Natl Infusion Center v. Kennedy

Court of Appeals for the Fifth Circuit·Decided August 26, 2026·No. 25-50661·Published

Opinion

United States Court of Appeals for the Fifth Circuit United States Court of Appeals Fifth Circuit

____________ FILED August 26, 2026

No. 25-50661 Lyle W. Cayce ____________ Clerk

National Infusion Center Association, on behalf of itself and its members; Global Colon Cancer Association, on behalf of itself and its members; Pharmaceutical Research and Manufacturers of America, on behalf of itself and its members,

Plaintiffs—Appellants,

versus

Robert F. Kennedy, Jr., Secretary, U.S. Department of Health and Human Services, In his Official Capacity; United States Department of Health and Human Services; Mehmet Oz, Administrator of the Centers for Medicare and Medicaid Services, In his Official Capacity; Centers for Medicare and Medicaid Services,

Defendants—Appellees.

Appeal from the United States District Court for the Western District of Texas USDC No. 1:23-CV-707

Before Southwick, Higginson, and Wilson, Circuit Judges. Leslie H. Southwick, Circuit Judge:

The Plaintiffs challenge the constitutionality of the Drug Pricing Program created by the Inflation Reduction Act of 2022. They claim violations of the nondelegation doctrine, the Eighth Amendment’s Excessive

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Fines Clause, and the Fifth Amendment’s Due Process Clause. The district court granted the Government’s motion for summary judgment. We AFFIRM.

FACTUAL AND PROCEDURAL BACKGROUND The Medicare program reimburses patients and providers for certain healthcare costs. See 42 U.S.C. § 1395 et seq. The Centers for Medicare and Medicaid Services (“CMS”) administers Medicare on behalf of the Secretary of Health and Human Services (the official, the “Secretary,” and the agency, “HHS”). See 42 U.S.C. § 1395 et seq; Health Care Financing Administration Et Al., 42 Fed. Reg. 13262 (Mar. 9, 1977) (effective Mar. 8, 1977); 42 C.F.R. § 1000.10 (2025). Medicare covers prescription drugs through two programs: Part B and Part D. Part B provides reimbursements for drugs administered incident to a physician’s services, based on the “average sales price” of a drug plus a specified percentage (generally 6%). See id. §§ 1395k(a)(1), 1395x(s)(2)(A), 1395w-3a(b)(1). Part D provides reimbursements for a portion of the cost of outpatient drugs, based on market prices agreed to between private plan sponsors and manufacturers. See id. § 1395w-101(a)(1). When Congress enacted Part D, it forbade the Secretary from interfering in commercial negotiations between private plans and manufacturers. See id. § 1395w-111(i). This was despite the fact that those negotiations would produce agreements about drug prices that Medicare would ultimately pay.

When Congress passed the Inflation Reduction Act (“IRA”) in 2022, it created an exception to that directive. See id. §§ 1320f–1320f-7; 26 U.S.C. § 5000D. The IRA instructs the Secretary to create a “Drug Price Negotiation Program” (“Program”) aimed at controlling drug costs under Medicare Parts B and D. See 42 U.S.C. § 1320f. The statute instructs the

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Secretary to negotiate prices for certain drugs accounting for high costs to Medicare, and the Secretary has delegated this power to CMS. Id.

To bring drugs within the ambit of the Program, HHS must first rank the drugs with the highest Medicare expenditures using data “aggregated across dosage forms and strengths of the drug . . . and not based on the specific formulation or package size or package type of the drug.” Id. § 1320f-1(d)(3)(B). To be “negotiation-eligible” and thus eligible for selection, a drug must be among the top fifty by Medicare expenditures under a given Part, have no generic competitors, and have been on the market for over seven years. See id. § 1320f-1(d)–(e). HHS then selects drugs for negotiations for that drug-pricing year, id. § 1320f-1(a), prioritizing those representing the greatest Medicare expenditures. See id. § 1320f-1(b)(1)(B). The number of selected drugs increases over time, from ten for 2026, to fifteen for 2027 and 2028, and finally to twenty for 2029 and all subsequent years. See id. § 1320f-1(a). Selected drugs remain in the Program until a generic or other similar version becomes approved and marketed. See id. §§ 1320f-1(c)(1), 1320f-2(b).

After making selections, HHS enters into agreements with manufacturers under which the parties negotiate prices. See id. § 1320f- 2(a)(1). Congress has instructed HHS “to achieve the lowest maximum fair price for each selected drug” through a negotiation process that begins with an initial offer by HHS. Id. § 1320f-3(b)(1)–(2). The IRA does not limit how low HHS’s offer may be but provides a ceiling that is a percentage of a baseline price (generally the average manufacturer price in a recent year); the ceiling is 40% of that baseline for drugs approved for over 16 years, 65% for drugs approved for between 12 and 16 years, and 75% for all other drugs. Id. § 1320f-3(b)(2)(F), (c)(1)(C), (c)(3)–(5). When formulating its initial offer, HHS also must consider the following factors: the drug’s research and development costs and the extent to which they have been recovered,

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production and distribution costs, federal funding for the drug’s development, patent rights and statutory exclusivities, product approvals from the Food and Drug Administration, sales data, and alternative treatments. Id. § 1320f-3(e).

Next, the manufacturer can provide a counteroffer, to which HHS responds. Id. § 1320f-3(b)(2). Negotiations must conclude by November 1 of the year two years prior to the effective year of the price at issue. Id. § 1320f(b)(3), 1320f-3(b)(2)(E). If negotiations prove successful, the agreed maximum fair price is recorded in an addendum to the agreement with the manufacturer and published by HHS by November 30. Id. §§ 1320f-4(a)(1). By March 1 of the following year, HHS must publish an explanation of that price’s consonance with the statutory factors. Id. § 1320f-4(a)(2).

A manufacturer that does not enter into an agreement to negotiate is subject to an excise tax accruing during the period of noncompliance on a drug’s sales that are reimbursed by Medicare. 1 See 26 U.S.C. § 5000D.

1 The statute states that the tax applies to “the sale by the manufacturer, producer, or importer of any designated drug.” 26 U.S.C. § 5000D(a). The Plaintiffs contend that the tax applies to all domestic sales of a designated drug. The Government responds that the Internal Revenue Service (“IRS”), which Congress has charged with enforcing the statute, see id. § 5000D(h), has issued a notice, effective immediately and upon which taxpayers may rely, stating that the tax will be imposed only on “taxpayer sales of designated drugs dispensed, furnished, or administered to individuals under the terms of Medicare.” I.R.S. Notice 2023-52, 2023-35 I.R.B. 650 (Aug. 4, 2023), perma.cc/FN3F- HGSU (“IRS Notice”). The IRS has also proposed a rule adopting the same interpretation. See Excise Tax on Designated Drugs, 90 Fed. Reg. 31, 32–34 (proposed on Jan. 2, 2025) (to be codified at 26 C.F.R. pt. 47).

We conclude that the “best reading” of the statute interprets “sale” to apply to sales of a designated drug reimbursed by Medicare. See Loper Bright Enters. v. Raimondo, 603 U.S. 369, 400 (2024). This interpretation reads the statute in a manner consistent with the statutory scheme of the IRA, whose text is concerned with drug costs in sales under Medicare rather than in all sales. See, e.g., 42 U.S.C. § 1320f. Aside from fitting well within the context of the IRA, this reading also avoids unnecessary conflict with the Constitution

No. 25-50661

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