In a significant event, the drug company Johnson & Johnson (J&J) has decided to take legal action against the Biden government due to their contentious Medicare Drug Price Discussion Program, put into place by the Inflation Reduction Act. This indicates that J&J is the third key drug company, coming after Merck & Co. and Bristol Myers Squibb, to question this rule. Additionally, other important groups like the U.S. Chamber of Commerce and PhRMA, the biggest lobby group for the drug industry, are also opposing this rule.
The Heart of the Lawsuit
The court case, which was submitted in the federal court in New Jersey, claims that the discussions about Medicare go against the First and Fifth Amendments of the US Constitution. J&J argues that this regulation equals the government taking its patented medicine, Xarelto, without paying a fair price – something that breaks the Fifth Amendment rules. Xarelto, a drug used for treating blood clots and minimizing the chances of having a stroke, is in the top 10 drugs reimbursed most by Medicare Part D patients. Therefore, its pricing will be negotiated in 2023. Last year, earnings from selling Xarelto were stated to be $2.47 billion by the company.
Compelling Speech or Coercion?
The drug company is saying that the new rule makes them admit that the government is setting fair prices for medicines. J&J believes this would make them say things that aren’t true and could trick people, which they feel goes against their right to free speech under the First Amendment. They think that the rule doesn’t involve any real bargaining because the government is the one deciding the price of the drugs, not them.
Key points of the lawsuit include:
- The company is seeking to block the U.S. Health and Human Services Department (HHS) from forcing it to participate in the program.
- J&J alleges that the Medicare negotiations amount to an uncompensated physical taking of its property.
- The company is asking the court to declare any agreements signed under the program null and void due to alleged violations of constitutional rights.
HHS Response and Legal Outcome
The HHS has pledged to “vigorously defend” the President’s drug price negotiation law. The agency maintains the law is helping to lower health care costs for seniors and people with disabilities. In previous statements, HHS Secretary Xavier Becerra expressed confidence that “the law is on our side.”
Background of the Dispute
President Joe Biden’s Inflation Reduction Act was passed in 2022 by a narrow party-line vote. The Act empowered Medicare to negotiate drug prices for the first time in its six-decade history, aiming to make drugs more affordable for older Americans. However, this could potentially reduce pharmaceutical industry profits. The Centers for Medicare and Medicaid Services is set to publish a list of drugs selected for the first cycle of negotiations on September 1, with the new prices taking effect in 2026. Pharmaceutical companies face an October deadline to sign agreements to participate in these negotiations.
More about the Inflation Reduction Act can be found here.
Industry-wide Implications
The legal pushback against the Inflation Reduction Act suggests a growing industry concern over the potential impact of these reforms on medical innovation and pharmaceutical profits. Companies who refuse to participate in price negotiations face the prospect of excise taxes or ending their lucrative relationships with Medicaid. This lawsuit could significantly shape the implementation and impact of the new pricing provisions.
