As the Centers for Medicare and Medicaid Services (CMS) prepare to implement the Inflation Reduction Act’s price controls for prescription drugs, the agency has been hit with lawsuits from both Merck and the U.S. Chamber of Commerce alleging violation of their constitutional rights. While we cannot know whether these challenges will prevail, the effects of this law on patients are easily predictable: higher launch prices, fewer cures and worse health.
Merck’s lawsuit centers on two complaints: that the law is a violation of (1) the Fifth Amendment’s “Takings Clause,” which prohibits government confiscation of property for public use without just compensation, and (2) the First Amendment’s “Free Speech Clause,” by compelling them to certify that they have negotiated a “fair price” and thus parrot the government’s preferred message, while at the same time gagging drug companies from disclosing details of their negotiations with CMS.
The Chamber of Commerce’s suit largely mirrors these arguments and adds two more: that the law’s failure to describe howCMS should set prices and how much weight should be afforded to the information it collects in price setting is a violation of separation of powers, and that the penalties for noncompliance are so draconian — up to 1,900 percent of the drug’s total revenues per day — as to violate the Eighth Amendment’s prohibition on excessive fines.
Regardless of the court’s ruling on these claims, the Inflation Reduction Act (IRA) has already proven disastrous. Before CMS has even announced which drugs will be first to be negotiated, companies are terminating research programs to develop new treatments. Just last month, Novartis announced the termination of some early-stage cancer research programs, specifically citing the IRA. We can expect the pace of cancellations to become more severe as more drugs are added to the negotiation list each year. University of Chicago economist Tom Phillipson believes as many as 135 cures for diseases that cause untold suffering may be lost as a result of this law. The economics just don’t make sense, especially for small molecule drugs, which will enter negotiation more quickly than biologics.
Ultimately, the lawsuits expose the giant failure of the law: it is unconstitutional.
Even if Republicans manage to get a filibuster-proof Senate majority in the next election, as well as retain control of the House and win the White House, the IRA is unlikely to be repealed by Congress. The Congressional Budget Office scored savings from Medicare drug negotiation at $96 billion over 10 years, meaning that Congress would need to find at least this much money in offsets to avoid increasing the deficit under congressional scoring rules. Given the large score, repeal would be exceedingly difficult. Patients depend on the court striking down the IRA’s drug pricing provisions if we are to maintain the innovation ecosystem that the United States (and the World) depends on.
The IRA’s drug pricing provisions allow the government to dictate prices for the first time since World War II, and yes, and they may get struck down by the courts. But why, after spending more than 10 years battling constitutionality challenges caused by Obamacare’s sloppy drafting, would Democrats repeat the poor processes of Obamacare and jam through a far larger law that again causes major disruption in the healthcare system?
It might be because the law is yet another attempt to paper over Obamacare’s failings. It obliterates the carefully crafted consensus on incentives for drug innovation embodied in the bipartisan Hatch-Waxman Act and uses the savings to funnel more subsidies to the ruinously expensive Obamacare exchanges. Obamacare’s most ardent supporters simply can’t admit that the law continues to struggle and that even the $70 billion thrown into the exchanges by the IRA won’t fix Obamacare’s failings: narrow networks, high deductibles and noncoverage of specialty medications, to name just three. Democrats were so desperate to paper over Obamacare’s deficiencies that they took a hatchet to Hatch-Waxman, a law which has resulted not just in countless miracle drugs but also a prescription drug market that is over 90 percent filled by safe, inexpensive generics.
If Medicare’s Drug Price Negotiation Program is struck down, Democrats won’t have anyone to blame but themselves. If the courts do enjoin CMS from implementing the drug pricing provisions, it would behoove Republicans to advance sensible legislation that protects patients, taxpayers and the innovation ecosystem. Already, several policies have been mooted in Congress that attract broad bipartisan support, such as policies to crack down on patent thickets and evergreening, policies to boost generic competition, and policies to encourage additional value-based reimbursements for drugs, such as subscription models and outcomes-based arrangements.
We can achieve affordable drug prices without destroying innovation or shredding the Constitution. Hopefully, the courts will give Congress this second chance.
Joe Grogan is a visiting senior fellow at the USC Schaeffer Center and served as domestic policy adviser to former President Trump, 2019-20. He consults for the healthcare industry, including pharmaceutical companies.