Court upholds drug price negotiation program, rejecting BMS and Janssen challenge
Philadelphia, PA – A federal appeals court has upheld the Biden administration’s authority to negotiate Medicare drug prices, rejecting claims by pharmaceutical giants Bristol Myers Squibb and Janssen that the program violates constitutional protections.
In a precedential ruling, the U.S. Court of Appeals for the Third Circuit affirmed a lower court’s decision granting summary judgment to the government, preserving the Drug Price Negotiation Program created under the Inflation Reduction Act of 2022. The program empowers the Centers for Medicare & Medicaid Services to set “maximum fair prices” for high-cost drugs lacking generic competition, beginning with ten drugs in 2026.
The drugmakers had argued the system amounted to an uncompensated taking of property, compelled speech, and unconstitutional conditions tied to federal benefits. But the panel majority, in an opinion by Judge Freeman, found that manufacturers voluntarily participate in Medicare and may opt out if they reject the program’s terms.
The court noted that CMS acquires drugs only through agreements signed by manufacturers and pointed to guidance allowing expedited exits from federal rebate and discount programs, undercutting claims that withdrawal is impractical. Precedents in health care regulation, the judges said, support Congress’s power to set participation terms when the government acts as a market player.
On free speech grounds, the panel concluded the program regulates commercial conduct rather than expression, with any required contractual language limited to factual terms such as “maximum fair price.” The court likened the arrangement to other federal funding conditions upheld by the Supreme Court, stressing that companies remain free to criticize the policy outside of contracts.
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Judge Thomas Hardiman dissented, contending that the steep excise taxes imposed on noncompliance and statutory notice periods for withdrawal leave manufacturers with no real choice, effectively forcing participation. He warned that compelled use of contract language could mislead the public into believing negotiations were voluntary.
The decision marks a major win for the Trump administration as it prepares to implement negotiated prices in 2026. BMS and Janssen, whose blockbuster blood thinners Eliquis and Xarelto were among the first drugs selected, had already signed agreements reflecting discounts of more than half off their original Medicare prices.
Key Points
- Third Circuit upheld Medicare’s drug price negotiation program, rejecting constitutional claims by BMS and Janssen.
- Court found participation voluntary and contractual language incidental, not compelled speech.
- A dissent argued taxes and withdrawal rules make opting out illusory and contract terms coercive.
The ruling locks in a significant piece of the White House’s health care cost-cutting agenda.