A federal court rejected Novartis Pharmaceuticals’, a unit of Novartis AG (NYSE:NVS) legal challenge to the Medicare Drug Price Negotiation Program, ruling that the program does not violate constitutional protections against excessive fines, unlawful takings, or compelled speech.

The court determined that pharmaceutical manufacturers are not legally required to participate in the program, and those that do must adhere to its terms.

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For over 30 years, Congress has imposed price ceilings on prescription drugs purchased by federal agencies, including the Departments of Defense and Veterans Affairs.

These agencies also have the authority to negotiate prices below these limits. The Inflation Reduction Act of 2022 expanded this model by granting the Department of Health and Human Services (HHS) similar authority to negotiate prices for Medicare-covered drugs that lack generic competition and constitute a significant portion of Medicare spending.

Under the law, the Centers for Medicare & Medicaid Services (CMS) can negotiate prices for high-expenditure drugs. Manufacturers who disagree with the program’s terms or the proposed pricing are not legally obligated to participate.

Novartis, however, argued that the program imposed unconstitutional burdens, challenging it on three grounds: that it violated the Eighth Amendment’s prohibition on excessive fines, the Fifth Amendment’s protection against takings without just compensation, and the First Amendment’s ban on compelled speech.

The court dismissed Novartis’ Eighth Amendment claim, citing the Anti-Injunction Act, which prevents lawsuits challenging the constitutionality of a tax before it is enforced.

Additionally, the court ruled that the program does not amount to a government taking under the Fifth Amendment, as it does not forcibly seize or mandate the sale of the company’s drugs.

Instead, the government offers to purchase medications under specific terms, which Novartis can choose to accept or decline. If a company finds the negotiated price unfavorable but still opts to sell, it does not constitute an unlawful taking.

Price Action: NVS stock is down 1.64% at $107.83 at the last check on Wednesday.

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