Corporate Counsel Daily, HHS granted summary judgment in Novartis’ challenge to Drug Price Negotiation Program, (Oct 23, 2024)

By Justin Marcus Smith, J.D.

The court cleaved to its prior holdings on similar recent BMS-Jannsen and Novo Nordisk challenges to the program.

The Drug Price Negotiation Program did not violate the First and Fifth Amendments, held the federal district court in Trenton, New Jersey. The holding tracked recent holdings in comparable cases about the program. There was no taking under the Fifth Amendment because the program was voluntary and did not involve a physical taking. The program also did not compel speech in violation of the First Amendment. The court said it did not have jurisdiction, pursuant to the Anti-Injunction Act, over a third claim that the program violated the Eighth Amendment Excessive Fines Clause. The court suggested that plaintiff Novartis pay the excise tax on a single transaction as a prerequisite to perfect jurisdiction over a refund cause of action. The court accordingly granted summary judgment to the U.S. Department of Health and Human Services defendants and denied plaintiff Novartis’ cross-motion for summary judgment (Novartis Pharmaceuticals Corp. v. Becerra, No. 3:23-cv-14221-ZNQ-JBD (D.N.J. Oct. 18, 2024)).

Background. In this last of four cases before the court challenging the Drug Price Negotiation Program (program) of the Inflation Reduction Act of 2022, Pub. L. No. 117-169 (IRA), plaintiff Novartis Pharmaceuticals Corp. sued Secretary of Health and Human Services Xavier Becerra, Centers for Medicare and Medicaid Services (CMS) Administrator Chiquita Brooks-LaSure, and CMS (collectively, the HHS defendants).

CMS selected Novartis’ ENTRESTO® heart failure medication for the program on August 29, 2023. Novartis promptly sued only three days later, on September 1, 2023, alleging: 1) a per se taking of private property for public use without justification in violation of the Fifth Amendment’s Takings Clause (Takings Clause claim); 2) program -compelled speech in violation of the First Amendment (Compelled Speech claim); and, 3) program “excise” taxation in violation of the Eighth Amendment’s Excessive Fines Clause (Excessive Fines claim). On the parties’ cross-motions for summary judgment, the court granted summary judgment to the HHS defendants and denied summary judgment to Novartis. The court noted how it had addressed “nearly identical” First and Fifth Amendment constitutional challenges to the program in the two prior cases BMS-Janssen, 2024 WL 1855054, at *2–12, and Novo Nordisk, 2024 WL 3594413, at *5–6.

Takings clause. In BMS-Janssen, the court found participation in the program was voluntary, not legally compelled, hence the program was not a “classic, per se physical taking” of a manufacturer’s drugs. Distinguishing Horne v. Department of Agriculture, 56 U.S. 350 (2015), the court noted the instant matter did not impose a requirement that manufacturers must set aside or reserve any drugs for government use or physically transport drugs at an agreed price. Instead, the program sought to establish prices for sale in connection with the Medicare program, and it also did not tax the plaintiff for not selling drugs, so the court said it reached the same conclusion here as it had in BMS-Janssen. The program was voluntary and did not involve a physical taking.

Compelled speech. Likewise, the court concluded in BMS-Janssen that the program did not compel any speech in violation of the First Amendment. The court reasoned that the primary purpose of the program was to set the price manufacturers may charge for drugs they choose to sell to Medicare. That only implicated commercial conduct, not speech. The court said it was also following its holding in Novo Nordisk.

Excessive fines. The court held it did not have jurisdiction to resolve the Eighth Amendment excessive fines claim. The HHS defendants argued the court did not have subject matter jurisdiction over this claim because: 1) Novartis did not have standing because the claim was not redressable; and, 2) the Anti-Injunction Act (AIA), 26, U.S.C. § 7421(a), and the tax exception to the Declaratory Judgment Act (DJA), 28 U.S.C. § 2201(a), both barred the claim.

The court agreed that the AIA deprives federal courts of jurisdiction to entertain actions seeking to enjoin the IRS from assessing or collecting taxes. The court noted that tax challenges are typically ripe only after a person pays the tax and sues for a refund. The court said the Supreme Court had already determined that so-called regulatory taxes are no exception. CIC Services, LLC v. IRS, 593 U.S. 209, 225 (2021).

Novartis urged that the Williams Packing exception applied, per Enochs v. Williams Packing & Nav. Co., 370 U.S. 1, 6 (1962), but the court reasoned that Novartis did not meet the two conditions of irreparable injury and certainty of success on the merits. At several junctures in its Williams Packing analysis, the court followed the Connecticut district court’s conclusions in Boehringer Ingelheim Pharms., Inc., 2024 WL 3292657, at *22.

No irreparable harm. In unpacking the Williams Packing exception, the court agreed with the defendants that Novartis did not have irreparable injury in the form of “ruinous penalties” estimated at over $90 billion per year. The court reasoned that Novartis could file a refund suit. Because the program excise tax was a “divisible tax” or an aggregation of taxes imposed on each sale of a designated drug, all Novartis needed to do would be to pay the excise tax on a single transaction and sue for refund. The court noted that approach would typically cause the IRS to stay collection pending disposition.

The court footnoted that Novartis premised its $90 billion penalty estimate on imposition of the excise tax on all sales of ENTRESTO®, not just the sales through Medicare. The court suggested it did not agree with Novartis on how to interpret the IRS Notice to Novartis and whether it was binding on the IRS. In any event, the court held the concurrent harm on Novartis was “minimal and reparable.”

No certainty of success. Even if Novartis had shown irreparable harm, the court held it did not show it would ultimately prevail on the merits. The court reasoned that the claim was novel and Novartis did not identify any case holding that a tax unrelated to criminal conduct could amount to a fine for Excessive Fine Clause purposes. The court said Novartis only made a conclusory argument here while citing to cases that involved a criminal aspect. The Williams Packing exception to the AIA simply did not apply here. The court held the AIA divested it of jurisdiction to consider a pre-enforcement challenge to the program’s excise tax provisions.

The case is No. 3:23-cv-14221-ZNQ-JBD.

Judge: Quraishi, Z.

Attorneys: Adam S. Ravin (Latham & Watkins LLP) for Novartis Pharmaceuticals Corp. Alexander V. Sverdlov, U.S. Department of Justice, for Xavier Becerra and U.S. Department of Health & Human Services.

Companies: Novartis Pharmaceuticals Corp.; U.S. Department of Health & Human Services

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