Background
The Inflation Reduction Act created Medicare’s Drug Price Negotiation Program, under which the Centers for Medicare & Medicaid Services identifies certain high-spending drugs and negotiates maximum fair prices. CMS guidance groups dosage forms and strengths sharing the same active moiety and New Drug Application holder as one “qualifying single source drug,” even if the products were approved under separate applications. The guidance also treats a generic as “marketed” only when the manufacturer engages in “bona fide marketing.”
Teva sells Austedo and its extended-release formulation, Austedo XR, which share an active moiety and application holder but were approved under separate applications. CMS grouped them as one qualifying single source drug. Teva also has developed generic versions of five innovator drugs selected for the 2027 negotiation cycle. Teva challenged both guidance provisions under the Administrative Procedure Act and argued that the program deprived it of property without due process. The district court upheld the grouping rule, found the marketing challenge unripe, and rejected the constitutional claim.
The Court’s Holding
The D.C. Circuit held that the IRA’s judicial-review bar covers CMS’s drug-specific determinations, but not generally applicable legal standards governing those determinations. Teva therefore had standing to challenge the grouping guidance, and the court had jurisdiction to consider its statutory and constitutional claims.
On the merits, the court upheld CMS’s treatment of Austedo and Austedo XR as one statutory drug. The IRA permits a single qualifying drug to encompass formulations approved under different applications, and CMS’s active-moiety and common-application-holder criteria comport with the statutory scheme. The court also rejected Teva’s due-process claim because Teva identified no protected property interest in continued Medicare reimbursement on preferred terms, sales at a particular price, or patent rights affected by the program.
The court held, however, that Teva’s facial challenge to CMS’s “bona fide marketing” requirement was ripe because it presented a purely legal question concerning final agency guidance and required no further factual development. Without deciding whether that requirement is lawful, the court reversed the judgment on that claim and remanded for the district court to address the merits in the first instance.
Key Takeaways
- The IRA bars review of individual drug determinations, not facial challenges to the generally applicable legal standards CMS uses to make them.
- CMS may group formulations with the same active moiety and application holder as one qualifying single source drug even when they were approved under separate applications.
- Teva’s challenge to CMS’s “bona fide marketing” standard is ripe, but the appellate court did not decide whether that standard is authorized by the IRA.
Why It Matters
The decision preserves judicial review of CMS’s generally applicable interpretations of the Medicare drug-negotiation statute while respecting Congress’s bar on review of drug-specific selection decisions. That distinction gives manufacturers a path to challenge the agency’s governing legal rules without directly contesting an individual drug’s selection.
The ruling also validates CMS’s approach to grouping related formulations for negotiation and rejects a due-process theory based on manufacturers’ preferred Medicare reimbursement terms. The legality of CMS’s requirement that generics be marketed on a “bona fide” basis remains unresolved and will be considered on remand.