Western District of Texas Dismisses Constitutional Challenges to IRA’s Drug Price Negotiation Program for Lack of Subject Matter Jurisdiction and Venue

On February 12, 2024, Judge David Alan Ezra of the Western District of Texas dismissed a lawsuit challenging the constitutionality of the Drug Price Negotiation Program of the Inflation Reduction Act of 2022, P.L. 177-169 (IRA).^[1]

IRA’s Drug Price Negotiation Program and Related Lawsuits

The IRA was enacted in 2022, with the stated goal of fighting inflation.^[2] Under the IRA’s Drug Price Negotiation Program, the Secretary of Health and Human Services can negotiate a “maximum fair price” of selected eligible drugs and “enter into agreements with manufacturers of [those] drugs.”^[3] Once a “maximum fair price” is determined, manufacturers must provide those drugs at that price to those who participate in Medicare.^[4] Drug companies that fail to comply with this program may be fined ten times the difference between the price charged and the “maximum fair price”; in addition, manufacturers may be forced to transfer their ownership interests in the drug to another entity or withdraw from the Medicaid and Medicare programs.^[5]

In response to the Drug Price Negotiation Program, several drug manufacturers and other interested entities filed lawsuits across the country to challenge the statute’s constitutionality, including National Infusion Center Association et al. v. Xavier Becerra, No. 1:23-cv-707, in the Western District of Texas. In this case, the plaintiffs were non-profit corporations representing various interests, including pharmaceutical and biotechnology companies (PhRMA), colon cancer patients worldwide (GCCA), and non-hospital, community-based infusion providers (NICA).^[6] Only NICA resides in the district.^[7]

The plaintiffs asserted that the Drug Price Negotiation Program was unconstitutional for violating:

(1) nondelegation and separation of powers principles “by denying manufacturers any practical way to escape the [IRA’s] price setting regime”^[8];

(2) the Eighth Amendment’s Excessive Fines Clause by imposing fines that could “reach[] as high as 1900% of total daily revenues for all sales of the relevant drug” for those who “fail to participate in the IRA’s compelled-negotiation process”^[9]; and

(3) the Fifth Amendment’s Due Process Clause by depriving

“pharmaceutical manufacturers of . . . their investment-backed patent rights and common law right to sell their products at market prices free from arbitration and inadequately disclosed governmental constraints”;

“providers of their interest in adequate reimbursement”; and

“patients of their access to life-sustaining and life-extending medicines.”^[10]

The Government filed a motion to dismiss on August 28, 2023.^[11]

Court’s Opinion

The court granted the Government’s motion to dismiss NICA’s claims for lack of subject matter jurisdiction because Congress divested the courts of federal question jurisdiction over “any claim arising under” the Medicare Act, unless the claim falls within a narrow exception.  The court found that NICA’s claims arise under the Medicare Act and did not fall within the exception. First, the court found that the plaintiffs’ claims “arise under” the Medicare Act pursuant to Supreme Court and Fifth Circuit precedent, “even though the challenges are constitutional and the requested relief is injunctive.”^[12] In addition, the court found that plaintiffs’ claims “arise under” the Medicare Act because “the claim is ‘inextricably intertwined’ with a claim for Medicare payments, providing the standing and substantive basis for the claim,” which in this case, the plaintiffs lacked given their status as non-profit corporations.^[13] Second, the court found that the “narrow” exception to this rule does not apply because the plaintiffs have alternative, “established avenues for administrative review of constitutional challenges to the IRA and requests for reimbursement.”^[14] Due to this jurisdictional defect, the court thus dismissed NICA’s claims without prejudice.^[15]

The court also granted the Government’s motion to dismiss all parties for lack of venue, finding that “[w]ith NICA dismissed, no defendant would reside in this district, no plaintiff resides in this district, and nothing suggests that a substantial part of the events or omissions giving rise to the claim occurred in this district.”^[16] Moreover, the court found that “the same federal jurisdictional defect likely exists for PhRMA and GCCA, as nothing suggests that either party has presented its claims to the Secretary.”^[17]

Takeaways

With this case dismissed, there remains 8 pending lawsuits filed by various drug manufacturers, including AstraZeneca, Boehringer Ingelheim, Bristol-Myers Squibb Co., Janssen, Merck & Co., Novartis AG, Novo Nordisk, and the US Chamber of Commerce. Many of these cases have rapidly approaching deadlines later this month and next. The court’s dismissal did not assess the merits of the plaintiffs’ constitutional challenges, and as a result, the Texas dismissal provides no guidance on how other courts will evaluate the merits of the other pending cases.