Appeals Court Upholds Medicare Drug Price Negotiation Program in PhRMA Challenge

A U.S. appeals court has upheld a previous ruling rejecting a challenge to Medicare’s drug price negotiation program, marking another setback for pharmaceutical manufacturers and industry groups opposing the policy established under the Inflation Reduction Act (IRA).

The program allows the Centers for Medicare and Medicaid Services (CMS) to negotiate a maximum fair price for selected medicines. Manufacturers that fail to reach an agreement within the required timeframe may face an excise tax imposed by the Internal Revenue Service. Companies that do not wish to participate may withdraw their products from Medicare and Medicaid coverage.

Court Rejects Arguments Over Participation in Negotiations

On Wednesday, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court ruling against the Pharmaceutical Research and Manufacturers of America (PhRMA) and its co-plaintiffs, who challenged the constitutionality of the Medicare drug price negotiation provisions included in the IRA.

One of the key arguments raised by PhRMA and other drugmakers was that manufacturers are effectively compelled to participate in the negotiations. The court rejected that position.

Judge Leslie Southwick wrote that manufacturers do not have a protected interest in selling medicines to Medicare beneficiaries at a preferred price because participation in Medicare, Medicaid and the negotiation program is voluntary.

The court also cited a previous ruling from the Second Circuit in addressing due process claims.

“We agree with the Second Circuit, which rejected another IRA due process challenge on the grounds that a ‘company suffers no deprivation of its property interests by voluntarily submitting to a price-regulated government program,’” Southwick wrote.

Financial Importance Does Not Equal Legal Compulsion

In the opinion, Southwick acknowledged that access to Medicare and Medicaid is financially important for drug manufacturers. However, she stated that the Fifth Circuit does not consider participation involuntary simply because of that importance.

According to the ruling, economic hardship is not the same as legal compulsion. As a result, the court concluded that manufacturers are not forced to take part in the program.

Plaintiffs Raised Constitutional Concerns

PhRMA filed the lawsuit in 2023 alongside the National Infusion Center Association (NICA) and the Global Colon Cancer Association (GCCA).

The plaintiffs argued that the Medicare price negotiation framework lacked checks and balances because it did not provide for public feedback and limited administrative and judicial review. They contended that those features could violate constitutional protections related to separation of powers and due process.

They also challenged the excise tax applied to companies that fail to reach a negotiated price within the required period. According to the lawsuit, the tax is disproportionate to the alleged offense and therefore constitutes an excessive fine under the Eighth Amendment.

A PhRMA spokesperson said the organization is reviewing the decision and considering its options.

Additional Legal Challenges Continue

The Fifth Circuit ruling comes amid a series of unsuccessful court challenges to the Medicare drug price negotiation program.

Earlier this week, the U.S. Court of Appeals for the Third Circuit in Washington, D.C., rejected claims from Merck & Co. that the negotiations violate the First and Fifth Amendments. Days earlier, a federal court in Maryland dismissed AstraZeneca’s challenge concerning the government’s calculation that made certain company drugs eligible for the program.

Teva recently achieved a partial victory in its own challenge when a Washington, D.C., appeals court returned a previous ruling to the district court for further review. The company’s case focuses on a CMS requirement that a generic medicine must be genuinely marketed before the corresponding brand-name product can be excluded from the negotiation program.

Medicare Drug Program Wins Another Court Victory

The Medicare Drug Price Negotiation Program has received another major legal victory after the U.S. Court of Appeals for the Fifth Circuit upheld a lower-court decision rejecting a challenge brought by PhRMA and its co-plaintiffs. The ruling represents another setback for the pharmaceutical industry’s efforts to overturn the federal negotiation system.

Medicare Drug Negotiation Challenge Rejected

The Fifth Circuit rejected arguments that the Medicare Drug program gives federal officials excessive authority over pricing, imposes an unconstitutional penalty on manufacturers that decline to participate, and violates manufacturers’ due-process rights. The appeals court affirmed the lower court’s ruling in favor of the government.

Medicare Drug Program Moves Forward

The ruling allows the Medicare Drug negotiation framework to continue while other legal challenges have also largely failed. CMS says negotiated maximum fair prices for the first 10 selected drugs became effective January 1, 2026.

CMS is also continuing implementation for future negotiation cycles. The agency says negotiations for drugs selected for the third cycle are taking place in 2026, with negotiated prices scheduled to become effective in 2028.

Medicare Drug Savings and Patient Impact

The program was created under the Inflation Reduction Act to allow Medicare to negotiate prices for certain high-cost, single-source medicines without generic or biosimilar competition. The government argues that the policy can lower prescription costs while maintaining incentives for pharmaceutical innovation.

Medicare Drug Legal Battle Continues

The Fifth Circuit decision adds to a series of court victories supporting the Medicare Drug negotiation framework. Pharmaceutical companies and industry groups have challenged the program on constitutional and administrative grounds, but multiple courts have rejected key arguments against it.