October 29, 2019

Pelosi's Rx pricing bill might be unconstitutional, congressional researchers say

Daily Briefing

    Provisions in House Speaker Nancy Pelosi's (D-Calif.) bill (HR 3) that aims to reduce prescription drug prices in the United States might violate the U.S. Constitution, according to a memo issued last week by Congressional Research Service (CRS) that was obtained by news outlets.

    Your cheat sheets for understanding health care's legal landscape

    Bill details

    The bill, called the Elijah E. Cummings Lower Drug Costs Now Act, includes several provisions intended to lower U.S. drug prices. For instance, the bill would allow the HHS secretary each year to negotiate prices for high-cost drugs that lack two generic or biosimilar competitors on the market. The bill would allow the HHS secretary to negotiate prices for between 35 and 250 high-cost drugs each year.

    The bill would establish a drug price ceiling for the negotiations based on the prices paid for the drugs in other countries—which is somewhat similar to a White House proposal that would tie payments for drugs covered by Medicare Part B to certain international prices.

    Pharmaceutical companies that refuse to negotiate prices with HHS would face a 65% tax on the drug's annual gross sales from the previous year. That penalty would increase by 10 percentage points for every quarter that a deal remains unstruck, with the penalty maxing out at 95%. If a drugmaker negotiates a price with HHS but then overcharges Medicare or does not provide other payers the negotiated price, HHS could levy a civil penalty equivalent to 10 times the difference between the negotiated price and the offered price.

    The bill also would set limits for prescription drug price increases. The bill would require pharmaceutical companies to either lower the prices of drugs covered by Medicare Parts B and D if the drugs have experienced price hikes at rates above inflation since 2016, or pay a rebate worth the entire difference in the price above inflation to the Department of the Treasury. The bill states that setting the base year of inflation as 2016 would reverse unjustified price increases that have occurred over the past three years.

    Further, the bill would create an out-of-pocket maximum of $2,000 for prescription drugs covered by Medicare Part D.

    In addition, the bill would require that the copayment for a drug under participating employer-sponsored health plans not exceed the negotiated price, require federal investigators to examine the effects of price negotiation and extending the inflation cap to employer-sponsored plans, and ensure data collected under the bill is not duplicative.

    The bill also would increase Medicare Part B reimbursements for biosimilars for five years. Under current rules, Medicare Part B reimburses providers a 6% markup of a biosimilar's average sales price, but the bill would increase that rate to an 8% markup of the drug's average sales price.

    The bill also includes new price transparency requirements for drugmakers and expanded eligibility for the low-income subsidies offered in Part D.

    CRS says bill could violate Constitution

    CRS in its memo wrote that the bill's proposal to require the HHS secretary to negotiate drug prices, as well as its proposed fines for companies that refuse to negotiate prices with HHS or that negotiate a price but then overcharge Medicare or fail to provide the negotiated price to other payers, might violate the Constitution's Fifth and Eighth Amendments and might not be in line with Congress' taxing authority granted by the Constitution.

    For example, CRS in the memo notes that the provision to require the HHS secretary to negotiate drug prices might violate the Fifth Amendment's so-called "Takings Clause," which prohibits the federal government from taking property without "just compensation." According to CRS, pharmaceutical companies could point to the clause to argue that any revenue losses they experience as a result of price negotiations is considered a "taking" under the clause, and therefore is unconstitutional. "In general, if legislation causes a claimant's property to suffer a significant diminution in value or a deprivation of economically beneficial use, the legislation may result in a regulatory taking," CRS wrote.

    But CRS also noted that "it is generally difficult to prevail on a takings challenge," so companies might not be successful in challenging the bill based on the Takings Clause.

    According to STAT+, "perhaps the most problematic portion of the sweeping" bill that CRS flagged is its proposed fines on pharmaceutical companies. CRS raised questions regarding whether Congress has the power to levy the fines, noting that although courts have granted Congress significant flexibility when it comes to its taxing authority, its authority to levy fines as taxes is not as substantial.

    CRS wrote that it believes "Congress likely has the constitutional authority to impose the excise tax," but said the issue would have to be determined by judges. However, CRS noted that, even if Congress does have the power to implement the fines as a tax, they might be considered "excessive" under the Eight Amendment's clause on excess fines.

    But CRS again noted that pharmaceutical companies might have a hard time convincing a judge that the fines are excessive. "Ultimately, even if certain factors suggest the excise tax is disproportional, it is unclear whether a court would consider the excise tax to be grossly disproportional to the gravity of a drug manufacturer's offense given the fact-intensive nature of the inquiry, the deference courts afford to Congress in this area, and the absence of on-point case law," CRS wrote.

    Overall, CRS did not make a definitive conclusion on whether the provisions violate the Constitution, stating that a final decision on the matter would have to be made by a judge.

    House leaders delay floor vote as lawmakers raise concerns

    According to STAT+, a spokesperson for the House Energy and Commerce Committee said, "We've consulted with legal experts and firmly believe the legislation is constitutional." The spokesperson added, "Any lawyer can argue against a bill's constitutionality, but that doesn't mean those arguments have merit."

    House Ways & Means Committee spokesperson Erin Hatch said, "The excise tax this bill would impose on drug manufacturers that continue to charge Americans higher prices than patients in the rest of the world falls squarely within Congress' taxing authority," Inside Health Policy reports.

    According to STAT+, Amy Hall, staff director of the House Ways & Means Committee's Subcommittee on Health, also said, "We do not believe that this bill is in violation of the constitution."

    But some federal lawmakers have raised concerns over the potential constitutional violations, and have cited the issue as a reason to delay further consideration of the bill, STAT+ reports. For example, Rep. George Holding (R-N.C.) last week said, "These things do get litigated," adding, "Perhaps it might be opportune to take a pause, [and] have further hearings on the central constitutional problems."

    According to Inside Health Policy, some Republican lawmakers have expressed concerns that the fines might be excessive, with Rep. Kevin Brady (R-Texas), the ranking member on the House Ways & Means Committee, equating them to "extortion."

    The bill is facing other challenges, too, as House Democrats have disagreed over an amendment added last week to the bill that would require HHS and other federal agencies to examine whether imposing inflation-tied caps on prescription drug price increases in Medicare could be extended to employer-sponsored health plans. According to Politico's "Pulse," House Democratic leaders have expressed concerns that the amendment's language is too weak, but progressive lawmakers have said they already have compromised with Democratic leaders on the language. Rep. Lloyd Doggett (D-Texas), said, "Any action to pull this … amendment … would be disconcerting, since this could not have happened without leadership input."

    According to Inside Health Policy's "The Regimen," House leaders have delayed a floor vote on the bill that was planned for this week to give Democratic lawmakers more time to discuss amendments to the legislation (Cohrs, Inside Health Policy, 10/25 [subscription required]; Florko, STAT+, 10/25 [subscription required]; Anderson, Becker's Hospital Review, 10/25; Diamond, "Pulse," Politico, 10/28; Wilkerson, "The Regimen," Inside Health Policy, 10/28 [subscription required]).

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