J&J sues Biden administration over Medicare drug negotiations

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Johnson&Johnson on Tuesday sued the Biden administration over Medicare’s new powers to slash drug prices, making it the third pharmaceutical company to challenge the controversial provision of the Inflation Reduction Act.

The lawsuit filed in federal district court in New Jersey argues the Medicare negotiations violated the First and Fifth Amendments of the US Constitution.

Earlier suits brought separately by drugmakers Merck and Bristol Myers Squibb, as well as by the US Chamber of Commerce and PhRMA, the pharmaceutical industry’s largest lobbying group, made similar arguments.

J&J’s complaint asks a judge to block the US Health and Human Services Department from compelling the drugmaker to participate in the program.

The company said its suit aims to stop the “innovation-damaging congressional overreach that threatens the United States’ primacy in developing transformative therapies and in patients’ access to those treatments.”

President Joe Biden’s Inflation Reduction Act, which passed in 2022 by a narrow party-line vote, empowered Medicare to negotiate drug prices for the first time in the program’s six-decade history.

The provision aims to make drugs more affordable for older Americans but will likely reduce pharmaceutical industry profits.

The Centers for Medicare and Medicaid Services will publish a list of which drugs were selected for a first cycle of negotiations on Sept. 1, with prices taking effect in 2026. The companies that make those drugs face an October deadline to sign agreements to participate in those negotiations.

J&J said its patented drug Xarelto, which treats blood clots and reduces the risk of stroke, will be subject to price negotiations in 2023 because it is among the 10 most widely reimbursed drugs for Medicare Part D patients.

J&J argues that Medicare negotiations “inflict an uncompensated physical taking” of the company’s drug and essentially force J&J to provide access to Xarelto on terms set by the government that the company “would never voluntarily” agree to.

The company claims this violates Fifth Amendment protections against the government seizing private property without just compensation.

J&J last year booked $2.47 billion in revenue from Xarelto.

J&J also argues that the new provision forces the company to agree that the federal government is negotiating fair drug prices. That compels J&J to make “false and misleading statements” in violation of the First Amendment, according to the complaint.

The company believes the provision doesn’t involve true negotiations since the government “unilaterally dictates” drug prices.

Real negotiation involves finding a way for both parties to freely agree on terms, J&J said.

“While the Government may choose to deceptively describe the program as involving an ‘agreement’ to ‘negotiate’ a ‘fair’ price, it cannot force manufacturers to echo its misleading messaging,” J&J said in the complaint.

HHS did not immediately respond to CNBC’s request for comment.

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