting with these 10 drugs. Dozens more drugs will be added over time. CMS spent months formulating regulations requiring drug manufacturers to negotiate fair prices. And if price negotiations fail, Congress gave the agency the power to set a fair price, which companies have to abide by if they want to participate in Medicare.
CMS is, in effect, requiring companies to fairly negotiate reasonable prices or face exorbitant taxes and fines. A drug company can opt-out, refusing to sell any of its drugs to CMS if they do not agree to negotiations. Yet companies will be loath to walk away from such a generous government entitlement program whose payments for prescription drugs often constitute a lion’s share of their profits. Pharmaceutical manufacturers already stand to lose in excess of $25 billion in profits by 2031 via administration of CMS’ program.
Rather than walking away, the industry has launched a blizzard of cases across the country, with more likely on the way. Most of their arguments rest on constitutional grounds, but the industry is also raising administrative law claims, arguing that CMS exceeded its authority or that Congress did not properly delegate power to the agency.
The gist of their arguments is that CMS wrested control of drug prices without sufficient authorization from Congress and to the detriment of manufacturers. The claim ultimately that consumers may be harmed by a lack access to future drug innovations. They further argue that they are being compelled to say something with which they do not agree — that the negotiated price of the drug is “fair.” Finally, they argue that the government is “taking” their property without just compensation.
To us, the industry’s arguments look weak. It’s not like drug manufacturers have not had to wrangle with federal agencies over drug prices before. For decades the Veterans Administration has negotiated drug prices with the industry. Congress clearly detailed CMS’ authority in the Inflation Reduction Act to negotiate the price that Medicare will pay for a drug. It’s hard to argue against it, although the industry is trying.
Drug manufacturers’ litigation strategy is nakedly transparent. Bring a bevy of cases across the country, harness a well-worn series of conservative legal claims, seek split judicial decisions and force the Supreme Court to step in with hope — even expectation – that its conservative supermajority lends a sympathetic ear.
Let’s remember that the U.S. spends on average twice as much on prescription drugs as our peer nations. In 2019 (the latest year for which data are available), the U.S. spent $1,126 per capita on prescribed medicines, while comparable countries spent $552 on average. Per capita, prescribed medicine spending in the U.S. grew on average by 69 percent from 2004 to 2019, compared to 41 percent in comparable countries.
How do other countries save so much more than us in drug costs? A major reason is that they negotiate drug prices or set a limit on how much the government will spend on health care. Like other countries, CMS has incredible bargaining power as a major drug purchaser. It anticipates driving down the price of prescription drugs for tens of millions of beneficiaries, just as it did for insulin earlier this year.
In essence, U.S. taxpayers and mostly elderly patients are subsidizing lower prescription drug prices in other countries. Industry reliance on outsized profits in America enables it to sell the same drugs to other countries at far lower prices. This is unfair and unsustainable, and has been for decades. Congress agreed when it enacted the Inflation Reduction Act. Courts have no justification for substituting their opinions for that of the elected branches of government against weak constitutional arguments.
Most Americans, and virtually all health policy experts we know, feel passionately about lowering drug prices. For President Biden, winning that battle will likely have to go through the Supreme Court.
Lawrence O. Gostin, JD, is the University Professor and Founding O’Neill Chair in Global Health Law at Georgetown University Law Center, Washington, D.C.
James G. Hodge, Jr., JD, LLM, is the Peter Kiewit Foundation Professor of Law at the Sandra Day O’Connor College of Law, Arizona State University, Phoenix, AZ.
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