Medicare Drug Negotiation Upheld as Fifth Circuit Rejects PhRMA

The industry's flagship lawsuit fails on appeal

In late August, the drug industry's main trade group lost what may have been its strongest constitutional case against Medicare drug price negotiation. The U.S. Court of Appeals for the Fifth Circuit upheld a lower-court summary judgment against the Pharmaceutical Research and Manufacturers of America (PhRMA). The court held that drugmakers have no protected right to sell their products to Medicare at prices they choose.14 Judge Leslie Southwick wrote the opinion, which rested on one finding: taking part in Medicare and Medicaid, and therefore in the negotiation program, is voluntary.12

PhRMA did not sue alone. The National Infusion Center Association and the Global Colon Cancer Association were co-plaintiffs, and the three-judge panel ruled against them unanimously.1318 Patients For Affordable Drugs, an advocacy group that supports the program, says the panel included judges appointed by Presidents Bush, Obama and Trump.13 Coverage agrees that the court threw out all of the main claims. These included the argument that Congress handed too much power to health officials, the argument that the excise tax on companies that refuse to negotiate is an unconstitutionally excessive fine, and the argument that the program violates manufacturers' due process rights.18

PhRMA has said only that it is reviewing the decision and considering its options.17 An appeal to the Supreme Court is still possible.18 Recent history suggests that path is unlikely to succeed.

Why "voluntary" keeps winning

The industry's central argument has been that the negotiations are not real negotiations. If a manufacturer cannot agree with the Centers for Medicare & Medicaid Services (CMS) on a maximum fair price in time, it can face an IRS excise tax. Its only way out is to pull its products from Medicare and Medicaid coverage, which drugmakers say is no real choice at all.17

The Fifth Circuit accepted the economics and rejected the legal conclusion. The court agreed that Medicare and Medicaid sales clearly matter a great deal to manufacturers' finances. It held that this importance does not make participation involuntary, because financial pressure is not the same as legal compulsion.17 The panel also explicitly agreed with the Second Circuit, which had found that a company loses no property rights when it voluntarily joins a government program with regulated prices.17

The Fifth Circuit's agreement matters because of where the case was heard. Many in the industry saw that circuit as a friendlier court for business challenges to federal regulation. Peter Maybarduk of Public Citizen said drugmakers had spent years trying to find a sympathetic court, and failed.14 PhRMA filed in Texas from the start. Its first attempt was dismissed in February 2024 on venue grounds, because the only Texas-based plaintiff was removed from the case for lack of jurisdiction.19 U.S. District Judge David Alan Ezra later dismissed the refiled case with prejudice in August 2025. He found that the plaintiffs could not show the program took away any protected interest.16 The appeals court has now confirmed that result.

In short, losing in the circuit the industry most likely chose on purpose tells you more than losing in a less favorable one. If the voluntariness argument could not win here, it is hard to see where it would.

A long losing streak

The ruling adds to a record that now looks one-sided. Patients For Affordable Drugs called it the 25th court ruling against the industry.13 The group's tally lists losses on appeal for Bristol Myers Squibb, Janssen, Novartis and Novo Nordisk in the Third Circuit, and for a U.S. Chamber of Commerce challenge in the Sixth Circuit.11 The same August brought more losses. The D.C. Circuit rejected Teva's core statutory and constitutional claims, and the federal district court in Washington, D.C., rejected Merck's challenge.11 A health-law analysis also reported that a Maryland district court turned down AstraZeneca.5

Most importantly, the Supreme Court declined in May 2026 to take up drugmakers' petitions. In practice, that left the lower-court rulings in place.1411 Reports of the Merck decision differ slightly. One trade outlet described the court that ruled as the "Third Circuit in Washington, D.C.," while other accounts identify it as the D.C. district court.1711 Either way, the result was the same.

One analysis suggests the industry has noticed the pattern. After repeated losses on constitutional grounds, drugmakers seem to be moving toward challenges based on what the statute itself says.5 The Fifth Circuit ruling helps explain why. Due process, delegation and excessive-fines claims have now failed in nearly every federal appeals court that has heard them.

What it means for prescription drug prices

The practical effect is simple: negotiation continues. Newsweek's coverage noted that the ruling changes no one's benefits or drug coverage, but it strengthens the government's ability to keep negotiating.18 The stakes are growing. The first negotiated prices, for 10 Part D drugs, took effect on January 1, 2026.11 A second round of 15 drugs, with prices cut by an average of 62%, takes effect in 2027. A third round of 15 drugs is already underway.11

The savings figures most often quoted come from supporters of the program, so they should be read with that in mind. Patients For Affordable Drugs estimates that the first round alone will save about 9 million patients $1.5 billion in out-of-pocket costs in 2026. It also cites projections of nearly $99 billion in savings over a decade.11 Coverage of the program's effects on patients is more mixed. A recent analysis found that negotiation lowered out-of-pocket costs for some beneficiaries, but people who already reach Part D's annual spending cap saw no direct savings.1 The legal fight is settled. The question of who actually benefits, and by how much, is not.

The industry's main policy argument has also survived the court losses. Drugmakers argue that cutting revenue from successful medicines could reduce investment in new ones.18 Courts have not tried to settle that economic debate. They have only ruled that the Constitution does not require Medicare to pay whatever price manufacturers prefer.

The fight moves to a new front

Within weeks of the ruling, PhRMA opened a different legal battle. On October 7 it sued in federal court in Washington, D.C., to block CMS's Global Benchmark for Efficient Drug Pricing (GLOBE) model.7 GLOBE is a "most favored nation" policy that would require rebates on certain high-spending Part B drugs, measured against prices in 19 other countries.7 Part B covers drugs given in clinics and hospital outpatient settings, such as some cancer and autoimmune treatments.9

The legal theory here is different. PhRMA argues that CMS stretched its authority to test payment models into a price-setting program Congress never approved. The group relies on the major questions doctrine and on nondelegation arguments.7 The case has been assigned to Judge Royce C. Lamberth.9 Reports differ on when GLOBE takes effect. Some coverage gives January 1, 2027, while a law-firm analysis says the rule becomes effective November 30, 2026, with the test period starting in April 2027.17 Both accounts put patients' lower coinsurance starting in April 2027.97

The GLOBE case looks stronger for the industry than the negotiation challenges did. The Inflation Reduction Act explicitly gave Medicare the power to negotiate. GLOBE depends on a looser reading of the innovation center's authority to test models, and that is exactly the kind of question courts examine closely under the major questions doctrine. PhRMA also has a track record. Courts blocked the first Trump administration's 2020 most-favored-nation rule, although that ruling was based on skipped procedures rather than the agency's basic authority.89

GLOBE's reach has also already shrunk. CMS plans to exempt drugmakers that have signed separate pricing deals with the White House, which may leave as few as four companies covered.8 Projected savings fell from about $11.9 billion in the proposed rule to roughly $440 million.87 PhRMA says voluntary deals are acceptable but mandatory participation is not.1 That position partly echoes the voluntariness reasoning that just defeated the group in the Fifth Circuit.

The bottom line

The Fifth Circuit decision effectively ends the constitutional challenge to Medicare negotiation. A further appeal is possible, but it faces a Supreme Court that has already declined to hear these arguments and a near-unanimous line of appeals court rulings. Drug pricing is still being fought in court, but the fight is now about whether the executive branch can go beyond what Congress authorized, not whether Congress could let Medicare negotiate at all. On that newer question, the drugmakers have a much better chance of winning.