Medicare Rx Negotiation More Insulated From SCOTUS Fallout, But Some Key CMS Decisions Could Be Vulnerable

The pharmaceutical industry quest to throw out Medicare’s drug price negotiation authority is unlikely to gain much new ammunition thanks to a handful of recent anti-regulatory decisions from the US Supreme Court, most notably the elimination of the Chevron doctrine of judicial deference to an agency’s interpretation of a statute that is ambiguous.

But drug manufacturers could use the recent Chevron overhaul to score some smaller victories in how the negotiation program, set in place by the Inflation Reduction Act, gets implemented. (Also see "Deference No More: More Suits Against US FDA Coming After High Court Tosses Chevron Doctrine?" - Pink Sheet, 28 June, 2024.)

And thanks to another recent Supreme Court decision, the 1 July ruling in Corner Post, manufacturers that aren’t hit by the impacts of the IRA negotiation period until much later cycles of the program will get a chance to litigate on these issues that they wouldn’t have had under the previous default six-year statute of limitations.

The Corner Post ruling modified the period that entities have to challenge federal regulations, beginning the statute of limitations when a particular plaintiff is injured by a final agency action.

“I don’t think [Chevron] becoming overturned all of a sudden rips the rug out from under the IRA,” said Aaron Kesselheim, the head of the Program on Regulation, Therapeutics, and Law at Harvard University.

That’s in part because Congress and agencies have foreseen this coming and modified their legislative and rulemaking strategy.

“There has been a trend in the last couple decades of jurisprudence towards shaving back Chevron from its broadest interpretations, and I think Congress has responded to that when it passed bills like the [Affordable Care Act] and the IRA,” Kesselheim said.

“I think that you can see that in the IRA around defining what kinds of decisions are subject to judicial review and in kind of very explicit listing of a lot of the different factors that are going into the negotiation process,” he told the Pink Sheet.

The IRA “was written as a reconciliation bill which means we had to be very painstaking in making sure that it limited policy interpretation,” said Anna Kaltenboeck, who worked on the legislation during her time as a senior health advisory on the Senate Committee on Finance.

“So there is already a bit of a layer built in here that tries to be very prescriptive that sort of says, ‘Secretary, you have to do a, b, and c. You have to go through this process to negotiate. You have to go through every single one of these steps,’” said Kaltenboeck, who now leads ATI Advisory’s prescription drug reimbursement practice.

Definitions of Single Source, Bona Fide Marketing Could Be In Jeopardy

Most of the ongoing litigation against the IRA focuses on Constitutional challenges, not Administrative Procedures Act (APA) challenges that would implicate Chevron. And industry has racked up loss after loss, most recently when a judge tossed Boehringer Ingelheim GmbH’s suit on 3 July. (Also see "JNJ, BMS’s IRA Loss Is First Time Court Rejects Industry’s First Amendment, Takings Claims" - Pink Sheet, 30 April, 2024.)

Companies with these ongoing suits want to move quickly to get decisions on appeal before the first set of prices go into effect in 2026, so they may not want to amend their complaints or do anything to delay resolution, said Zachary Baron, director of the Health Policy and the Law Initiative at Georgetown Law.

Instead, Baron expects any pivot to utilizing the recent Chevron decision may happen after Medicare names the next set of drugs that will be subject to negotiation and those impacted manufacturers consider their legal options.

Of the ongoing suits, the appeal to watch most closely is likely AstraZeneca PLC’s, Baron told the Pink Sheet. AstraZeneca alleges that Medicare violated the APA by expanding the statutory definition of “qualifying single-source drug” and adding a new “bona fide marketing” requirement in its guidance implementing the Medicare price negotiation program.

AstraZeneca’s APA challenges were dismissed in March by the district court for the District of Delaware for lack of standing, with the judge saying the company failed to establish a legally sufficient injury. But appeal briefs should be heading to the Third Circuit this summer.

While neither AstraZeneca nor the Justice Department cited Chevron in their initial briefs on the case, Baron expects industry “may latch on to this decision to say that it is a game changer in the context of the drug negotiation program,” though he also expects the Justice Department “will pretty forcefully argue that it doesn’t change anything here.”

Health policy experts think AstraZeneca’s prospects may have improved after the fall of Chevron, though its notable that right now CMS’s implementation of the negotiation program is being done through guidance and the Chevron case impacts regulations. The statute envisions CMS transitioning to rulemaking post-2028.

“There are aspects of implementation that maybe go a little bit beyond what the statute specifically prescribes that I think are more subject to challenge moving forward,” said Raghav Aggarwal, a VP of Health and Life Sciences at the lobbying firm BGR Group.

“Things such as the definition of single-source drug and CMS relying on the same active ingredient and active moiety, that’s CMS using its interpretive authority to expand maybe what the statute might specifically call for.” (Also see "Single Product, Single Price: Medicare Will Include All Versions Of Active Ingredient For Negotiation" - Pink Sheet, 20 March, 2023.)

“The statute speaks to negotiation applying across dosage forms and strengths, but it doesn’t necessarily prescribe how … all the different products that are within a certain dosage form and strength are combined together and doesn’t specifically state how that should happen,” said Aggarwal, who worked on the implementation of the IRA at CMS before joining BGR in November 2023. Prior to his time at CMS he helped developed the IRA as a senior health advisor to the Senate Finance Committee.

AstraZeneca alleges CMS’s definition of single-source “impermissibly includes two different drugs approved at different times.”

The determination of a qualifying single source drug was one element that Congress exempted from administrative and judicial review, but Aggarwal said there are limitations to that exemption.

Bridget Dooling, an assistant professor of law at Ohio State University, said her read of the statute is that while the act of classifying a specific drug as single source would not be judicially reviewable that there is an “interpretive step” in between where CMS decides what is the general definition of a single-source drug that might be reviewable.

Aggarwal also believes CMS’s definition of bona fide marketing as used in guidance for the initial years of the drug negotiation program may be more vulnerable in a post-Chevron world.

The words “bona fide marketing” do not appear in the statute.

The statute says that drugs are not eligible for negotiated prices if they have generic or biosimilar competition. CMS guidance added the stipulation that the competition must be bona fide and laid out a process by which the agency will determine whether it is. Under the guidance, CMS suggests it could potentially select a drug if the generic or biosimilar market share is really low or if there are other circumstances that would warrant the brand drug be targeted. (Also see "Medicare Director: ‘Bona-Fide’ Generic Marketing Likely Product-Specific For IRA" - Pink Sheet, 11 July, 2023.)

Lindsay Bealor Greenleaf, ADVI solution leader for federal and state policy, said people have been closely watching whether CMS might target AbbVie Inc.’s Humira for the 2027 round of negotiations.

“Humira was obviously not selected for 2026. CMS did not give us any rationale for that. We would assume it’s because they found that there was bona fide marketing for Humira biosimilars. … But since then there’s been a lot of attention placed on the fact that Humira biosimilars are not really taking off necessarily,” said Greenleaf. (Also see "Time To Tip the Scales? Humira Biosimilars And The Limitations Of Competition In US Health Care" - Pink Sheet, 31 January, 2024.)

There has been some thought that CMS might want to target Humira if the biosimilar competition doesn’t take off, “but I would think now [that would be difficult] given the Supreme Court’s decision,” Greenleaf said.

“From a litigation standpoint it would be more challenging for CMS to defend their bona fide marketing definition because a plain reading of the legislative text says simply ‘marketed,’” she said.

Five products on the 2026 roster of negotiation candidates may have generic competition in 2025, creating a big test for CMS’s bona fide standard. (Also see "Novartis’ Entresto, Medicare Price Negotiation And The Impact Of ‘Bona Fide’ Competition" - Pink Sheet, 2 February, 2024.)

Aggarwal thinks CMS may internally reopen conversations about the bona fide marketing topic and perhaps consider changing that definition itself in later IRA guidance or in the rulemaking it will eventually need to issue for later years of the IRA implementation.

But overall, he noted the agency tried to take limited risks and insulate itself from challenges to its IRA implementation.

For example, Aggarwal said CMS considered extending the Medicare Part B inflation rebate penalties called for in the IRA to include Medicare Advantage but ultimately decided not to finalize this policy.

While he doesn’t know why that occurred, he wonders if it was because it was seen as going further than the statute allowed. (Also see "Medicare Drug Price Inflation Rebate Invoice Distribution Will Start In 2025, CMS Says" - Pink Sheet, 10 February, 2023.)

“CMS lawyers are pretty risk averse,” he said.

Broader Threats To Medicare, Certainty

The end of Chevron deference may be more relevant for other Medicare regulations than the ones issued to carry out the IRA, experts said, particularly as CMS tries to implement much older statutes and adjust them to an ever-changing medicine and health technology landscape.

Kesselheim said he’s worried about scrutiny of larger policy decisions like an agency responding to emerging public health issues or emerging technology that isn’t explicitly defined in statutes, such as how to handle a novel gene editing technology or regulation of artificial intelligence in health care.

CMS will need to be much more careful about the interpretations that they assert, particularly in a space where the agency has previously taken a different interpretive tack, because this court seems to think that earlier interpretations are more valuable than later ones, said Dooling.

The court has clearly telegraphed that they are skeptical of circumstances where an agency “reaches back for statutory language from several decades ago and tries to give it a new spin to solve a new problem,” Dooling explained.

“So the agency then faces a quandary: Do we do our best to work with the statutory language that we’ve got, given that it was written in an era when the tech was different or knowledge of healthcare was different, all kinds of things were different? ... Or does it take a risk and hopes its interpretation or recharacterization of its statutory authority can survive legal challenge?” she said.

The alternative option in these situations would be for the agency to go back to Congress and get clear direction from them, but “Congress is busy and won’t be able to attend to all of these evolving realities,” Dooling said.

And the Supreme Court’s majority opinion left Medicare and Congress with little direction on how to proceed moving forward.

“The majority overruled Chevron, but it doesn’t provide guidance to Congress, to agencies, about how to conduct themselves going forward. And that failure to provide guideposts to Congress and to agencies really has the effect of aggregating more power to the court,” said Rachel Sachs, the Treiman Professor of Law at Washington University in St. Louis. Sachs worked on Medicare drug price reform implementation from April 2023 through April 2024 as a senior advisor at the Department of Health and Human Services in the Office of the General Counsel.

“[The court] retains the ability to reject future delegations, to reject specific interpretations on the grounds that the delegation wasn’t specific enough or it didn’t use the right terms. …That’s a choice the majority makes. … It’s a recipe for potentially more chaos than is necessary,” said Sachs.

Ultimately industry may decide that the perks of the end of Chevron deference don’t outweigh the uncertainty it bestows.

“While I think some people in industry will say, ‘Okay, this is great, there’s new avenues for litigation to bring,’ others are going to go, ‘Well, actually, I think, the certainty that we had, under the old regime was a little bit better than the Wild West of different approaches and different judges in different regions.’ And so, I think as we see it play forward. I think industry …as they see how some of the litigation proceeds, it may be counter intuitively, try and find certain ways to get agencies broader authority,” because the outcomes they may get in some of these complex reimbursement issues may be easier to deal with than going through Congress or the courts, explained Baron.

Cathy Kelly contributed to this report.