The U.S. Supreme Court in June overturned the Chevron deference, which previously gave agencies the final say in how ambiguous federal laws are interpreted, and turned the power over to the courts.
The landmark decision could have widespread implications in pharma, stripping away some authority from both the FDA and the CMS. It also opens the door for pharma companies to legally challenge policies and regulations, such as the Inflation Reduction Act and a recent lab-developed test rule.
In the immediate aftermath of the decision, the shift has lobbed more uncertainty into a tough regulatory environment, which is why the pharma industry may be taking a “wait-and-see” approach in the fallout, said Jesse Mendelsohn, senior vice president at revenue management company Model N.
Entering an era of regulatory uncertainty
The decision could expose even day-to-day decisions by the FDA to legal challenges. Patent issues, regulatory efforts and R&D focus are areas where the industry might have to reconsider their strategic positions, according to a report from law firm Buchanan, Ingersoll & Rooney.
“While companies may now enjoy more success in their litigation efforts against FDA, the inevitable result will be a period of uncertainty as FDA, regulated industry and the courts navigate the next steps in a post-Chevron legal world,” Buchanan experts wrote in the report.
The drug development process could also further muddle if pharma companies launch challenges against the FDA’s authority, Mendelsohn said.
“I think there is a general wait-and-see approach, not just with the IRA for manufacturers, but guidance in general."
Jesse Mendelsohn
senior vice president, Model N
However, the industry may not want to rock the boat when it comes to the established drug development and approval process. Already, the pathway for a drug from research to approval can be as long as 10 to 15 years, according to the National Institutes of Health. And in recent years, the cost to develop a new drug ranges between $1 billion to $2 billion, per Congressional Budget Office estimates. Legal challenges to that process or how the FDA makes decisions could jam up the pathway, extending timelines and adding costs, Mendelsohn said.
“As much as pharma manufacturers share concerns about CMS and FDA throwing up hindrances or guardrails when it comes to drug approval, drug safety and drug pricing, at the end of the day, all of those guardrails and checkpoints provide a pathway,” Mendelsohn said. “It might be a roundabout one, [and] it might be difficult to follow … but it provides a pathway to both market and patient access. That road gets cloudy where certain guardrails are removed and others are added.”
IRA in jeopardy
The Chevron decision came as the CMS navigated Medicare drug price negotiations with drugmakers as part of the IRA. The CMS and drugmakers went back and forth throughout the summer before the final negotiated prices were published this month.
Drugmakers have voiced opposition to the IRA’s provisions since the law was on the table, and several of the affected pharma companies launched lawsuits in an attempt to kill the negotiation program. So far, drugmakers have been unsuccessful in court, but the Chevron decision adds another layer of uncertainty to the dynamic.
“There were already a host of lawsuits trying to attack the IRA on constitutional and other grounds, and those mostly have not seen much [success from a] manufacturer’s perspective,” Mendelsohn said. “I think there is a general wait-and-see approach, not just with the IRA for manufacturers, but guidance in general.”
Several top pharma executives have criticized the IRA’s overall impact on the industry, with Bristol Myers Squibb CEO Christopher Boerner referring to the negotiation program as “arbitrary price setting by the government,” in the company’s most recent earnings call. The CMS stated the negotiations were “genuine” and “thoughtful,” with an agreement on price reached for five of the 10 drugs selected, while the other half accepted CMS’ final written offer. Moving forward, it’s possible drugmakers won’t attack Medicare’s new ability to negotiate drug prices in Part D, but rather how the negotiations are conducted, Mendelsohn said.
“Negotiating prices and rebates is kind of second nature to pharmaceutical manufacturers — they do it all day long with payers and providers,” Mendelsohn said. “The impression was that this interpretive guidance was more compulsion than negotiation, and with Chevron no longer the rule of the [land], it opens up that interpretive guidance to the judicial review.”
In this era of uncertainty, Congress could pass more laws to clarify the IRA provisions, as it has done in the past for other major healthcare reforms, such as the Affordable Care Act.
“Congress still has the capability right now when it comes to gray areas and challenges of the IRA by passing another piece of legislation that will clarify those things,” Mendelsohn said. “You will likely see more lobbying for clarity to come from the Congress.”
However, with the presidential election only months away and a gridlocked Congress, it’s unlikely anything will happen quickly.
