Medicare Drug Negotiation Survives PhRMA Appeal in Fifth Circuit

The ruling that closes a chapter

PhRMA, the drug industry's main trade group, has lost its most prominent constitutional challenge to Medicare drug price negotiation. In late August, the U.S. Court of Appeals for the Fifth Circuit upheld a lower-court summary judgment against the group. The panel found that drugmakers have no legal right to sell to Medicare at prices they choose.11 Judge Leslie Southwick wrote the opinion. Her central point was that manufacturers have no protected interest in a preferred Medicare price, because taking part in Medicare and Medicaid, and therefore in the negotiation program, is voluntary.1318

PhRMA filed the case in 2023 with the National Infusion Center Association and the Global Colon Cancer Association. The plaintiffs argued that the Inflation Reduction Act's negotiation process violated the separation of powers and due process. They also claimed that the excise tax on companies that fail to reach a deal is an excessive fine barred by the Eighth Amendment.18 The court rejected each of these claims, including the arguments that Congress improperly handed authority to health officials and that the excise tax is unconstitutional.16

Coverage of the decision differed mainly in tone. Endpoints said the industry's legal campaign had reached a "dead end." It described the ruling as closing pharma's first wave of IRA litigation.17 Patients For Affordable Drugs counted it as the 25th court ruling against the industry. The group noted that the unanimous panel included judges appointed by Presidents Bush, Obama and Trump.14 PhRMA said it was reviewing the decision and all of its options.18 Newsweek said that could include asking the Supreme Court to hear the case.16

Why the "voluntary" argument keeps winning

The opinion matters most for the reasoning courts keep repeating. Across the IRA cases, the industry has argued that Medicare is too large a buyer to walk away from. On that view, the negotiation is really a mandate presented as a choice.18 The Fifth Circuit accepted that Medicare and Medicaid access is financially important to manufacturers. It still held that economic pressure is not the same as legal compulsion.18 The panel also agreed with an earlier Second Circuit decision, which found that a company loses no property rights when it chooses to join a price-regulated government program.16

Courts have now accepted this reasoning so many times that it looks like settled law. In May, the Supreme Court turned down petitions from six drugmakers seeking review of appellate rulings that upheld the program.19 Politico wrote that those denials ended most claims that the program violates the First, Fifth and Eighth Amendments. At the time, PhRMA's Fifth Circuit case was still one of the few pending.19 Challenges from the U.S. Chamber of Commerce, Boehringer Ingelheim, AstraZeneca and Merck have also failed.11 In August, the D.C. Circuit rejected Teva's core statutory and constitutional claims, and a federal district court in Washington ruled against Merck.12

Reports of those August rulings did not fully agree. Fierce Pharma credited the Merck decision to the Third Circuit and placed that court in Washington, D.C.18 Patients For Affordable Drugs said the Merck ruling came from the U.S. District Court for the District of Columbia.12 The details differ, but the outcome is the same in every account.

This analysis reads the Fifth Circuit result as the end of broad, whole-program attacks rather than another round in a continuing fight. Michael Lieberman, a counsel for Patients For Affordable Drugs, predicted in May that drugmakers would shift toward narrower challenges over individual drugs picked for negotiation.19 That shift has already begun. AbbVie sued in February 2026 over Botox, a drug that Medicare data cited by the advocacy group link to about 390,000 beneficiaries.12

What negotiation means for drug prices in Medicare

The practical stakes show up in prices. Negotiated prices for the first 10 drugs took effect on January 1, 2026. A second group of 15 drugs follows in 2027, with an average price cut of 62%.12 Semaglutide, sold as Ozempic, Wegovy and Rybelsus, is the most prominent drug in the second round. Its maximum fair price is $274 for a 30-day supply, about 71% below a 2024 list price of $959.21 CMS estimates the second-round prices will save Medicare about $12 billion a year. It also expects Part D enrollees to save about $685 million out of pocket in 2027.21

Advocates use larger figures. Patients For Affordable Drugs estimates that the first round alone saves 9 million patients $1.5 billion in out-of-pocket costs in 2026. The group also projects nearly $99 billion in savings over a decade.12 These are advocacy estimates, separate from the CMS numbers, and should be read that way.

The negotiated price is not the same as what a patient pays at the pharmacy. Several Medicare explainers make this point. The $274 semaglutide price is what Medicare pays the manufacturer. A beneficiary's copay still depends on the plan's formulary tier, prior authorization rules and cost-sharing design.2225 The program list is also changing. Entresto, Stelara, Xarelto and NovoLog/Fiasp leave negotiation on January 1, 2027, because generic or biosimilar competitors are now on the market.23 Some of the second-round drugs were also removed from the selected list before their prices took effect.25

The Medicare Advantage angle

The ruling arrives during Medicare open enrollment, which runs from October 15 to December 7.21 Beneficiaries comparing plans face a split market. CMS projects that the weighted average Medicare Advantage premium will fall 16.5%, from $14.37 in 2026 to $12.00 in 2027. It also projects that the average drug-coverage premium inside MA plans will fall 38%, from $11.32 to $7.29 Stand-alone Part D plans look different. CMS projects their average premium will rise from $35.09 to $36.29

The gap comes from plan structure. Medicare Advantage plans can use rebate dollars from their medical coverage to lower drug premiums, and stand-alone plans cannot.26 The Part D Premium Stabilization Demonstration is also ending after 2026. The program was worth about $9.8 billion and covered only stand-alone plans, so MA enrollees are not affected by its end.26 Without it, the national average monthly bid rose about 24% to $296.05.22

The reporting differs sharply on how much stand-alone premiums will rise. CMS called claims of premium spikes misleading and pointed to broad pricing stability in Part D.29 One plan-tracking site reports a much bigger jump in the median stand-alone premium, from $61.70 to $80.30. It also counts 44 fewer stand-alone plans than in 2026.24 The two figures measure different things, an enrollment-weighted average and a median across plans offered, so both can be accurate. Still, the CMS average likely hides real increases for some enrollees, a risk other outlets also flag.2123

Out-of-pocket costs rise for everyone. The Part D cap goes from $2,100 to $2,400. The maximum deductible climbs from $615 to $700, and the base beneficiary premium increases from $38.99 to $41.33.21 The cap and deductible limits apply to Medicare Advantage drug plans as well as stand-alone plans.2123 MA plans also face a higher ceiling on in-network out-of-pocket spending, up to $9,850 in 2027 from $9,250.23

In this analysis, negotiation and the premium shifts are two separate forces acting on the same household budget. Lower negotiated prices cut what Medicare and plans spend on specific high-cost drugs. A higher cap and deductible push more of the routine cost onto beneficiaries. For many seniors, the court's decision protects a long-term savings mechanism, but it will not prevent higher out-of-pocket costs in 2027.

The fight moves from the IRA to Part B

The industry's legal strategy has already shifted. On October 7, PhRMA sued in federal court in Washington over CMS's Global Benchmark for Efficient Drug Pricing (GLOBE) model, a "most favored nation" policy for Medicare Part B.2 GLOBE requires makers of some high-spending Part B drugs to pay rebates tied to prices in 19 other countries. It applies to about a quarter of fee-for-service Part B beneficiaries, chosen by randomly selected ZIP code areas.5

This case raises different questions from the IRA cases. PhRMA does not argue that Medicare participation is coerced. It argues that CMS exceeded its authority to test payment models and imposed nationwide price controls that Congress never approved. The complaint also cites the major questions and nondelegation doctrines.56 The "voluntary participation" reasoning that sank the IRA challenges may therefore not decide this case. Here, Congress never directly authorized the policy.10

The model is also smaller than first planned. CMS plans to exempt manufacturers that signed separate pricing deals with the White House. As a result, the rule may apply to as few as four drugmakers.7 Projected savings fell from $11.9 billion in the proposed rule to $440 million.58 Reports give different start dates. Duane Morris says the rule takes effect November 30, 2026, with a test period starting in April 2027.5 Other outlets report a January 1, 2027, start and lower coinsurance for eligible patients beginning April 1.6

The overall picture is consistent. Courts have settled that Medicare can negotiate prices under a law Congress passed. The newer and less settled question is how far CMS can go on drug prices without new legislation from Congress.