Judge rejects J&J, BMS challenges to Medicare drug pricing program

A federal judge in New Jersey tossed lawsuits from Johnson & Johnson and Bristol Myers Squibb questioning the constitutionality of the federal government requiring drugmakers to negotiate with Medicare on drug prices.

Judge Zahid Quraishi issued a 26-page opinion April 29. In it, he rejected claims that the program is an unconstitutional taking of assets. According to the ruling, that's because participating in the price talks, as well as Medicare, is voluntary.

Quraishi, who sits in Trenton, wrote, “Selling to Medicare is a choice plaintiffs can accept or not accept. [It] may be less profitable than it was before the institution of the program, but that does not make the defendants’ decision to participate any less voluntary.”

Under the terms of the program, companies are not required to “set aside, keep or otherwise reserve any of their drugs” for the government or Medicare beneficiaries, he wrote. The judge added that initiative doesn’t force companies to physically transmit or transport drugs at a new negotiated price either.

“For the reasons provided, the Court concludes that the program does not result in a physical taking nor direct appropriation,” he said.

Cutting consumer costs

In separate lawsuits, New Brunswick-based Johnson & Johnson and Bristol Myers Squibb, which is located in Princeton, argued the negotiations are an unconstitutional confiscation of their drugs by the government and a violation of their right to freedom of speech. The companies also claimed the discussions are an unconstitutional condition to take part in Medicare and Medicaid programs.

The program is a key policy under President Joe Biden’s signature Inflation Reduction Act. It seeks to make costly prescription drugs more affordable for older Americans.

The Biden administration argues that the price adjustment will save taxpayers $160 billion by reducing how much Medicare pays for drugs through negotiation and inflation rebates. The pharmaceutical industry maintains the program will curtail profits. Additionally, the industry says the move will ultimately compel drugmakers to scale back development of groundbreaking new treatments.

Blood thinners from BMS and Johnson & Johnson were among the first round of 10 drugs chosen for negotiations in August 2023 . Settled prices will take effect in January 2026, according to the U.S. Centers for Medicare and Medicaid Services (CMS).

Participation in price talks is voluntary. However, companies who choose not to engage face the option of either paying excise taxes or terminating their relationships with Medicaid and Medicare. Two months after the initial list was issued, CMS said all companies that make the drugs opted to take part in negotiations even though most of them sued the administration.

'A disappointing ruling'

Following Quraishi’s decision, a Johnson & Johnson spokesperson issued a statement saying, “This is a disappointing ruling for patients and America’s leadership role in medical innovation. The IRA’s price control provisions will constrain development of new medicines, limit patient access and choice, and negatively impact overall quality of care. Accordingly, we will appeal this decision.”

A spokesperson for Bristol Myers Squibb told NJBIZ, “BMS is disappointed with the court’s decision and has appealed. We maintain our concerns that the IRA’s so-called ‘negotiation’ program is in violation of the U.S. Constitution and will have a serious impact on future innovation for patients. BMS will continue to work with CMS on implementation as required by the law.”

Other New Jersey pharma giants have also taken legal action over the drug pricing requirements. Those companies include Novo Nordisk in Plainsboro, Merck & Co. in Rahway and Novartis Pharmaceuticals in East Hanover.

While the cases vary in detail, each allege that the government is overreaching in its authority. They mostly hinge on whether the program is constitutional under the First and Fifth amendments. They also say allowing Medicare to negotiate prices would lead to lower profits, causing reduced spending in research and development.

Stymied strategy

The cases filed by Johnson & Johnson and Bristol Myers Squibb were combined in February to avoid duplication. Novartis and Novo Nordisk also joined in the litigation, however those outcomes will come later.

This week’s ruling marks another defeat for the pharmaceutical industry in its legal battle against the initiative. CNBC noted it also weakens the strategy of seeking split decisions in lower courts across the U.S., which could push the issue to the Supreme Court.

In February, a federal judge in Delaware rejected a similar lawsuit by AstraZeneca. The ruling came a few weeks after a Texas federal judge tossed a challenge filed by industry lobbying group PhRMA.

A federal judge in Ohio issued a ruling in September 2023 denying a preliminary injunction sought by the U.S. Chamber of Commerce that aimed to block the price talks.

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