In recent years, we have seen an increase in litigation between private industry and the federal government relating to drug pricing. One prominent example is the set of lawsuits — nine at the end of 2022 — brought against the Department of Health and Human Services (HHS) by drug companies in connection with the 340B drug pricing program. Under the 340B program, manufacturers must sell drugs to specified healthcare providers at steep discounts — sometimes as little as a penny per unit — as a condition of having their drugs covered under Medicaid and Medicare Part B. When HHS sought to invalidate a variety of 340B sales policies adopted by manufacturers, the manufacturers sued, arguing that the agency’s actions were themselves unlawful. Those suits are now pending in trial and appellate courts around the country.
In another recent case, manufacturers successfully challenged HHS regulations that would have required manufacturers to include “list price” information in their television advertisements. A third set of cases has taken aim at HHS interpretations of the Anti-Kickback Statute that have the effect of blocking companies and charities from helping patients to pay Medicare co-payment obligations. Because those co-pay obligations can be cost-prohibitive for many individuals, these interpretations by the HHS can have the practical effect of blocking patients from accessing critical and even life-saving drugs.
We expect the trend of increasing litigation between private industry and the federal government to continue, driven by two factors that seem likely to persist through 2023. First, Congress and federal agencies continue to adopt untested measures that are pitched as tools to reduce the cost of drugs. For example, the Inflation Reduction Act (IRA), passed in 2022, includes novel provisions that will require manufacturers to pay rebates when Medicare drug prices rise faster than inflation. The IRA will also authorize the HHS to negotiate with manufacturers over Medicare drug prices.
The second relevant factor is not limited to the pharmaceutical industry but cuts across industries and areas of law. The federal courts are slowly shedding their formerly reflexive instinct to defer to interpretations of the law by federal agencies. As a result, they may be more receptive to arguments that a challenger’s interpretation of the law is correct and the federal agency’s reading of the law is wrong.
Taken together, these two trends of continued federal activity to reduce drug prices on one hand and increased scrutiny of government decision-making in the courts on the other set the stage for even more courthouse showdowns between industry and government in the years ahead.