Teva Pharmaceuticals recently sued the Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) over its implementation of the drug price negotiation program baked into the Inflation Reduction Act (IRA). In the Complaint, Teva refers to its “unique position” as a developer of both innovative medicines and high-quality generic drugs and biosimilars.
Teva alleges that the drug price negotiation program is a “fiction” that “upsets the delicate balance between innovation and affordability,” and that implementing guidance from CMS contradicts parts of the IRA, specifically that the law requires drugs are only eligible for the program if they have been marketed for a specific amount of time or are declared exempt due to generic or biosimilar competition. Teva states that “CMS rendered both of those Congressionally imposed limitations illusory by fabricating a new definition of a statutory term and by replacing a statutory test with one of CMS’s own making.”
The new definition is that of a “Qualifying Single Source Drug,” which is the IRA’s term for a drug that is eligible to be selected for the drug price negotiation program. Under the statute, each eligible drug corresponds to a particular FDA application to approve that drug. However, under this new CMS definition, the agency can decide that two or more drugs approved under distinct FDA applications held by the same entity should be treated as one Qualifying Single Source Drug because they have the same active molecule. Such a definition, Teva argues, alters the timing of the drug price negotiation plan established by Congress as two drugs with the same active molecule may be approved years apart, but under CMS’s rule, the negotiation eligibility clock starts with the first approval.
CMS’s novel test also adds in a discretionary exception. Statutorily, a drug becomes ineligible for a price control based on when a non-branded competitor has been “approved” and “marketed.” However, CMS guidance replaces that more objective test with a subjective test – whether the marketing of the non-brand competitor is “bona fide,” a subjective and standardless definition.
Finally, Teva argues that the drug price negotiation program “does not actually involve negotiation.” Instead, CMS makes an initial offer to a drug manufacturer and while the manufacturer may have the “putative opportunity to counter,” CMS ultimately issues a “take-it-or-leave-it-demand.” Teva notes that such a situation is “price control, not a negotiated agreement.” Additionally, the negotiation is biased as the statute sets a ceiling for the initial offer but there is no floor for CMS’s ultimate demand in many circumstances.
Teva states that the “legislative experiment in market manipulation” of the IRA “undermines not just the innovation that creates next-generation therapies, but also the Congressionally created public health infrastructure that ensures those therapies transition to lower-cost options on a defined and predictable time frame.”
The company requests that the court: (1) declare the CMS definition of Qualifying Single Source Drug and the “bona fide marketing” standard to be unlawful, arbitrary, and capricious under the Administrative Procedure Act; (2) vacate and set aside the Guidance Documents’ Qualifying Single Source Drug and “bona fide marketing” standard; (3) declare that the drug price negotiation program and implementation guidance documents violate the Due Process Clause; and (4) bar CMS and HHS from applying the drug-pricing provisions of the IRA to Teva or to the manufacturers of branded drugs or biologics with which Teva currently competes – or will compete in the future. Teva is also asking for costs, expenses, and attorney fees to be paid.