Medicare Drug Negotiations Under New CMS Leadership

President-elect Donald Trump nominated Dr Mehmet Oz to lead the Centers for Medicare & Medicaid Services (CMS). With this potential change in leadership, are there any implications for Medicare’s drug price negotiation program, particularly as pharma continues its legal challenges against the program?

Read more about why uncertainty remains a prominent concern across several health care policy issues.

Current Legal and Policy Landscape

The Medicare Drug Price Negotiation Program, established under the Inflation Reduction Act (IRA), represents a significant shift in federal authority over drug pricing. CMS completed its first round of negotiations in August 2024 for 10 Medicare Part D drugs, with negotiated prices set to take effect in January 2026. These initial negotiations resulted in projected savings of $6 billion, representing a 22% reduction from current prices.¹

The agency is now preparing for its second round, which will cover 15 Part D drugs, with selections due by February 2025.¹ This expansion of the program introduces (even more) complexity into both the legal and administrative frameworks governing Medicare drug pricing.

Legal Challenges Remain

Currently, 9 lawsuits challenging the program remain active in federal courts. The pharmaceutical industry's legal arguments center on several constitutional claims:¹

1. Fifth Amendment Challenges: Manufacturers argue the program forces them to sell their products at unfairly low prices, which they believe is like the government taking their property without proper payment. This argument focuses on whether the government has the right to control prices in a private market. (What was once clear with the noninterference clause is now less so...)
2. First Amendment Issues: Companies claim that being forced to take part in price-setting discussions and calling those prices “fair” violates their freedom of speech. This raises questions about whether the government can require businesses to say or do things they don’t agree with.
3. Eighth Amendment Claims: The program punishes companies that don’t follow the rules with massive fines—up to 95% of their product’s revenue. Businesses argue that these fines are way too harsh and violate the rule against excessive penalties.

While no court has ruled in favor of industry plaintiffs to date, most cases are awaiting decisions before various US appellate courts. The possibility of conflicting circuit decisions could accelerate Supreme Court review, potentially affecting the program's implementation timeline.

Administrative Authority Under New Leadership

Dr Oz's appointment raises important questions about administrative law and agency discretion. Here’s what we know about him: he’s raised concerns about pharmaceutical pricing practices and has also made personal investments in Bristol Myers Squibb, Johnson & Johnson, and AbbVie.²

Key areas where administrative authority could impact the program include (really, at this point, what am I missing?):

• Negotiation methodology and price determination
• Implementation timelines and procedural requirements
• Enforcement mechanisms and compliance monitoring
• Industry engagement processes and transparency requirements
• Interpretation of statutory exemptions and exclusions

This nomination occurs amid broader changes in administrative law. The Supreme Court's decision on the Chevron doctrine significantly impedes CMS's authority to interpret and implement the IRA's provisions. This regulatory uncertainty, combined with new agency leadership and ongoing litigation, creates a complex legal landscape for the program's future.

Stakeholder Implications

For pharmaceutical manufacturers: The change in CMS leadership could affect both ongoing litigation strategy and program participation decisions. Companies must weigh potential administrative changes against the IRA's statutory requirements and significant non-compliance penalties—though I’m not sure this is much of a choice.

For health care providers and Medicare beneficiaries: The program's implementation timeline and scope could face modifications, though statutory guardrails limit truly dramatic changes without Congress. CMS estimates that Medicare beneficiaries will save $1.5 billion when the first round of negotiated prices takes effect in 2026.

With lawsuits mounting, an evolving administrative law, and new CMS leadership raising fresh questions, the Medicare Drug Price Negotiation Program faces its most pivotal moment yet.

Here’s the key dates I’m watching:^1,2

• February 2025: Second round drug selection deadline
• March 2025: Manufacturer data submission deadline
• June 2025: Initial price offers due
• September 2025: Completion of negotiation meetings
• October 2025: Final offers and responses

Join me on Wednesdays as I highlight key court decisions, review notable health policies, and analyze what’s behind the bill in health care.

References

1. Cubanski J. FAQs about the Inflation Reduction Act’s Medicare Drug Price Negotiation Program. KFF. November 19, 2024. Accessed December 2, 2024. https://www.kff.org/medicare/issue-brief/faqs-about-the-inflation-reduction-acts-medicare-drug-price-negotiation-program/#status-negotiation-lawsuits

2. Phengsitthy N. Dr. Oz’s pharma, Medicare views to influence US drug price talks. Bloomberg Law. November 22, 2024. Accessed December 2, 2024. https://news.bloomberglaw.com/health-law-and-life-sciences/dr-ozs-pharma-medicare-views-to-influence-us-drug-price-talks?context=search&index=5