Medicare drug price negotiations: Judge tosses PhRMA lawsuit

A federal judge on Monday dismissed a lawsuit brought by a major pharmaceutical industry lobbying group and two other organizations that challenged Medicare’s new powers to negotiate prices for costly prescription medicines. 

The decision is an early win for the Biden administration as it grapples with a flurry of other legal challenges that drugmakers have filed against the Medicare drug price negotiations. The key policy under the Inflation Reduction Act aims to make medicines more affordable for seniors and could cut into pharmaceutical industry profits. 

The judge’s ruling won’t end the legal battle over the policy, which could end up at the Supreme Court. Medicare issued its initial drug price offers to manufacturers for the first 10 medications subject to the talks earlier this month, with final negotiated prices going into effect in 2026.

U.S. Judge David Ezra of the Western District of Texas sided with the Biden administration in dismissing the suit by the Pharmaceutical Research and Manufacturers of America, or PhRMA, the Global Colon Cancer Association and the National Infusion Center Association, which argued that the price talks were unconstitutional. 

In a 14-page ruling, Ezra specifically dismissed the National Infusion Center Association, or NICA, from the case, arguing that the court does not have jurisdiction over the group’s legal challenge. He wrote that NICA’s claims fall under the Medicare Act and could only be heard by a court following an administrative review by the federal agency. 

Ezra dismissed the rest of the case given that NICA is the only plaintiff based in the district. 

PhRMA is “disappointed with the court’s decision, which does not address the merits of our lawsuit, and we are weighing our next legal steps,” spokesperson Nicole Longo told CNBC in a statement. PhRMA represents many of the largest drugmakers in the world, including Eli Lilly, Pfizer and Johnson & Johnson.

But PhRMA and the two other organizations could appeal the decision. Legal experts say the pharmaceutical industry hopes to obtain conflicting rulings from federal appellate courts, which could fast-track the issue to the Supreme Court. 

A slate of major companies with drugs selected for negotiations, including J&J, Merck, and Bristol Myers Squibb, have filed separate lawsuits challenging the constitutionality of the price talks. Those cases are still pending.

Notably, a federal judge in Ohio issued a ruling in September denying a preliminary injunction sought by the Chamber of Commerce, one of the largest lobbying groups in the country, which aimed to block the price talks before Oct. 1.

PhRMA, NICA and the Global Colon Cancer Association filed their lawsuit in June, alleging that the negotiations delegate too much authority to the Department of Health and Human Services. 

The suit also argued that the price talks violate the Eighth Amendment because they include a “crippling” excise tax aimed at forcing drugmakers to accept the government-dictated price of medicines. 

The groups also argued that the price talks violate due process by denying pharmaceutical companies and the public input on how Medicare negotiations will be implemented.

Department of Justice attorneys on behalf of the Department of Health and Human Services countered that NICA lacked standing because it doesn’t make or sell prescription drugs that could be subject to the negotiations.