Just Opt Out! Boehringer Ingelheim’s IRA Challenge Is Latest To Fail

Since its enactment in 2022, the validity of the Inflation Reduction Act (IRA) and its drug price negotiation program (Program) has been repeatedly challenged in District Court, with little success. Boehringer Ingelheim’s lawsuit against the U.S. Department of Health and Human Services (HHS) is the latest challenge to be rejected by a federal court.

Boehringer Ingelheim (BI) filed a lawsuit in the District of Connecticut on Aug. 18, 2023. In its Complaint, BI alleged that the Program violates its rights under the Due Process Clause, the Takings Clause, the First Amendment, and the Excessive Fines Clause. It also alleged that the Centers for Medicare & Medicaid Services’ (CMS) legislative rule implementing the drug price negotiation program violated the Administrative Procedure Act’s (APA) and Medicare Act’s notice and comment rules.

The parties filed a joint motion indicating that this matter could properly be resolved through dispositive motions without the need for discovery. The parties then cross-moved for summary judgment. The District of Connecticut granted HHS’ motion for summary judgment and denied BI’s motion for summary judgment, as detailed below.

Due Process and Takings Clauses Claims

BI argued that the Program violates the Fifth Amendment because it deprives BI of its property interest in its drug Jardiance and its related confidential data without due process of law and it effects a physical taking of BI’s doses of Jardiance without just compensation. In response, HHS argued that the Program does not deprive BI of its property under the Due Process Clause or Takings Clause because participation in the Program is voluntary. The court agreed with HHS.

The District Court explained that there were no constitutional violations by the government’s drug price negotiation program because a drug manufacturer’s participation in Medicare and Medicaid is entirely voluntary. The court reasoned that if any manufacturer does not wish to have its drugs subjected to the Program, it could “divest its interest in the [Selected Drug] to a separate entity” or opt out of the Medicare and Medicaid market at any time. Furthermore, because BI was voluntarily participating in the Medicare and Medicaid market, there was no violation of property rights under the Due Process Clause or Takings Clause, nor can there be excessive taxes or monetary penalties.

Alternatives to, and the Voluntariness of, the Program

As part of its Due Process and Takings Clauses arguments, BI asserted that there were no real alternatives to the Program. Specifically, BI alleged that there is no expeditious way for manufacturers to terminate their Medicare agreements in order to avoid the drug price reduction or fines for not participating in the Program, even if it intended to do so. The court rejected this argument, finding that CMS has created an accelerated path for manufacturers to terminate their Medicare agreements, and that a drug manufacturer can agree to the drug price negotiation agreement and then opt out of Medicare and Medicaid before the price reduction is put into effect.

BI also argued that the option to withdraw from Medicare and Medicaid does not render the Program voluntary because forcing it to abandon this market, which accounts for nearly half the U.S. healthcare market and over half of BI’s sales, is “economic dragooning that leaves [it] with no choice but to acquiesce” to the Program. The court rejected BI’s economic hardship arguments, holding that case law supports the government using its powers as a dominant buyer to demand lower prices from drug manufacturers. While it may be true that pulling a drug from the Medicare and Medicaid market would result in huge losses for the manufacturer, the court found that “economic hardship is not equivalent to legal compulsion” for the purposes of determining property right violations.

First Amendment Claims

BI argued that the Program violates BI’s First Amendment rights by compelling BI to echo the government’s preferred narrative regarding the Program by requiring execution of a Manufacturer’s Agreement that uses terms like “negotiation” and “maximum fair price” — messages BI strongly disagrees with. HHS disagreed because reaching an agreement is not speech or expressive conduct and the Program is voluntary.

The District Court rejected BI’s First Amendment arguments, again finding that BI’s participation in the Program is voluntary and BI was free to withdraw from the market at any time. Signing a maximum fair price agreement did not, therefore, compel BI to do or say anything. In addition, the court found that these agreements control the manufacturer’s conduct and any effects the agreements may have on speech are “plainly incidental.”

APA and Medicare Act Claims

BI asserted that CMS violated the APA and Medicare Act by issuing the form Manufacturer Agreement without providing an opportunity for comment on its terms. In response, HHS alleged that the APA and Medicare Act explicitly contemplate situations in which Congress “expressly” authorizes agencies to supersede these rulemaking requirements.

The District Court found that CMS did not need to follow the APA and Medicare Act’s notice and comment rulemaking procedures because the IRA exempts the maximum fair price Manufacturing Agreement from those requirements, which Congress is entitled to do. The IRA provides that the act shall be implemented through guidance only for the first three years rather than notice and comment rulemaking.

Conclusion

The District of Connecticut’s summary judgment finding in favor of HHS is the latest decision denying challenges to the constitutionality of the IRA. BI joins a growing list of failed challengers including AstraZeneca, Janssen and BMS. 

While other big pharma companies await summary judgment decisions, the IRA appears to be here to stay, with all attempts to scale back or repeal the statute having failed to date.