The Inflation Reduction Act (the Act) of 2022 was controversial at the time the Act was signed into law and remains so. To date, multiple legal challenges have been asserted against the Act, with more expected in the future.

The Act established a Medicare Drug Price Negotiation Program (the Program) under which the U.S. Department of Health and Human Services (HHS) works with pharmaceutical manufacturers to determine a “maximum fair price” at which each of a set number of selected drugs will be sold to Medicare beneficiaries. The selected drugs in question are generally high expenditure, single source drugs and biological products. For more background information on the Act, please refer to the “Prescription Drug Provisions in the Inflation Reduction Act of 2022” Wilson Sonsini Alert of August 29, 2022.

2024 Selected Drugs

In accordance with the Act, in 2023, HHS’s Centers for Medicare & Medicaid Services (CMS) released the first list of 10 drugs subject to price negotiation. The list of selected drugs is noted below in Table 1 and includes Eliquis, Jardiance, Xarelto, Januvia, Farxiga, Entresto, Enbrel, Stelara, Imbruvica; and Fiasp, Fiasp FlexTouch, Fiasp PenFill, NovoLog, NovoLog FlexPen, and NovoLog PenFill. Negotiations between CMS and participating pharmaceutical manufacturers resulted in negotiated discounts ranging from 38 percent to 79 percent of the 2023 selected drug’s list price. These discounted prices will not apply until 2026.¹

Table 1: Negotiated Prices for First 10 Selected Medicare Part D Drugs

Drug Name(s)	Commonly Treated Condition(s)	Drug List Price for 30-Day Supply (CY 2023)	Negotiated Price for 30-Day Supply (CY 2026)	Discount of Negotiated Price from List Price (%)
Eliquis	Prevention and treatment of blood clots	$521	$231	$290 (-56%)
Jardiance	Diabetes; Heart failure; Chronic kidney disease	$573	$197	$376 (-66%)
Xarelto	Prevention and treatment of blood clots; Reduction of risk for patients with coronary or peripheral artery disease	$517	$197	$320 (-62%)
Januvia	Diabetes	$527	$113	$414 (-79%)
Farxiga	Diabetes; Heart failure; Chronic kidney disease	$556	$178.50	$377.50 (-68%)
Entresto	Heart failure	$628	$295	$333 (-53%)
Enbrel	Rheumatoid arthritis; Psoriasis; Psoriatic arthritis	$7,106	$2,355	$4,751 (-67%)
Imbruvica	Blood cancers	$14,934	$9,319	$5,615 (-38%)
Stelara	Psoriasis; Psoriatic arthritis; Crohn’s disease; Ulcerative colitis	$13,836	$4,695	$9,141 (-66%)
Fiasp; Fiasp FlexTouch; Fiasp PenFill; NovoLog; NovoLog FlexPen; NovoLog PenFill	Diabetes	$495	$119	$376 (-76%)

Challenges to the Act

Since it was signed into law, multiple challenges have been filed against the Act by various entities. Thus far, none have succeeded. Below, we provide a summary of some arguments asserted by challengers, the government’s response, and the position of the courts at this time.

As of November 2024, more than 10 different entities have filed suit challenging the constitutionality of the Act. The list of challengers includes but is not limited to pharmaceutical companies and various associations. Many of the challenges to the Act have been made on First and Fifth Amendment grounds.

Fifth Amendment Challenges: Due Process Clause and Takings Clause

Regarding the Due Process Clause, challengers have asserted that the Act is unconstitutional because the Act lacks the requisite procedural safeguards, including notice, the opportunity to be heard, and the potential for judicial review. In view of the Takings Clause, challengers have argued that the selected drugs, and by extension patents protecting these selected drugs, are private property. With this backdrop, challengers have argued that the Program is not merely negotiating a price cap for selected drugs but rather a forced transfer which has been dressed up as a sale. One challenger has likened these alleged “forced sales” as functionally equivalent to the seizure of medication from warehouses. In this regard, challengers have argued that the government is utilizing the Program to avoid paying just compensation by essentially making drug manufacturers an offer that they cannot refuse in view of the financial penalties for not participating in the Program.

The government has rebutted the above assertions by arguing: 1) pharmaceutical manufacturers are not being required to relinquish their drugs; 2) although the selected drugs are to be sold at a discounted price, the compensation is still substantial; 3) economic hardship on the part of the pharmaceutical manufacturers is not equivalent to legal compulsion for purposes of takings analysis; 4) pharmaceutical manufacturers are free to sell their drugs to a wider market at their discretion if they do not wish to participate in the Program; and 5) the Program is a valid exercise of Congress’s constitutional authority to control the government’s spending when the government is acting as a market participant. In view of the above, the government concludes that when the government determines the price it is willing to pay or imposes caps on the amount the government will reimburse, the government deprives entities of no property interest for the purposes of the Fifth Amendment. Furthermore the government argues that when Congress enacted the Act, Congress did so pursuant to its powers under the Spending Clause, which operates based on consent: in return for federal funds, recipients agree to comply with federally imposed sanctions.

The courts have thus far agreed with the government. Courts have ruled that pharmaceutical manufacturers do not have the constitutional right to dictate the government’s expenditures via Medicare, and the Act does not violate the Fifth Amendment. The rulings are consistent with prior Takings Clause based challenges that have been filed against other Medicare programs, where the courts have held that there is no physical taking in violation of the Fifth Amendment because participation in the Medicare program is voluntary.^2,3,4

First Amendment Challenges

Challengers have argued that the Act violates the First Amendment because the Act forces pharmaceutical manufacturers to sign a pricing agreement that characterizes the negotiated price of the selected drug as “fair,” which amounts to compelled speech. Challengers have specifically highlighted terms such as “negotiate,” “agree,” and “maximum fair price,” out of concern that agreeing to the final selected drug price means openly admitting that the price is the “maximum fair price,” when many pharmaceutical manufacturers maintain that the selected drug prices are not fair.

In response, the government has asserted that the Program does not violate the First Amendment at least because: 1) pharmaceutical manufacturers are not compelled to speak; 2) signing a voluntary agreement is not compelled speech and does not reflect a manufacturer’s feelings about the fairness or the quality of the program; and 3) pharmaceutical manufacturers are perfectly free to complain about the Program.

In evaluating First Amendment violations, a threshold question is whether the government is regulating expressive activity, which is protected by the First Amendment, or only non-expressive conduct, which is not protected. Courts have sided with the government and held that the Program regulates conduct, not speech. In this regard, courts have found that the government permissibly regulates plaintiffs’ commercial conduct and not their communication of information.

Eight Amendment, Spending Clause, and Other Arguments

Challengers have also asserted that the Act violates the Eighth Amendment Excessive Fines Clause in view of the “massive penalty” imposed on pharmaceutical manufacturers of selected drugs that do not comply with the Act. Challengers have argued that the threat of these harmful tax penalties would force manufacturers to accept whatever price CMS demands. Additionally, challengers have further argued that the Act cedes too much power to the Secretary of Health and Human Services to set drug prices and that the delegation of authority to the Secretary lacks an intelligible principle.

With regard to these arguments, courts have found that the Act does not violate the constitution at least because 1) the penalties are not prohibitive and pharmaceutical manufacturers could easily pay a portion of the tax up front and then file suit for a refund, 2) the Excessive Fines Clause applies only to criminal cases which is not the case here, and 3) participation in the Program is voluntary and is not coerced. Therefore, the Act does not infringe on a pharmaceutical manufacturer’s constitutional rights.⁵

Conclusion

Since being signed into law, the Act has survived multiple legal challenges, with a number of cases currently working their way through the courts. With the price negotiation of the first 10 selected drugs completed, CMS will begin the next cycle of negotiations with some uncertainty in view of current/future challenges to the Act and the uncertainty surrounding their outcome.

We will continue to monitor developments and provide updates concerning the Act and the life sciences industry. For questions regarding patent strategies, please contact any member of Wilson Sonsini's patents and innovations practice. For questions regarding healthcare regulatory and FDA strategies for drugs, biologics, and other FDA-regulated products, please contact any member of Wilson Sonsini’s FDA regulatory, healthcare, and consumer products practice.

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[1] Ctrs. for Medicare & Medicaid Servs., Fact Sheets, Medicare Drug Price Negotiation Program: Negotiated Prices for Initial Price Applicability Year 2026 (Aug. 15, 2024), https://www.cms.gov/newsroom/fact-sheets/medicare-drug-price-negotiation-program-negotiated-prices-initial-price-applicability-year-2026.

[2] BRISTOL MYERS SQUIBB COMPANY v. BECERRA, 3:23-cv-03335, (D.N.J.)

[3] MERCK & CO., INC. v. BECERRA, 1:23-cv-01615, (D.D.C.)

[4] HealthAffairs, Amicus Briefs In Merck Lawsuit Defend Constitutionality Of Medicare Drug Price Negotiation Program.

[5] Congressional Research Service, Constitutional Challenges to the Medicare Drug Price Negotiation Program, available at https://crsreports.congress.gov/product/pdf/R/R47682.