AstraZeneca and Other Big Drug Companies Are Putting Greed Before Patients Once Again
On January 31, oral argument is scheduled in AstraZeneca’s lawsuit against the Biden administration seeking to block the implementation of the Medicare drug negotiation program. Over the past year, drug company giants and their mega lobbying groups have filed meritless lawsuits against the federal government in an effort to stop Medicare from negotiating for lower prescription drug prices — the most popular provision of the Inflation Reduction Act. Medicare drug price negotiation is projected to lower costs for seniors and save taxpayers tens of billions of dollars, but big drug companies are eager to protect their outsized prices and profits.
Since the enactment of the Inflation Reduction Act, AstraZeneca has announced massive, above-expectation profits, bringing in nearly $34 billion in revenue in the first nine months of 2023. Rather than make their lifesaving drugs affordable to patients, AstraZeneca spent over $5 billion on shareholder compensation, spending $859 million on stock buybacks and $4.5 billion on dividends. AstraZeneca, which has a long history of exploiting the patent system to maximize government funding and keep competitor drugs off the market, is suing to stop Medicare from negotiating lower prices in an effort to protect their massive profits. While they rake in billions, U.S. drug prices are up to four times higher than prices in other high-income countries, leading patients in America to cut pills and skip doses to make ends meet.
What’s At Stake?
AstraZeneca is seeking to end Medicare’s new ability to negotiate lower prescription drug prices for Medicare beneficiaries. If they get their way, patients will pay more so the drug companies can make more money:
- GONE: Medicare’s power to negotiate lower prices for the most popular and expensive prescription drugs. Under the Inflation Reduction Act, Medicare is set to begin negotiating prices for 10 of the top 50 most expensive Part D drugs in 2026, adding another 15 drugs in 2027 and 2028, and another 20 in 2029 and subsequent years.
- GONE: $98.6 billion in Medicare savings over the next decade from the drug negotiation program, which translates into savings for patients and taxpayers.
- GONE: Lower Part D premiums and lower out-of-pocket drug costs for certain Medicare beneficiaries who rely on qualifying drugs.
Who Is Behind This Lawsuit?
AstraZeneca is a UK-based multinational drug company, filing in the District of Delaware, that sells Farxiga, a drug used to treat diabetes, heart failure, and chronic kidney disease that was one of the first ten drugs selected for negotiation. Farxiga has cost Medicare nearly $6 billion as of 2022 and has made AstraZeneca more than $17.7 billion in global revenue since its launch. Farxiga costs around 88 percent less in other high-income countries.
Why AstraZeneca’s Legal Arguments Are Wrong
The plaintiffs assert multiple claims, including under the Fifth Amendment and the Administrative Procedure Act, but experts agree that these meritless arguments are merely an attempt to maintain the status quo where drug companies like AstraZeneca can protect their massive profits by charging whatever they want at the expense of patients and taxpayers.
AstraZeneca’s First Argument: The plaintiffs argue that the program violates the Fifth Amendment’s Due Process Clause. AstraZeneca argues “there is no actual negotiation involved.” They characterize the negotiation program as an arbitrary scheme of “price controls” in which companies have “no real choice but to accede to the agency’s unilaterally dictated price.” They argue that the Inflation Reduction Act deprives big drug companies of the “right to participate or be heard from beginning to end” in determining drug prices, supposedly depriving drug manufacturers of their “property interests in its patented drug products and the revenue it derives therefrom.”
The plaintiffs also argue that, by barring judicial review of some drug-price-negotiation items and allowing HHS to implement the program through guidance rather than rulemaking, the Inflation Reduction Act “purports to block AstraZeneca from seeking judicial review of the most critical implementation decisions,” providing no avenue for due process under the Fifth Amendment.
Why the Plaintiffs Are Wrong: The Inflation Reduction Act is not a price control statute. AstraZeneca is a private company, with enormous market power because it is the sole manufacturer of drugs that Americans depend on. The Act merely empowers HHS to negotiate–rather than blindly accept a price dictated by a drug company–the prices Medicare pays for a limited number of specified drugs. The Act does not set the market rate for drug prices. It establishes a mechanism by which drug manufacturers and the federal government mutually participate in a regulated market-driven process.
The Negotiation Program in no way requires drug companies to sell selected drugs to Medicare at a specified price. First and foremost, Medicare is, and always has been, a voluntary program. Drug manufacturers – like physicians, hospitals, clinical labs, insurers, and other health care industry stakeholders – choose to participate in Medicare on a voluntary basis. If a manufacturer of a selected drug does not want to negotiate the price of a selected drug or cannot come to an agreement on a negotiated price, among other options, the manufacturer can withdraw from participation, just as they could have done at any point since the law has been debated and enacted.
Companies do not have any kind of property right to dictate the prices they pay while participating in a voluntary program. The notion that participating in market negotiation in a voluntary program somehow violates a company’s constitutional right is nonsensical. The Act lets companies decide whether they wish to participate or not–and leaves it to companies to decide which path makes the most economic sense for them. So far, the courts have found this claim dubious. As a federal judge in Ohio’s Southern District ruled in a separate case filed against the agency, “The law established in the Sixth Circuit and beyond is clear: participation in Medicare, no matter how vital it may be to a business model, is a completely voluntary choice…pharmaceutical manufacturers who do not wish to participate in the Program have the ability—practical or not—to opt out of Medicare entirely.”
As to judicial review, Congress barring judicial review or administrative rulemaking is not a novel concept; There are at least 190 instances in federal code where Congress has barred judicial review. Medicare experts explain in an amicus brief that Medicare experts explain that courts have consistently upheld Congress’s decision to limit judicial review within Medicare, recognizing that “tremendously complex Medicare payment programs cannot function if they are continually burdened by litigation at every step of implementation.” Such experts also highlighted that the Medicare statute includes language barring judicial review of certain implementation decisions more than 60 times.
Simply put, drug companies want to continue the status quo of having their greed unchecked by setting their own prices for their drugs and having Medicare be required to pay those prices. For too long, the industry has been able to exert its unparalleled power and deprive Americans of affordable drugs. The only reason they did not have to negotiate sooner is that Republicans included a provision in 2003 amendments to Medicare preventing negotiation in a concession to the powerful drug industry.
AstraZeneca’s Second Argument: The plaintiffs argue that the drug negotiation program violates the Administrative Procedure Act in two ways. First, they argue that the Centers for Medicare & Medicaid Services (CMS) improperly defined the term “Qualifying Single Source Drug” to encompass two different drugs approved at different times, declaring the action to be impermissibly “arbitrary and capricious” by “fail[ing] to adequately explain a deviation from prior policy.” Second, the plaintiffs argue that CMS’ “bona fide” marketing test to determine if certain drugs with generic or biosimilar competition are eligible for negotiation “finds no support in the statutory text” of the Inflation Reduction Act, and they argue “contravenes the agency’s governing statute.”
Why The Plaintiffs Are Wrong: CMS has followed the necessary procedure designed by Congress, outlining the process for selecting drugs for negotiation – including the identification of qualifying single source drugs and the assessment of generic or biosimilar competition – in its initial guidance on implementing the program. After releasing initial guidance, CMS allowed the document to be scrutinized for public comment, and released revised guidance responding to hundreds of comments from interested parties, providing detailed explanations for the definitions and procedures planned for implementation.
In its initial guidance, CMS explained that it identifies a drug’s eligibility for the negotiation program based on the drug’s active ingredient, and uses the earliest approval date to determine eligibility. CMS’ determination of qualifying single source drugs falls under the purview outlined by the Inflation Reduction Act, which explicitly directs CMS to “use data that is aggregated across dosage forms and strengths of the drug, including new formulations of the drug, such as an extended release formulation, and not based on the specific formulation or package size or package type of the drug.” The Act explicitly directs CMS to apply the negotiated price “across different strengths and dosage forms of a selected drug.”
It is common practice for big drug companies to release multiple drugs with the same active ingredient, approved under separate applications by the Food and Drug Administration (FDA). If the negotiation program were limited to negotiating prices for a drug on a per application basis, drug companies could slightly modify their products and license them under new applications, circumventing the lower negotiated price. Congress anticipated this and required the negotiation program to apply broadly across a drug’s different strengths and dosages. Therefore, if CMS were to limit their determination of qualifying single source drugs to drugs under a single drug FDA application, CMS would be inconsistent with the statute.
Additionally, Congress clearly granted CMS the authority to determine whether a generic or biosimilar drug meets the requirement of being “marketed” for the purposes of a product being exempt from selection for negotiation. CMS’s guidance explains that the agency will determine this via a “bona fide” marketing test. The “bona fide” standard outlined by CMS encompasses several factors, including sales and market availability, and requires periodic evaluation.
AstraZeneca’s claims also lack merit because the company would not be impacted by either of these two portions of CMS’ guidance. As the Department of Justice noted, even if these definitions violated the APA, AstraZeneca’s drug selected for negotiation – Farxiga – only has one FDA-approved dosage form and lacks a generic competitor on the market.
What Happens Next
- January 31: Oral arguments
- March 1: AstraZeneca has asked the court to rule on the case by this date, though it remains unclear when the judge will rule.
Here’s What Legal & Health Experts Have Said About The Case
- Nine Nationally Recognized Health Care Experts, Including Three Former Medicare Administrators: “Drug Price Affordability Is Essential.” “The Amici, nationally recognized experts in healthcare, healthcare finance, and Medicare, submit this brief to explain: that ensuring prescription drug price affordability is essential to the financial stability of the Medicare program; that the authority conferred on CMS by the DPNP to negotiate drug prices for the Medicare program is consistent with the authority that Congress has given CMS to limit excessive prices of other Medicare services; that this authority is also consistent with that given to other agencies to limit drug prices in other federal government programs; that no court has ever found that an entity’s voluntary participation in Medicare creates a property interest, which would be necessary for AstraZeneca to prevail in arguing that the DPNP violates the Fifth Amendment’s Due Process Clause; and, finally, that courts regularly apply provisions precluding judicial review of features of the Medicare program similar to the provision in the DPNP.” [AstraZeneca Pharmaceuticals LP & AstraZeneca AB v. Becerra et al., Amicus Curiae Brief, 11/8/23]
- Seven Top Economists & Health Care Policy Scholars: AstraZeneca Presents “An Overly Simplistic And Misleading Account Of The Prescription-Drug Market.” A group of seven top health care policy scholars and economists hailing from Harvard, Yale, Johns Hopkins, Boston University, and Georgetown wrote: “This brief shows how AstraZeneca’s contention reflects an overly simplistic and misleading account of the prescription-drug market. […] [The Inflation Reduction Act] gives Medicare the authority to negotiate prices for drugs that have been on the market for at least 9-13 years. By doing so, it provides consumers a negotiating agent with enough clout to counter the pharmaceutical monopolist’s excessive prices. The law now gives consumers a negotiating agent that has enough clout to counter the pharmaceutical monopolist in establishing a price. The harm to true innovation is negligible because any drug eligible for negotiation will almost certainly have already recuperated its investment many times over. […] [C]ontrary to AstraZeneca’s contention, the Inflation Reduction Act pushes the drug market’s dynamics closer to competitive equilibrium, not further away.” [AstraZeneca Pharmaceuticals LP & AstraZeneca AB v. Becerra et al., Amicus Curiae Brief, 11/8/23]
- Protect Our Care, Public Citizen, Patients for Affordable Drugs Now, Doctors for America and Families USA: AstraZeneca Is Seeking To “Protect Its Ability to Charge Medicare Beneficiaries Exceedingly High Prices.” “Seeking to protect its ability to charge Medicare beneficiaries exceedingly high prices for its single-source drugs, plaintiffs AstraZeneca Pharmaceuticals LP and AstraZeneca AB (together, AstraZeneca) have challenged the IRA program, alleging a procedural due process claim and an Administrative Procedure Act (APA) claim. The procedural due process claim is based on the theory that “[t]he IRA deprives AstraZeneca of … property interests by compelling sales of its products at well-below- market prices.” AstraZeneca Mem. 29. Underlying this claim is the notion that the “market” price of a drug is whatever price AstraZeneca would otherwise charge Medicare absent negotiation; anything below that amount, AstraZeneca suggests, deprives the company of its property interests. AstraZeneca’s theory, however, is built on a faulty premise: that the price it prefers to charge is the “market” price. And absent any showing that the drug prices negotiated under the IRA program necessarily result in the deprivation of AstraZeneca’s property interests, AstraZeneca’s Due Process challenge must be rejected.” [AstraZeneca Pharmaceuticals LP & AstraZeneca AB v. Becerra et al., Amicus Curiae Brief, 11/2/23]
- AARP and the AARP Foundation: “Many Older People Lack The Resources To Pay Exorbitant And Escalating Drug Prices.” “Ever-escalating drug prices have hit older people particularly hard, forcing millions to make devastating decisions because they cannot afford the medications they need. More than 50 million people are enrolled in Medicare Part D, the federal government’s voluntary prescription drug benefit program for Medicare beneficiaries. Beneficiaries take, on average, between four and five prescription medications per month and have a median annual income of just under $30,000. The vast majority have chronic conditions requiring lifelong treatment. Many older people lack the resources to pay exorbitant and escalating drug prices. As a result, they are forced to choose between paying for their prescribed medication or paying for basic life essentials such as food, housing, or heat. Some older people skip doses, split doses, or forgo filling their prescriptions altogether to make ends meet.” [AstraZeneca Pharmaceuticals LP & AstraZeneca AB v. Becerra et al., Amicus Curiae Brief, 11/8/23]