Background
The Inflation Reduction Act of 2022 created a Medicare Drug Price Negotiation Program under which the Department of Health and Human Services selects certain high-expenditure drugs without generic competition and negotiates a “maximum fair price” with their manufacturers. Manufacturers that decline to negotiate may face an escalating excise tax on sales of selected drugs reimbursed by Medicare, while manufacturers that agree but fail to provide the negotiated price may incur civil monetary penalties.
Three associations brought a facial constitutional challenge, alleging that the program violates the nondelegation doctrine, the Eighth Amendment’s Excessive Fines Clause, and the Fifth Amendment’s Due Process Clause. After an earlier appeal resolved jurisdictional and standing issues, the district court granted summary judgment to the Government. It rejected the nondelegation and due-process claims and held that the Anti-Injunction Act barred consideration of the excessive-fines claim.
The Court’s Holding
The Fifth Circuit affirmed. It held that Congress supplied an intelligible principle governing HHS’s authority by defining the program’s objectives, selection and negotiation procedures, price ceilings, and factors HHS must consider when determining a fair price. The requirement of a fair price, informed by specified statutory considerations, also supplied a price floor. Neither the limits on judicial review nor the absence of notice-and-comment rulemaking for the program’s initial cycles transformed that valid delegation into an unconstitutional one.
The court disagreed with the district court’s Anti-Injunction Act analysis, holding that the manufacturers lacked a realistic alternative remedy because the excise-tax liability accruing during a refund suit could be unaffordable. It nevertheless rejected the Eighth Amendment claim on the merits because the tax arises from lawful commercial choices and lacks the connection to criminal or quasi-criminal conduct necessary to constitute a “fine.”
The court also rejected the due-process claims. Manufacturers have no protected property interest in selling drugs reimbursed by Medicare at their preferred prices, and participation in Medicare and Medicaid is voluntary. Providers have no entitlement to continued participation or reimbursement beyond the rate established by law, and the plaintiffs identified no protected patient liberty interest in continued access to particular prescription drugs.
Key Takeaways
- The IRA adequately cabins HHS’s drug-pricing authority through detailed procedures, price ceilings, and mandatory statutory factors.
- The Anti-Injunction Act did not bar the excessive-fines challenge because a postpayment refund suit was not a realistically available alternative remedy under the escalating tax structure.
- The excise tax is not an Eighth Amendment fine because it is unconnected to criminal or quasi-criminal conduct, and the program does not deprive manufacturers, providers, or patients of a protected due-process interest.
Why It Matters
The decision preserves the Medicare Drug Price Negotiation Program against three major constitutional challenges and aligns the Fifth Circuit with other appellate courts that have rejected challenges to the program’s delegation of authority and its effects on manufacturers’ asserted property interests.
At the same time, the court’s Anti-Injunction Act ruling leaves room for pre-enforcement constitutional review of tax-backed regulatory programs when the tax is so burdensome that a refund action would not provide a practical alternative forum.