Court Dismisses Novartis Challenge to Medicare Drug Price Negotiation Program

The U.S. District Court for the District of New Jersey has dismissed a lawsuit brought by Novartis AG, a major pharmaceutical company, challenging the Medicare Drug Price Negotiation Program established under the Inflation Reduction Act (IRA). The decision, handed down by Judge Zahid Quraishi, is a significant victory for the Biden administration and a setback for the pharmaceutical industry's efforts to derail the program.

Novartis had argued that the IRA's drug negotiation program violates the First Amendment, the Takings Clause of the Fifth Amendment, and the Excessive Fines Clause. The company alleged that the program forces them to sell their drugs on the government's terms, compelling them to "promote the government's preferred narrative that it is engaged in a negotiation." However, Judge Quraishi rejected these arguments, finding that the program does not constitute a physical taking of a manufacturer's drugs and does not force any speech on the companies.

The court also ruled that the program does not violate the Excessive Fines Clause, as the Anti-Injunction Act prevents federal courts from prohibiting the Internal Revenue Service from assessing or collecting taxes. This decision aligns with previous rulings against other pharmaceutical companies, such as AstraZeneca, Boehringer Ingelheim, and Novo Nordisk, which had also challenged the drug negotiation program.

The IRA's Medicare drug price negotiation program is estimated to result in substantial savings for Medicare beneficiaries and the federal government. The Congressional Budget Office estimates that the price negotiations enabled under the law will save the federal government $96 billion through 2031. The pharmaceutical industry has argued that the policy will reduce incentives to develop new drugs, but the Biden administration maintains that the program will increase access to life-saving prescription medications and lower CMS expenditures and beneficiaries' out-of-pocket expenses.

The decision in the Novartis case sends a strong signal to the pharmaceutical industry that the government's authority to negotiate drug prices is legitimate and will be upheld by the courts. This could discourage other pharmaceutical companies from pursuing similar legal challenges and make it easier for the Biden administration to focus on implementing the program. As the CMS prepares to announce the first drugs covered under the Medicare Part D program that will be subject to negotiations starting in 2026, the industry may need to adapt to the new landscape and engage in good-faith negotiations with the government to ensure fair pricing and access to life-saving medications for Medicare beneficiaries.