Medication Price Controls: Pharma vs. the Federal Government

Ever wonder if government limitations on medication prices are viewed as unconstitutional? That’s what a few pharmaceutical companies (and some other organizations) are claiming in light of the Inflation Reduction Act (IRA) legislation signed by President Biden in August of 2022. These organizations argue that such controls violate their Fifth and First Amendment rights. Here we’ll dive into the potential legal implications and challenges of the new Act.

What Is the Inflation Reduction Act?

The Inflation Reduction Act, signed into law by President Joe Biden in August 2022, is a comprehensive piece of legislation designed to address and mitigate the impact of inflation on the economy. Through a combination of fiscal and monetary policies, the Act establishes a framework for controlling inflation and ensuring economic stability. Its main provisions encompass the creation of clean energy jobs, the promotion of affordable healthcare and prescription drugs, climate change mitigation, and taxation. Additionally, the Act includes measures to regulate the pricing of specific medications on an annual basis within the healthcare sector.

Does Pharma Have a Case Against the Federal Government?

In early June of 2023, Merck & Co., a research-driven pharmaceutical company, filed a lawsuit against the U.S. government over the Medicare Drug Price Negotiation Program. Bristol Myers Squibb (BMS), a pharmaceutical research company, also filed a suit a few weeks later. The influential trade group Pharmaceutical Research and Manufacturers of America (PhRMA) also added a suit with a focus on violation of the Eighth Amendment due to the excessive fines clause. These groups (along with others) have raised concerns about the negative impact that the provisions in the program may have on their ability to invest in future research to develop life-saving medications and provide support to patients.

The Medicare Drug Price Negotiation Program is part of the Inflation Reduction Act, which includes several provisions aimed at making prescription drugs more affordable for people with Medicare. The bill would allow Medicare to negotiate prices on up to 60 drugs by 2029, starting with 10 in 2026.

Some pharmaceutical companies have argued that these measures may infringe upon their Constitutional rights, specifically, the Fifth Amendment, which stipulates that the government must provide fair compensation when private property is appropriated for public use; the First Amendment, which, in this case, would obligate companies to endorse the fairness of these prices via agreement signatures, thereby limiting their ability to negotiate prices; and the Eighth Amendment due to excessive fines that would be generated for failure to comply.

Is the General Public Aware of the Inflation Reduction Act?

A recent Rapid Alert Omnibus survey conducted by Sago around the IRA reveals intriguing insights into public awareness, industry perceptions, and the ongoing lawsuit between a pharmaceutical company and the United States Federal Government.

Despite extensive conversation in governmental circles, American adults only have some awareness of the IRA. In fact, 43% have never heard of the Act or only recognized the name but cannot shed any light on legislation specifics. For those who are aware, TV and online news outlets are main information sources and general comments around clean energy and healthcare are recalled most often when prompted.

Is the Public Aware of the Lawsuits?

When surveyed, only a limited number of individuals demonstrated awareness of the lawsuit, with some mistakenly associating it with Pfizer and Johnson & Johnson—likely due to the Halo Effect and the extensive media coverage surrounding COVID vaccines (note: at the time of fielding, J&J had not entered the suit). Merck and BMS were correctly identified by only a few respondents. The pharmaceutical industry has faced criticism in the past for its perceived high pricing and profitability, and exposure to the lawsuit has further affected industry perceptions to some extent. However, after being informed about the lawsuits and the specific details of the IRA, the majority of respondents do not agree that Constitutional Rights are being violated.

Government Intervention: Yay or Nay?

Roughly 40% strongly agree the government should be applauded for taking action to reduce costs with the legislation outlined in the IRA, and only a quarter strongly believe it should not be involved in price setting for medications.

Although most people do not have detailed awareness of the Act and the resulting lawsuit for pharma, once prompted, about a third indicate their perceptions of pharma companies are lower once learning of the news.

Any Concerns Over Limits in Innovation With Price Controls?

According to experts, implementing the price limitations outlined in the IRA could have long-term consequences on innovation and hinder the development of new drugs that may not have widespread appeal or require complex manufacturing processes. Pharmaceutical companies would face difficult decisions regarding the continued development of critical cancer treatments and medications targeting rare diseases. When surveyed, Americans generally support government intervention to lower prices, but only a few anticipate that these price controls will impact future drug discovery. Additionally, when asked if they would trade higher pricing for faster cures, the majority are unwilling to make that trade-off. Overall, there is a perception that companies, especially in the pharmaceutical industry, generate excessive profits, resulting in more negative reactions.

What’s Next?

Earlier this month, Merck filed for a decision without a trial to apply more pressure to decision-making on this case. This fight is far from over and more opinions will join the conversation before the dust settles. Will innovation be stifled to provide more affordable care for the masses? Time will tell.