Some things never change — like the left wanting control over the health care system. A recent lawsuit demonstrated this fact, and it may lead to a Supreme Court smackdown.
On Tuesday, the pharmaceutical manufacturer Merck filed the first of what could be many lawsuits against the Centers for Medicare and Medicaid Services (CMS) regarding the drug “negotiation” provisions included in last year’s Inflation (Reduction) Act. CMS is scheduled to release the names of the first tranche of drugs involved in the process on Sept. 1. Merck seeks to short-circuit the process before it begins.
Complaint Alleges Coercion
The Merck lawsuit calls the drug provisions unconstitutional on two fronts. First, the claim alleges the “negotiation” regime amounts to little more than “political Kabuki theater,” in which private companies have no alternative but to agree to the prices government bureaucrats set. Because the process forces manufacturers to accept the government’s offer, CMS is effectively violating the Fifth Amendment, which prohibits the taking of private property “for public use without just compensation.”
Second, the lawsuit alleges that the “negotiation” process violates the First Amendment. By making the process secret from the public, and by forcing companies to “agree” to the government’s price offers, the law compels private speech — a violation of the company’s constitutional rights.
As a matter of policy, the statements in Merck’s complaint are undoubtedly correct. Democrats have known for nearly two decades that drug “negotiation” would not save any additional money — the Congressional Budget Office said as much in 2004 — unless the government had some type of “hook” or “stick” to prevent companies from walking away from the negotiating table.
As a result, Democrats imposed financially ruinous taxes on companies that fail to “negotiate.” The highest rate spelled out in the law is 95 percent — but that effectively equates to a 1,900 percent rate as applied. (If a product cost $5 before the tax’s application, the end cost would be $100 — $5 for the product and $95 in taxes — such that the tax would consume 19 times the product’s price.)
Companies therefore feel compelled to participate in the process, which is defined by a statutory maximum price that CMS can offer for a particular drug. In other words, the “negotiation” feels like a scene out of “The Godfather,” in which CMS will make manufacturers an offer they can’t refuse.
Constitutional Challenge
On policy, Merck is absolutely correct about the effects of the CMS “negotiation” regime. But does that make the regime unconstitutional? Experts thus far have differed on the issue — some call the question novel, and others judge Merck’s case as relatively weak.
The complaint twice quotes the Supreme Court’s 2012 decision in NFIB v. Sebelius. That ruling made Obamacare’s Medicaid expansion to the able-bodied optional because the court considered mandated expansion to be “economic dragooning” by Congress that amounted to “a gun to the head.”
But NFIB v. Sebelius discussed potential “dragooning” of states under the Constitution’s spending clause, whereas the Merck lawsuit alleges a violation of the Fifth Amendment’s takings clause. Time will tell whether federal courts find the analogy apt.
Relevant to Merck’s complaint are two additional facts. First, to exit the “negotiation” program without paying the 1,900 percent tax penalty, Merck (or any manufacturer) would have to exit the Medicare and Medicaid programs for all drugs. That provision seems as coercive as Obamacare, which told states that if they did not expand Medicaid to the able-bodied, they would lose federal matching funds for their existing Medicaid populations.
Second, Merck’s complaint alleges that a provision originally included in Obamacare prevents the company from exiting the Medicare program in a timely manner, even if it wanted to. Namely, to avoid penalties for failing to participate in the “negotiation” process, “Merck would therefore have needed to terminate all relevant Medicare contracts by January 31, 2022 — months before the IRA was even enacted” (Emphasis original). The fact that the criteria laid out in statute apparently do not even contemplate a manufacturer actually exiting the program speaks to the coercive nature of this process.
Years of Litigation
Merck filed its suit in advance of the Sept. 1 date when CMS will select the first tranche of drugs for “negotiation,” meaning some may argue that the case is not yet ripe. But CMS has already laid out the criteria by which it will select the first 10 candidates. Merck claims one of its drugs meets this criteria, meaning the company will be asked to “negotiate” later this fall.
Timing also works in another way regarding this case. Because of the lag period necessary to complete the “negotiations” and finalize contracts, seniors will not receive lower prices from the process set up by the Inflation (Reduction) Act until January 2026 — more than three years from now. This means the Supreme Court has plenty of time and opportunity to strike down the “negotiation” provisions before they take full effect.
It wouldn’t be the first time this court has struck down Democrats’ government overreach. Maybe one day, the left will finally learn.
Mr. Jacobs is Founder and CEO of Juniper Research Group, and author of the book The Case Against Single Payer. He is on Twitter: @chrisjacobsHC.
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