Latest Medicare Drug Price Negotiation Decision Increases Likelihood of SCOTUS Review

The IRS recently released Rev Proc. 2024-35, which set the ACA benchmark for determining the affordability of employer-sponsored health coverage at 9.02 percent of an employee’s household income for the 2025 plan year. This latest affordability percentage represents an increase from the 8.39 percent of 2024, the lowest percentage in the history of the threshold.

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October 09, 2024

Key Actions

  • No action is required by employer plan sponsors. The Business Group will continue monitoring these Medicare-specific cases and any potential ripple effects in the employer-sponsored market.

The U.S. Court of Appeals for the Fifth Circuit issued a decision in one of the many cases related to the Medicare drug price negotiation provisions of the Inflation Reduction Act (IRA). The appellate court ruled in favor of the plaintiffs in National Infusion Center Association v. Becerra, finding that they are able to continue their current case in federal court. This is different than the federal court decisions in many of the other cases challenging the IRA’s negotiation provisions and the Department of Health and Human Services’ (HHS) interpretation and implementation of the law. Because most federal court decisions have ruled in favor of HHS but this one, at least at this stage, found in favor of the challengers, there is an increased likelihood that the dispute could eventually be reviewed by the U.S. Supreme Court (SCOTUS) to resolve the “split decisions” – a frequent reason for SCOTUS involvement.

Background

For context, the IRA grants the secretary of HHS the ability to negotiate the prices of certain drugs for the Medicare program beginning in 2026. Ten Part D drugs are being negotiated first, with an effective date of 2026, with additional drugs and Medicare provisions added for each year after.

These price negotiations, while only directly impacting prices paid by Medicare and its beneficiaries, may also have significant implications for employer coverage; recent studies show over 3.4 million individuals in an employer sponsored plan use at least one of the 10 drugs that are being negotiated.1 Given expected price reductions for Medicare, there is potential for significant cost-shifting to employer plans as manufacturers look to recoup losses. For employers, this is particularly concerning as GLP-1 drugs – already one of the top prescription cost challenges —are expected to be included in next year’s negotiations.

Litigation Summary

In addition to National Infusion, there are at least 12 other cases pending throughout federal district and circuit courts generally seeking a declaration that the IRA provisions are unconstitutional or otherwise invalid and therefore asking to block the government from enforcing the results of negotiation for either the specific plaintiffs or all entities it applies to. The majority of these cases have been brought by pharmaceutical manufacturers and, in many of these cases, the court has ruled that the plaintiffs lack standing or have other initial deficiencies in their case.

The situation started out similarly in National Infusion, where the federal district court that previously considered the case dismissed it due to lack of subject-matter jurisdiction, citing that claims must first be addressed through the HHS administrative process rather than the federal court system. However, this latest appellate court reversed that decision, finding that the plaintiffs were not required to channel their claims through HHS because the claims arose from the IRA. Additionally, the court also found that the plaintiffs had standing based on economic and procedural injuries due to the potential revenue loss from reduced drug prices and the procedural deficiencies in implementing the program.

If different courts continue to issue contradictory rulings on various factors including standing, the constitutionality of the IRA's drug price negotiation provision or HHS’s interpretations and implementation, it increases the likelihood that SCOTUS will ultimately weigh in to resolve matters. Given that these cases attempt to raise significant constitutional and agency authority questions, a SCOTUS review could have sweeping implications for legislation and executive agency action broadly, as well as with respect to the IRA’s provisions and the federal government’s ability to negotiate drug prices.


References

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