A federal court in Dayton, Ohio, recently dodged a ruling on a massive question: whether the government has unconstitutionally forced drug companies to sell their products at a loss.
The court said the U.S. Chamber of Commerce could not bring its case in Ohio. However, appellate courts nationwide must eventually confront whether Congress can take profits away from industries it doesn’t like, effectively ending them and the goods they provide.
In Dayton Chamber of Commerce v. Becerra, drugmakers challenged a confiscatory provision in a 2022 law that permits the federal health agency to set prices for drugs in the Medicare program.
“Oh, that sounds nice,” you might think. Certainly, Kamala Harris has, like President Biden, touted this policy as a crowning achievement.
However, the truth is drugs become affordable once generics hit the market. However, generics won’t hit the market if they can’t undercut the price of the name-brand (i.e. first) drug. The first drug won’t hit the market if the government destroys its ability to recover the monumental cost of developing and testing its product. In other words, the drug industry is about to hit the brakes in a significant way, which no American should be thrilled about.
Beyond the market tailspin, a policy failure, there are constitutional issues the Dayton court must recognize.
The 2022 price-fixing law violates the Fifth Amendment by stripping companies of profits without due process of law. First, a quick overview of how the program works. Right now, companies participate in the Medicare and Medicaid programs because, financially, they must. The federal government shovels taxpayer money into these two government-run health programs that account for more than 40 percent of drug dollars spent in America. If a drugmaker refuses to lower its price to the amount it’s told to under the price-fixing law, the government will start taking up to 1,900 percent of its daily revenue. Moreover, the government will bar drugmakers from supplying other drugs to Medicare and Medicaid. For one company named in the suit, that would entail 85 medicines.
And even if drug companies could afford to walk away from 40 percent of all drug dollars in America, the regulatory red tape mandated before leaving would subject them to penalties before withdrawal anyway.
Precedents in multiple cases related to government price controls have constrained the government’s ability to demand unreasonably low prices, insisting instead that prices be “just and reasonable.” The Fifth Amendment’s Due Process clause guards against price setting akin to confiscation, including by requiring fair procedures. However, the 2022 law explicitly and purposefully prohibits administrative and judicial review of the federal agency’s price. The law sets no floor for the “maximum fair price” but sets the ceiling at a ridiculously low 40 percent to 75 percent of each drug’s average net sales price.
Another constitutional concern is that Congress improperly bestowed vast, unreviewable power to a federal agency, the Department of Health and Human Services. Congress’s job is to legislate, and an agency’s job is to carry out that legislation. By telling the agency, “Pick some drugs and set some prices,” Congress ran afoul of the nondelegation doctrine. Simply put, “Congress cannot transfer … powers which are strictly and exclusively legislative” to another branch of government.
Democrats on the Hill, eager to claim they reduced drug prices and looking away at what happens next, did just that.
If the courts sustain the price-fixing law’s regime for drugs, it will give a green light to lawmakers eager to imbue the executive branch with greater powers to achieve their partisan desires. People might not immediately object to the rights of drug companies being trampled on, that is, until they need one of their lifesaving medicines … or when the pipeline of new treatments, long hoped for and sought after, suddenly dries up.
We might not have to wait that long to feel the sting of a bad ruling because, with their appetites whetted in this case, lawmakers will be tempted to try their luck again. And whose rights will they come for then?