Fifth Circuit Upholds Medicare Drug Price Negotiation Program

The Fifth Circuit has upheld the constitutionality of the Medicare drug price negotiation program, rejecting a facial challenge from three industry and provider groups. In an opinion filed on 26 August 2026, a three-judge panel affirmed the district court’s grant of summary judgment to the government, holding that the program created by the Inflation Reduction Act of 2022 (IRA) does not violate the nondelegation doctrine, the Eighth Amendment’s Excessive Fines Clause, or the Fifth Amendment’s Due Process Clause.

The plaintiffs were the National Infusion Center Association, the Global Colon Cancer Association, and the Pharmaceutical Research and Manufacturers of America (PhRMA), each acting on behalf of itself and its members. They sued Robert F. Kennedy Jr. in his capacity as Secretary of Health and Human Services, the Department of Health and Human Services, Mehmet Oz in his capacity as Administrator of the Centers for Medicare and Medicaid Services (CMS), and CMS itself. Judges Southwick, Higginson, and Wilson heard the appeal, with Judge Southwick writing the opinion. The case reached the panel from the Western District of Texas (No. 1:23-CV-707).

How the Medicare drug price negotiation program works

The IRA directs the Secretary of Health and Human Services to establish a Drug Price Negotiation Program, with the power to negotiate prices delegated to CMS. To be eligible, a drug must rank among the top fifty by Medicare expenditures, have no generic competitors, and have been on the market for more than seven years. The number of selected drugs rises over time: ten for 2026, fifteen for 2027 and 2028, and twenty for 2029 and later years.

Negotiations begin with an initial offer from the agency, which Congress has told to “achieve the lowest maximum fair price for each selected drug.” The IRA sets no floor but caps the price as a share of a baseline, generally the average manufacturer price in a recent year. The ceiling is 40% for drugs approved more than sixteen years earlier, 65% for drugs approved between twelve and sixteen years earlier, and 75% for all other drugs.

A manufacturer that refuses to negotiate faces an excise tax that starts at 65% of the sale price and climbs to 95% after 271 days. Measured against the post-tax amount the manufacturer keeps, the tax starts at 186% and reaches 1,900%. The IRS has set out the arithmetic: on a $100 sale, $65 goes to the tax and $35 remains as the price of the drug.

An intelligible principle

The plaintiffs argued the IRA hands the agency too much discretion without enough guidance, violating the nondelegation doctrine. The panel disagreed, holding that Congress supplied an “intelligible principle” by defining the program’s terminology, setting a framework for agreements, and providing negotiation procedures and ceiling-price formulas. The directive to reach a “fair” price, the court found, sets a floor as well as a ceiling, since a price of zero would not be fair given a manufacturer’s research, development, and distribution costs.

The court also rejected a “combination theory”: that the IRA’s bar on judicial review of drug selection and price determinations, combined with its exemption from notice-and-comment rulemaking, pushed an otherwise valid delegation over the line. Neither feature, the panel said, presents a nondelegation problem.

Not an excessive fine

On the Eighth Amendment claim, the court first held the plaintiffs have standing, rejecting the government’s argument that the Treasury Department and the IRS were indispensable parties. It also found the Anti-Injunction Act did not bar the claim, because a post-payment refund suit is not a genuine alternative when no manufacturer could afford the tax that would accrue while the suit was pending. The court noted the Congressional Budget Office predicted the tax would raise no revenue precisely because every manufacturer would comply.

The claim still failed on the merits. The Excessive Fines Clause reaches only exactions that punish “some offense,” and the panel concluded the excise tax has no connection to criminality. Manufacturers become subject to it through lawful choices about Medicare-reimbursed sales, so it is not a “fine” within the clause’s meaning.

No protected property interest

Finally, the court rejected the due process claim, holding that manufacturers, providers, and patients lack protected interests implicated by the program. Manufacturers have no property interest in selling to Medicare at a preferred price, because participation in Medicare and Medicaid is voluntary and patent rights do not confer a right to sell at a particular price. Providers have no protected interest in continued reimbursement, and patients have no fundamental right of access to prescription drugs.

The ruling joins a line of circuit decisions that have largely upheld the program, including the Third Circuit’s decisions in Novo Nordisk and AstraZeneca and the Second Circuit’s decision in Boehringer Ingelheim. The Supreme Court declined to review two related cases in May 2026. The decision leaves intact the program’s first three cycles of Medicare drug price negotiations, which produce maximum fair prices effective from 2026 through 2028. For makers of high-cost cancer therapies, it also signals that Medicare’s approach to anticancer drug pricing is likely to stand unless Congress changes the law.

Source: United States Court of Appeals for the Fifth Circuit, No. 25-50661 (filed 26 August 2026)