Drug manufacturers remain steadfast in their efforts to challenge the constitutionality of the Inflation Reduction Act’s mandatory price negotiation provisions. Recently filed suits contend that CMS has impermissibly expanded the definitions of “qualifying single source drug” and “bona fide marketing” beyond the statutory text resulting in the selection of drugs that should not have otherwise been selected for price negotiation. And, with CMS’s early announcement on January 17 of drugs selected for negotiation for Initial Price Applicability Year 2027, drug manufacturer litigation challenging program implementation is nearly certain to continue in 2025.
Qualifying single source drugs (QSSDs) are drugs for which at least seven years or biologics for which at least 11 years have elapsed between US Food and Drug Administration approval or licensure and the selected drug publication date, and for which there are no therapeutically equivalent generic or biosimilar alternatives approved or licensed and marketed on a “bona fide” basis.
The Part D drugs selected for price negotiation for IPAY 2027 (discussed in our January 28, 2025 blog post) were chosen from the top 50 negotiation-eligible Part D drugs with the highest total Medicare Part D expenditures. The Social Security Act defines total expenditures as total gross covered prescription costs. Drug ranking is determined by identifying QSSDs among all covered Part D drugs with the highest gross covered prescription costs and then applying the relevant statutory exclusions (e.g., orphan drug exclusion, small biotech exception, drugs with total spend under Part B and D combined of less than $200 million).
Manufacturers have taken issue with CMS’s definition of QSSD as it relates to drug selection and subsequent negotiation on grounds that CMS’s definition is inconsistent with the statutory text of the IRA (42 USC § 1320f-1(d)(1)). The IRA defines QSSD as one drug marketed under its own new drug application (NDA) (42 USC § 1320f-1€).
CMS, however, in its guidance documents, aggregates as a QSSD drugs marketed under separate NDAs for purposes of selection and negotiation. CMS guidance defines QSSD as any set of drugs “with the same active moiety”—including “all dosage forms and strengths”—whose NDAs are held by the same entity. Given the alleged differences, manufacturers contend that CMS has impermissibly expanded the IRA’s definition of QSSD resulting in drugs being selected for negotiation that should otherwise not have been.
The IRA specifies that CMS determinations as to whether a drug meets the QSSD definition and selection for price negotiation, among others, are not subject to judicial or administrative review.
Similarly, manufacturers have taken issue with CMS’s definition of “bona fide marketing.” Manufacturers contend that under the IRA, a drug that is the reference listed product for an approved and “marketed” generic cannot be a QSSD, and thus, is not eligible for selection and negotiation. (42 USC § 1320f–1(e)(1).) Further, the IRA requires only that a generic drug be “approved and marketed.” In the case of a biosimilar product, it must be “licensed and marketed.” (42 USC §§ 1320f-1(e)(1)(A) & (B).) Manufacturers contend these requirements are satisfied when an approved or licensed product is launched and placed into commerce for sale.
CMS, however, in its 2026 and 2027 Final Guidances, states that CMS will consider a generic or biosimilar drug to be marketed only if certain sources of data reveal the manufacturer is engaged in bona fide marketing of the drug. Further, that a determination as to whether a generic or biosimilar product is being marketed will be based on a “totality of the circumstances” test evaluated over a 12-month period.
CMS will consider, among other things, whether the generic or biosimilar is regularly and consistently available for purchase through the pharmaceutical supply chain and whether any licenses or other agreements between primary manufacturers and a generic drug or biosimilar manufacturer limit the availability or distribution of the selected drug.
CMS will also analyze the share of generic drug or biosimilar biological product units identified in Medicare claims data as a percentage of total units of Part D expenditures, as well as whether manufacturers are reporting units of the selected drug as part of their average manufacturer price (AMP) reporting responsibilities, and the trend in reporting of such AMP units, in its determination of whether a generic or biosimilar meets the “bona fide” marketing test. Given the alleged distinctions, manufacturers contend CMS’s definition of bona fide marketing also constitutes an impermissible expansion of the statutory text.
As these arguments remain before the court, their outcome is uncertain. We will continue monitoring developments and provide updates as information is released.
With billions of dollars at stake and the financial impacts of reduced prices becoming more concrete, it is likely that manufacturer litigation related to IRA drug price negotiations will continue for the foreseeable future. And with manufacturer and industry scrutiny over what has been characterized as “black box” price negotiations with CMS (discussed in our recent LawFlash), manufacturers may be better situated to contest the negotiation process and CMS program implementation guidance as they proceed through the process. Manufacturers would be well advised to be familiar with the statutory text of the IRA and CMS guidance and to look for any inconsistencies as they navigate price negotiations.
Our lawyers provide strategic counseling to pharmaceutical and biological drug manufacturers on complex Inflation Reduction Act drug price negotiation matters. We have a deep bench of litigators who can assist clients who seek to pursue litigation.
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