Earlier this week, in a New Jersey federal district court, Johnson & Johnson filed a suit against the U.S. Department of Health and Human Services as well as the Centers for Medicare and Medicaid Services to challenge the Inflation Reduction Act (IRA).
The IRA seeks to address inflation by potentially decreasing the federal government's budget deficit, decreasing the costs of prescription drugs, and directing investments toward domestic energy production with an emphasis on clean energy. For drugmakers, the IRA states that drug manufacturers must pay a rebate to the federal government if the prices of certain drugs covered under Medicare Part B and most drugs under Part D rise at a rate that exceeds inflation.
The price change threshold will be determined by average sales and average manufacturer price depending on the drug. If price increases are higher than the inflation rate, then manufacturers will have to pay the difference to Medicare as a rebate.
Now J&J is pushing back, claiming that the legislation is unconstitutional. “With the implementation of the IRA, the government is forcing Janssen to provide its innovative, patented medicines on pricing terms that by law must be significantly below market prices,” stated the drugmaker in a press release. J&J expressed concern that the legislation would disrupt pharmaceutical innovation and a threat to generics, which account for 90% of prescriptions.
Last month, Merck became the first drugmaker to formally challenge the law. The drugmaker argued the program is unconstitutional. According to Merck, the Fifth Amendment requires the U.S. government pay “just compensation” if it takes property for public use — but the IRA allows the government to obtain innovations without providing fair value for them. Astellas Pharma and BMS have subsequently filed similar suits.