Petition for Writ of Certiorari — Bristol Myers Squibb Company, Petitioner v. Robert F. Kennedy, Secretary of Health and Human Services, et al.
Supreme Court briefDec 19, 2025
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APPENDIX
i
TABLE OF CONTENTS
Page
APPENDIX A: Opinion of the United States
Court of Appeals for the Third Circuit
(Sept. 4, 2025) ..................................................... 1a
APPENDIX B: Opinion of the United States
District Court for the District of New Jersey
(Apr. 29, 2024) ................................................... 92a
APPENDIX C: Constitutional and Statutory
Provisions Involved.......................................... 125a
APPENDIX D: Medicare Drug Price Negotiation
Program Agreement ........................................ 182a
APPENDIX E: Declaration of Christopher T.
Mancill in Support of Plaintiff’s Motion for
Summary Judgment ........................................ 203a
1a
_____________________
APPENDIX A
_____________________
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 24-1820
BRISTOL MYERS SQUIBB CO.,
Appellant
v.
SECRETARY UNITED STATES DEPARTMENT OF
HEALTH AND HUMAN SERVICES;
ADMINISTRATOR CENTERS FOR MEDICARE &
MEDICAID SERVICES; UNITED STATES
DEPARTMENT OF HEALTH AND HUMAN
SERVICES; CENTERS FOR MEDICARE &
MEDICAID SERVICES *
(Amended as per the Clerk’s 09/13/2024 Order)
No. 24-1821
JANSSEN PHARMACEUTICALS INC.,
Appellant
v.
SECRETARY UNITED STATES DEPARTMENT OF
HEALTH AND HUMAN SERVICES;
ADMINISTRATOR CENTERS FOR MEDICARE &
MEDICAID SERVICES; UNITED STATES
DEPARTMENT OF HEALTH AND HUMAN
SERVICES; CENTERS FOR MEDICARE &
MEDICAID SERVICES
2a
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Nos. 3:23-cv-03335, 3:23-cv-03818)
District Judge: Honorable Zahid N. Quraishi
Argued on October 30, 2024
Before: HARDIMAN, PHIPPS, and FREEMAN,
Circuit Judges
(Opinion filed: September 4, 2025)
3a
Jacob (Yaakov) M. Roth *
Noel J. Francisco
John H. Thompson
Jones Day
51 Louisiana Avenue NW
Washington, DC 20001
[ARGUED]
Rajeev Muttreja
Jones Day
250 Vesey Street
New York, NY 10281
Jeffrey J. Greenbaum
Katherine M. Lieb
Sills Cummis & Gross P.C.
One Riverfront Plaza
Newark, NJ 07102
Counsel for Appellant Bristol Myers Squibb Co.
Kevin F. King
[ARGUED]
Bradley K. Ervin
Robert A. Long, Jr.
Michael M. Maya
Covington & Burling LLP
One CityCenter, 850 Tenth Street, NW
Washington, DC 20001
Counsel for Appellant Janssen Pharmaceuticals
Inc.
* Jacob (Yaakov) M. Roth withdrew as counsel on February 20,
2025, prior to the issuance of this opinion.
4a
Catherine M. Padhi *
Steven A. Myers
Lindsey Powell
David L. Peters
Michael S. Raab
Maxwell A. Baldi
United States Department of Justice,
Appellate Section
Room 7259
950 Pennsylvania Avenue NW
Washington, DC 20530
[ARGUED]
Counsel for Appellees
Maame A. Gyamfi
AARP Foundation Litigation
601 E Street NW
Washington, DC 20049
Counsel for Amici AARP, AARP Foundation,
Justice in Aging, Center for Medicare Advocacy,
and Medicare Rights Center
Flavio L. Komuves
Weissman & Mintz
220 Davidson Avenue, Suite 410
Somerset, NJ 08873
Counsel for Amicus Abrams Institute for Freedom
of Expression
* Catherine M. Padhi withdrew as counsel on July 11, 2025, prior
to the issuance of this opinion.
5a
Craig B. Bleifer
McGuireWoods
1251 Avenue of the Americas, 20th Floor
New York, NY 10020
Caroline L. Wolverton
Akin Gump Strauss Hauer & Feld
2001 K Street NW
Washington, DC 20006
Counsel for Amicus Alliance for Aging Research
Robin F. Thurston
Democracy Forward Foundation
P.O. Box 34553
Washington, DC 20043
Counsel for Amici American College of Physicians,
American Geriatrics Society, American Public
Health Association, American Society of
Hematology, Society of General Internal Medicine
Lawrence S. Ebner
Atlantic Legal Foundation
1701 Pennsylvania Avenue NW, Suite 200
Washington, DC 20006
Counsel for Amicus Atlantic Legal Foundation
6a
David A. Hatchett
Matthew P. Hooker
Daniel G. Jarcho
Alston & Bird
1201 W. Peachtree Street
One Atlantic Center, Suite 4900
Atlanta, GA 30309
Counsel for Amicus Biotechnology Innovation
Organization
Jay R. Carson
Wegman Hessler
6055 Rockside Woods Boulevard, Suite 200
Cleveland, OH 44131
Counsel for Amicus Buckeye Institute
Hannah W. Brennan
Hagens Berman Sobol Shapiro
One Faneuil Hall Square, Fifth Floor
Boston, MA 02109
Jamie Crooks
Fairmark Partners
400 7th Street NW, Suite 304
Washington, DC 20004
Counsel for Amici Center for American Progress,
Century Foundation, NAACP, and Unidos US
Action Fund
7a
Jeffrey S. Bucholtz
Alexander Kazam
King & Spalding
1700 Pennsylvania Avenue NW, Suite 900
Washington, DC 20006
Counsel for Amicus Chamber of Commerce of the
United States of America
Brianne J. Gorod
Constitutional Accountability Center
1200 18th Street NW, Suite 501
Washington, DC 20036
Counsel for Amicus Constitutional Accountability
Center
Charles L. Becker
Kline & Specter
1525 Locust Street, 19th Floor
Philadelphia, PA 19102
Counsel for Amici Democratic Senators
Nandan M. Joshi
Public Citizen Litigation Group
1600 20th Street NW
Washington, DC 20009
Jody T. Lopez-Jacobs
Andrew M. Milz
Flitter Milz
1814 E. Route 70, Suite 350
Cherry Hill, NJ 08003
Counsel for Amici Doctors for America, Families
USA, Protect Our Care, and Public Citizen
8a
Neil Lloyd
ArentFox Schiff
233 S. Wacker Drive, Suite 7100
Chicago, IL 60606
Counsel for Amicus Fresenius Kabi USA LLC
Deepak Gupta
Gupta Wessler
Suite 850 North
2001 K Street NW
Washington, DC 20006
Counsel for Amici Health Policy Scholars
Alyssa H. Card
Margaret Dotzel
William B. Schultz
Zuckerman Spaeder
2100 L Street NW, Suite 400
Washington, DC 20037
Counsel for Amici Healthcare & Medicare Experts
Joseph P. Ashbrook
Benjamin M. Flowers
Ashbrook Byrne Kresge
P.O. Box 8248 Cincinnati, OH 45249
D. Adam Candeub
Michigan State University College of Law
648 N. Shaw Lane
East Lansing, MI 48824
Richard A. Epstein
University of Chicago Law School
9a
1111 E. 60th Street, Suite 436
Chicago, IL 60611
Counsel for Amicus Independent Women’s Forum
Felicia H. Ellsworth
Wilmer Cutler Pickering Hale & Dorr
60 State Street
Boston, MA 02109
Counsel for Amicus Institute for Free Speech
Hannah W. Brennan
Rebekah Glickman-Simon
Claudia Morera
Hagens Berman Sobol Shapiro
One Faneuil Hall Square, 5th Floor
Boston, MA 02109
Counsel for Amici Law Professors and Scholars
Thomas S. Jones
Nelson Mullins
One PPG Place, Suite 3200
Pittsburgh, PA 15222
Counsel for Amicus Manhattan Institute
Paul W. Hughes, III
McDermott Will & Schulte
500 N. Capitol Street NW
Washington, DC 20001
Counsel for Amicus National Association of
Manufacturers
10a
Tyler L. Martinez
National Taxpayers Union Foundation
122 C Street NW, Suite 700
Washington, DC 20001
Counsel for Amicus National Taxpayers Union
Foundation
Andrew J. Morris
New Civil Liberties Alliance
4250 N. Fairfax Drive, Suite 300
Arlington, VA 22203
Counsel for Amicus New Civil Liberties Alliance
Michael D. Lieberman
Fairmark Partners
400 7th Street NW, Suite 304
Washington, DC 20004
Counsel for Amicus Patients for Affordable Drugs
Elizabeth J. Sher
Day Pitney
One Jefferson Road
Parsippany, NJ 07054
Counsel for Amicus Pioneer Public Interest Law
Center
Brian T. Burgess
Goodwin Procter
1900 N Street NW
Washington, DC 20036
Counsel for Amicus Teva Pharmaceuticals USA
Inc.
11a
Ilana H. Eisenstein
DLA Piper
1650 Market Street
One Liberty Place, Suite 5000
Philadelphia, PA 19103
Counsel for Amicus Daniel E. Troy
Cory L. Andrews
Washington Legal Foundation
2009 Massachusetts Avenue NW
Washington, DC 20036
Counsel for Amicus Washington Legal Foundation
OPINION OF THE COURT
FREEMAN, Circuit Judge.
Medicare Part D is a voluntary prescription drug
benefit program for Medicare beneficiaries. When
Congress first created Part D in 2003, it barred the
Centers for Medicare and Medicaid Services (“CMS”)
from using its market share to negotiate lower prices
for the drugs it covers. But Congress changed course
when it enacted the Inflation Reduction Act of 2022
(the “IRA”).
The IRA includes a Drug Price
Negotiation Program (the “Program”) that directs
CMS to negotiate prices over a subset of covered drugs
that lack a generic competitor and represent the
highest expenditures to the government.
In these cases, Bristol Myers Squibb Company
(“BMS”) and Janssen Pharmaceuticals Incorporated
(“Janssen”) (together, “the Companies”) challenge the
Program on constitutional grounds. They contend
12a
that the Program (1) effects an uncompensated taking
of their property, (2) compels speech in violation of the
First Amendment, and (3) imposes unconstitutional
conditions on participation.
The District Court determined that these claims fail
as a matter of law and entered judgments in favor of
the government. For the following reasons, we will
affirm the District Court’s orders.
I
A
“Medicare is a federal medical insurance program
for people ages sixty-five and older and for younger
people with certain disabilities.” AstraZeneca Pharms.
LP v. Sec’y U.S. Dep’t of Health & Hum. Servs., 137
F.4th 116, 119 (3d Cir. 2025). 1 Medicare is divided
into Parts, one of which is Part D: “a voluntary
prescription drug benefit program that subsidizes the
cost of prescription drugs and prescription drug
insurance premiums for Medicare enrollees.” United
States ex rel. Spay v. CVS Caremark Corp., 875 F.3d
746, 749 (3d Cir. 2017). Part D reimburses private
insurance companies called “sponsors,” who work with
pharmacy benefit managers and other subcontractors,
who in turn contract with pharmacies that provide
drugs to Medicare beneficiaries. AstraZeneca, 137
F.4th at 120. “Through Medicare and Medicaid, the
federal government pays for almost half the annual
1 Our opinion in AstraZeneca provides more detail on Medicare
Part D, the Program, and CMS’s implementation of the IRA’s
directives. See 137 F.4th at 119–21.
13a
nationwide spending on prescription drugs.” Id. at 119
(cleaned up). 2
When Congress created Part D, it included a
provision that barred CMS from “interfer[ing] with the
negotiations between drug manufacturers and
pharmacies and . . . sponsors” and from “institut[ing]
a price structure for the reimbursement of covered
part D drugs.” 42 U.S.C. § 1395w-111(i) (2003). But
Congress created an exception to that noninterference provision when it enacted the Program.
The Program directs CMS to “negotiate . . . maximum
fair prices” for certain drugs. Id. § 1320f(a)(3). The
drugs subject to negotiation are those that have been
approved by the Food and Drug Administration for at
least seven years, lack a generic competitor, and
represent the highest expenditures under Medicare
Part B or D. AstraZeneca, 137 F.4th at 120. 3
Once CMS selects and announces which drugs are
subject to negotiation, a pharmaceutical manufacturer
that holds regulatory approval for a selected drug
must choose whether to participate in the Program. If
the manufacturer chooses to participate, it executes a
Medicare Drug Price Negotiation Program Agreement
(“Agreement”) with CMS. In 2023, CMS provided a
template Agreement on its website. CMS, Medicare
Drug Price Negotiation Program Agreement,
2 “Medicaid is a joint federal and state program that provides
medical coverage for people with limited incomes.” AstraZeneca,
137 F.4th at 119.
3 Medicare
Part B is a voluntary insurance program covering
outpatient care, including prescription drugs typically
administered by a physician, while Part D covers selfadministered drugs. See AstraZeneca, 137 F.4th at 120.
14a
https://www.cms.gov/files/document/inflationreduction-act-manufacturer-agreement-template.pdf
[https://perma.cc/ZC3E-XCQ5]. In an introductory
paragraph, the Agreement states:
CMS is responsible for the administration of the
Medicare Drug Price Negotiation Program . . . ,
which sets forth a framework under which
manufacturers and CMS may negotiate to
determine a price (referred to as “maximum fair
price” in the Act) for selected drugs in order for
manufacturers to provide access to such price to
maximum fair price eligible individuals . . . .
Id. at 1. The Agreement goes on to summarize the
statutory process for the exchange of offers and
counteroffers, stating that the parties agree to
“negotiate to determine . . . a maximum fair price,” in
accordance with the statutory scheme. 4 Id. at 2. It
also specifies that the “[u]se of the term ‘maximum fair
price’ and other statutory terms throughout this
Agreement reflects the parties’ intention that such
terms be given the meaning specified in the statute
and does not reflect any party’s views regarding the
colloquial meaning of those terms.” Id. at 4. (The
statute defines “maximum fair price” to mean “with
respect to a year during a price applicability period
and with respect to a selected drug . . . with respect to
4 When
CMS negotiates a price for a selected drug, it must
consider several factors, including the drug’s production and
development costs and federal involvement in its development.
See AstraZeneca, 137 F.4th at 121 (summarizing factors). It also
must adhere to a statutory price cap based on the drug’s price on
the private market and number of years on the market. See id.
at 120–21.
15a
such period, the price negotiated pursuant to section
1320f-3 of this title, and updated pursuant to section
1320f-4(b) of this title, as applicable, for such drug and
year.” 42 U.S.C. § 1320f(c)(3).)
If the parties agree to a “maximum fair price,” they
memorialize it in a Negotiated Maximum Fair Price
Addendum (“Addendum”) to the Agreement. See
Agreement at 7–9 (template Addendum).
The
manufacturer
then
must
provide
Medicare
beneficiaries “access to such price” for the drug until
CMS determines that a generic competitor is on the
market. 42 U.S.C. § 1320f-2(a)(1), (b).
If a manufacturer’s drug is selected for negotiation
and the parties fail to reach agreement on a price, the
manufacturer becomes subject to steep daily excise
taxes delineated in the IRA. See 26 U.S.C. § 5000D.
Those excise taxes apply to sales of selected drugs
during “noncompliance periods” that begin a few
months after CMS selects the drug and last until the
parties reach an agreement on a price or until a
generic competitor is marketed. Id. § 5000D(b)(1),
The excise taxes escalate during a
(b)(3). 5
noncompliance period. Id. § 5000D(d). The daily excise
tax begins at 185.71% of a selected drug’s sale price on
the first day of noncompliance and reaches 1,900% of
the sale price after 270 days. Id. § 5000D(a), (d). And
these excise taxes apply to all sales of the drug made
5 For
the first year of the Program, the noncompliance period
would have begun on October 2, 2023. 26 U.S.C. § 5000D(b)(1).
For subsequent years, the noncompliance period begins on the
March 1st following the selection of a drug for price negotiation.
Id.
16a
during a noncompliance period, including sales
outside of the Medicare system. Id. § 5000D(a).
A manufacturer can avoid the excise taxes if it
withdraws all of its drugs (not just those selected for
negotiation) from coverage in two programs: (1)
Medicare Part D’s Manufacturer Discount Program or
its predecessor, the Coverage Gap Discount Program, 6
and (2) the Medicaid Drug Rebate Program (together,
“the Opt-Out Programs”). 26 U.S.C. § 5000D(c)(1)(A),
(2). 7 Any terminations from the Manufacturer
Discount Program or the Coverage Gap Discount
Program must go into effect before the excise taxes are
suspended. Id. § 5000D(c)(1)(A)(ii). For the Medicaid
Rebate Program, notice of termination is sufficient to
suspend the excise taxes. Id. §§ 5000D(c)(1)(A)(i), (2).
If a manufacturer reenters either of the Opt-Out
Programs, the taxes will go back into effect the next
March 1st. Id. § 5000D(c)(1)(B).
B
In June 2023, BMS challenged the Program by
suing the Secretary of the Department of Health and
Human Services and the Administrator of CMS. In
6 The IRA replaced the Coverage Gap Discount Program with the
Manufacturer Discount Program, effective January 1, 2025. See
42 U.S.C. § 1395w-114c. Because a manufacturer will have
agreements under only one of these programs at any given time,
the IRA only requires a manufacturer to terminate its
participation in one of those programs.
Although the parties and the dissent contend that a
manufacturer only avoids excise taxes by withdrawing its drugs
from Medicare and Medicaid entirely, the statute specifies the
two programs from which a manufacturer must withdraw to
avoid those excise taxes. References to the loss of all Medicare
and Medicaid funding are therefore misplaced.
7
17a
July 2023, Janssen did the same. Both Companies
sought declaratory and injunctive relief, claiming
violations of the Fifth Amendment’s Takings Clause,
the First Amendment, and the unconstitutional
conditions doctrine.
In August 2023, CMS published the list of ten drugs
selected for negotiation for 2026. BMS and Janssen
each had a drug on the list: for BMS, Eliquis, and for
Janssen, Xarelto. Each company agreed to participate
in the Program and, while these cases were pending,
agreed to a price for its respective drug.
In the District Court, these cases proceeded in
tandem. The parties agreed that the District Court
could resolve the constitutional claims on crossmotions for summary judgment, without the need for
discovery. The District Court did so in April 2024,
denying the Companies’ motions for summary
judgment and granting the government’s.
The
Companies timely appealed, and we consolidated the
appeals for purposes of briefing and disposition.
II 8
We exercise plenary review of orders resolving
cross-motions for summary judgment, applying the
same standard used by district courts. Spivack v. City
of Philadelphia, 109 F.4th 158, 165 (3d Cir. 2024).
Summary judgment is appropriate only “if the movant
shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). The parties
8 The District Court had jurisdiction under 28 U.S.C. § 1331. We
have jurisdiction under 28 U.S.C. § 1291.
18a
have stipulated that no material facts are in dispute
and that their motions present only questions of law.
III
“The Fifth Amendment’s Takings Clause prohibits
the government from taking private property for
public use without providing just compensation.”
Newark Cab Ass’n v. City of Newark, 901 F.3d 146, 151
(3d Cir. 2018) (internal quotation marks omitted).
Physical takings—i.e., appropriating or occupying
private property—are “the clearest sort of taking[s].”
Cedar Point Nursery v. Hassid, 594 U.S. 139, 148
(2021) (cleaned up). Here, the Companies argue that
Program effects a physical taking because it permits
the government to physically appropriate their drugs
without paying just compensation.
The Companies are incorrect. The Program permits
the government to acquire the Companies’ drugs only
when it pays prices the Companies have agreed to. If
the Companies dislike the prices the government is
willing to pay, they are free to stop doing business with
the government. So the Companies’ participation in
the Program is voluntary, and there is no physical
taking. We also decline to apply a version of the
unconstitutional conditions doctrine used to assess
conditions on land-use permitting to the Program (and,
in any event, the Program withstands scrutiny under
the test the Companies suggest).
A
To establish a physical taking, a party must show
that “the government has physically taken property
for itself or someone else—by whatever means.” Id. at
19a
149. 9 For example, the government commits a
physical taking “when it uses its power of eminent
domain to formally condemn property[,] . . . physically
takes possession of property without acquiring title to
it[,] . . . [or] occupies property—say, by recurring
flooding as a result of building a dam.” Id. at 147–48
(citations omitted). A physical taking may involve real
property or personal property. Id. at 152. Either way,
when the government effects this type of physical
appropriation, it “must pay for what it takes.” Id. at
148 (citation omitted).
The various means of committing a physical taking
share one feature: a government mandate. Absent a
government mandate to relinquish the use of private
property, there is no physical taking. Thus, there is
no physical taking when a party gives up private
property as part of a voluntary exchange with the
government. See Valancourt Books, LLC v. Garland,
82 F.4th 1222, 1232 (D.C. Cir. 2023).
The government is a major purchaser in our
Nation’s economy. When it acts as a purchaser, “the
Government enjoys the unrestricted power . . . to fix
the terms and conditions upon which it will make
needed purchases,” just as private individuals and
businesses do. Perkins v. Lukens Steel Co., 310 U.S.
113, 127 (1940). Because contracts delineate the
terms of many government purchases, items subject to
government contracts rarely give rise to takings
claims. See Hughes Commc’ns Galaxy, Inc. v. United
States, 271 F.3d 1060, 1070 (Fed. Cir. 2001).
9 The Companies do not argue that the Program constitutes a
regulatory taking. See Cedar Point Nursery, 594 U.S. at 148–49
(distinguishing physical from regulatory takings).
20a
I
The Companies have signed contracts specifying the
prices at which they will provide their drugs to
Medicare beneficiaries. Despite those contracts, the
Companies raise Takings Clause challenges, asserting
that the contracts they signed were not voluntary. But
the Companies acknowledge (as they must) that they
are not legally compelled to participate in Medicare.
See 42 U.S.C. § 1395cc (allowing providers to elect to
enter into agreements under Medicare); see also
United States ex rel. Spay v. CVS Caremark Corp., 875
F.3d 746, 749 (3d Cir. 2017) (describing Medicare Part
D as “voluntary”). So if the companies opt not to
participate in Medicare, they need not sign any
contracts regarding drug sales to Medicare
beneficiaries.
This opt-out option defeats the
Companies’ argument that they were forced to sign
contracts under the Program.
This logic underlies the decisions of our sister
Courts of Appeals in analogous cases.
Medical
providers who have brought takings claims about
Medicare or Medicaid have uniformly lost due to their
ability to stop participating in those programs. 10
10 See Franklin Mem’l Hosp. v. Harvey, 575 F.3d 121, 129–30 (1st
Cir. 2009) (holding that a hospital voluntarily participated in
Medicaid, precluding takings liability, because it had the
alternative of pursuing Medicaid-eligible patients directly for the
amount that Medicaid would otherwise reimburse); Garelick v.
Sullivan, 987 F.2d 913, 916–17 (2d Cir. 1993) (holding that limits
on what physicians could charge Medicare Part B beneficiaries
effected no taking, because the physicians “voluntarily choose to
provide services in the price-regulated Part B program” and
“retain the right to provide medical services to non-Medicare
patients”); id. at 917 (“All court decisions of which we are aware
that have considered takings challenges by physicians to
21a
Recently, the Second Circuit applied these cases to
reject a functionally identical takings challenge to the
Program. See Boehringer Ingelheim Pharms., Inc. v.
HHS, ___ F.4th ___, 2025 WL 2248727, at *8 (2d Cir.
Aug. 7, 2025) (“[B]ecause Boehringer voluntarily chose
to participate in the . . . Program, no taking has
occurred.”).
Despite the Companies’ ability to withdraw from the
Opt-Out Programs, they argue that their participation
is not “voluntary” because of their dependence on
Medicare and Medicaid reimbursements and the size
of the government’s market share. In their view, basic
economic rationality dictates participation in those
Medicare price regulations have rejected them in the recognition
that participation in Medicare is voluntary.”); Burditt v. U.S.
Dep’t of Health & Hum. Servs., 934 F.2d 1362, 1376 (5th Cir.
1991) (holding that a federal law requiring hospitals that
participate in Medicare to treat emergency patients was not a
taking of their physicians’ services because hospitals voluntarily
participated in the program); St. Francis Hosp. Ctr. v. Heckler,
714 F.2d 872, 875–76 (7th Cir. 1983) (holding that hospitals did
not suffer a taking when they were not reimbursed by Medicare
for certain capital expenditures, because “provider participation
is voluntary”); Key Med. Supply, Inc. v. Burwell, 764 F.3d 955,
965–66 (8th Cir. 2014) (concluding that a medical equipment
provider’s takings claim against a competitive-bidding system for
Medicare pricing was “patently meritless” under Circuit
precedent finding Medicaid participation voluntary); Baker Cnty.
Med. Servs., Inc. v. Att’y Gen., 763 F.3d 1274, 1279–80 (11th Cir.
2014) (holding that a mandate that hospitals participating in
Medicare treat federal detainees was not a taking); see also
Livingston Care Ctr., Inc. v. United States, 934 F.2d 719, 720 (6th
Cir. 1991) (observing, in the context of a due process challenge,
that “participation in the Medicare program is a voluntary
undertaking”).
22a
federal programs, making the exit option illusory. 11
But, as our sister courts have recognized, “economic
hardship is not equivalent to legal compulsion for
purposes of takings analysis.” Baker Cnty. Med. Servs.,
Inc. v. Att’y Gen., 763 F.3d 1274, 1280 (11th Cir. 2014)
(“Although the Hospital contends that opting out of
Medicare would amount to a grave financial setback,
economic hardship is not equivalent to legal
compulsion for purposes of takings analysis.”
(internal quotation marks omitted)); accord
Boehringer, 2025 WL 2248727, at *7 (“[T]he choice to
participate in a voluntary government program does
not become involuntary simply because the
alternatives to participation appear to entail worse,
even substantially worse, economic outcomes.”);
Garelick v. Sullivan, 987 F.2d 913, 917 (2d Cir. 1993)
(rejecting an argument that non-participation in
Medicare “is not an economically viable option,”
because “economic hardship is not equivalent to legal
compulsion for purposes of takings analysis”); Minn.
Ass’n of Health Care Facilities, Inc. v. Minn. Dep’t of
Pub. Welfare, 742 F.2d 442, 446 (8th Cir. 1984)
(“Despite the strong financial inducement to
participate in Medicaid, a nursing home’s decision to
do so is nonetheless voluntary.”); St. Francis Hosp. Ctr.
11 The
Companies also note that the Congressional Research
Service anticipated the Program’s excise tax provisions—
applicable to manufacturers who remain participants in the OptOut Programs and fail to reach a price agreement—would raise
zero revenue. This forecast reflects the strong incentive to reach
agreement with CMS if a manufacturer chooses to participate in
the Program. But it does not reflect the additional way for a
manufacturer to avoid being assessed excise taxes: by choosing
not to participate in the Program and withdrawing from the OptOut Programs.
23a
v. Heckler, 714 F.2d 872, 875 (7th Cir. 1983) (“[T]he
fact that practicalities may in some cases dictate
participation
does
not
make
participation
involuntary.”).
Those courts’ reasoning makes sense. The federal
government, by virtue of its size, possesses a sizable
market share in many of the markets it enters. In
certain markets—for example, for military hardware
that is unlawful for civilians to own—the government
may be the only purchaser. Economic factors may
have a strong influence on a company’s choice to do
business with the government, but a company that
chooses to do so still acts voluntarily.
II
The Companies resist the withdrawal option’s
dispositive effect on their takings claim. They make
arguments based on two Supreme Court decisions,
and they raise one practical objection. None is
availing.
First, the Companies invoke the Supreme Court’s
Takings Clause decision in Horne v. Department of
Agriculture, 576 U.S. 350 (2015). Horne involved a
federal government mandate that raisin growers
reserve a percentage of their crop for the government,
free of charge. Id. at 354–55. When a family of raisin
growers refused to comply with the reserve
requirement, the government sent trucks to the
family’s raisin-handling facility to collect the reserve
raisins, and when the family refused entry to the
trucks the government assessed a fine and civil
penalty. Id. at 356. The Court held that the
government’s reserve requirement was “a clear
physical taking” because it caused “[a]ctual raisins [to
24a
be] transferred from the growers to the Government.”
Id. at 361.
In defending the reserve requirement, the
government argued that raisin growers “voluntarily
choose to participate in the raisin market” and could
avoid the reserve requirement by “plant[ing] different
crops” or by selling their “raisin-variety grapes as
table grapes or for use in juice or wine.” Id. at 365
(citation omitted). It likened the case to Ruckelshaus
v. Monsanto Company, 467 U.S. 986 (1984), where the
Court held that the Environmental Protection Agency
could require companies to disclose health, safety, and
environmental information about the hazardous
pesticides they sell as a condition of receiving permits
to sell those products. Horne, 576 U.S. at 365–66. The
Court rejected the government’s attempt to extend
Monsanto by characterizing participation in interstate
raisin markets as a special governmental benefit, akin
to a permit to sell dangerous chemicals. Id. at 366.
Because selling raisins was a “basic and familiar use[]
of property,” not part of a voluntary exchange with the
government, the Court held that the government’s
taking required just compensation. Id. at 366–67.
The Companies argue that Horne controls this case.
Not so. To avoid the reserve requirement in Horne,
the raisin growers would have had to exit the raisin
market entirely. See id. at 364–65 (characterizing the
reserve requirement as “a condition on permission to
engage in commerce” of raisins (internal quotation
marks omitted)). Here, if the Companies wish to avoid
the excise taxes, they can withdraw from the Opt-Out
Programs and remain free to participate in the
pharmaceutical market—including by selling Xarelto
25a
and Eliquis to private parties. 12 Thus, Horne does not
disturb our conclusion that the voluntary nature of
Medicare participation precludes takings liability. 13
The Companies also rely on National Federation of
Independent Business v. Sebelius, 567 U.S. 519 (2012)
(“NFIB”). NFIB struck down a provision of the Patient
Protection and Affordable Care Act (“PPACA”) that
conditioned all of a State’s Medicaid funds on the
State’s expanding of Medicaid eligibility. Id. at 585.
The Court applied the anti-commandeering doctrine,
which
bars
the
federal
government
from
“commandeer[ing]
a
State’s
legislative
or
administrative apparatus for federal purposes.” Id. at
577.
Because the challenged PPACA provision
“threatened loss of over 10 percent of a State’s overall
12 Janssen attempts to reframe the relevant market in Horne as
one for grapes, rather than raisins, arguing that the growers
could sell their products to other buyers just as Janssen could sell
Xarelto to private parties. But the Court made clear in Horne
that raisin growers’ theoretical ability to sell “raisin-variety
grapes” for non-raisin uses was no real alternative. See 576 U.S.
at 365 (citation omitted). Instead, the government’s argument
failed because it would have forced raisin growers to cease doing
business as raisin growers.
Id.
Here, losing Medicare
reimbursement would not preclude Janssen from selling its drugs
to private parties.
13 Other courts have reached the same conclusion.
See, e.g., Se.
Ark. Hospice, Inc. v. Burwell, 815 F.3d 448, 450 (8th Cir. 2016)
(citing Horne for the proposition that because participation in a
hospice program run through Medicare is a “voluntary exchange,”
it cannot create takings liability); Va. Hosp. & Healthcare Ass’n
v. Roberts, 671 F. Supp. 3d 633, 666–67 (E.D. Va. 2023)
(distinguishing Horne); see also, e.g., Eli Lilly & Co. v. U.S. Dep’t
of Health & Hum. Servs., No. 1:21-cv-00081-SEB-MJD, 2021 WL
5039566, at *21 (S.D. Ind. Oct. 29, 2021); Kaiser Found. Health
Plan, Inc. v. Burwell, 147 F. Supp. 3d 897 (N.D. Cal. 2015).
26a
budget,” the Court concluded that it was “economic
dragooning that le[ft] the States with no real option
but to acquiesce in the Medicaid expansion.” Id. at 582.
The Companies characterize the Program as
economic dragooning, just like in NFIB. But the
Companies ignore NFIB’s explicit and repeated focus
on federalism and the States’ role as distinct
sovereigns. 14
Federalism prohibits the federal
government from trampling on a State’s prerogatives
under the Tenth Amendment. See id. at 577–78;
Printz v. United States, 521 U.S. 898, 918–22 (1997)
(“[O]ur citizens . . . have two political capacities, one
state and one federal, each protected from incursion by
the other” (cleaned up)); New York v. United States,
14 See, e.g., 567 U.S. at 577 (“Spending Clause legislation [may]
not undermine the status of the States as independent sovereigns
in our federal system.”); id. at 577–78 (“[W]hen pressure turns
into compulsion, the legislation runs contrary to our system of
federalism. The Constitution simply does not give Congress the
authority to . . . directly command[] a State to regulate or
indirectly coerce[] a State to adopt a federal regulatory system as
its own.” (cleaned up)); id. at 578 (“Permitting the Federal
Government to force the States to implement a federal program
would threaten the political accountability key to our federal
system. . . . [W]hen a State has a legitimate choice whether to
accept the federal conditions in exchange for federal funds[,] . . .
state officials can fairly be held politically accountable for
choosing to accept or refuse the federal offer.”); id. at 579 (“In the
typical case we look to the States to defend their prerogatives by
adopting the simple expedient of not yielding to federal
blandishments when they do not want to embrace the federal
policies as their own.” (internal quotation marks omitted)); id. at
580 (“When . . . conditions take the form of threats to terminate
other significant independent grants, the conditions are properly
viewed as a means of pressuring the States to accept policy
changes.”).
27a
505 U.S. 144, 156–57 (1992) (“[T]he Tenth
Amendment confirms that the power of the Federal
Government is subject to limits that may, in a given
instance, reserve power to the States.”). These Tenth
Amendment concerns are simply not present here,
where the federal government contracts with private
parties, rather than dealing with separate
sovereigns. 15
Finally, we reach the Companies’ practical objection
to withdrawal. They argue that even if withdrawing
from the Opt-Out Programs precludes takings liability,
the Program does not permit the Companies to
withdraw in time to suspend the excise taxes.
Because CMS announced its selection of the
Companies’ drugs in August 2023, the excise taxes
would have kicked in on October 2, 2023, unless the
Companies agreed to participate in the Program or
withdrew from the Opt-Out Programs. 26 U.S.C. §
5000D(b)(1), (c)(1)(A). 16 According to the Companies,
15 Moreover, the Companies’ reading of NFIB would effectively
bless all existing federal funding streams with constitutional
protection in perpetuity. If NFIB applies to the government’s
dealings with private parties, it is hard to see how the
government could ever renegotiate or discontinue contracts. In
the absence of any indication that the Court intended to sweep so
broadly, NFIB cannot support the weight the Companies seek to
put on it.
16 In 2023, the Coverage Gap Discount Program had not yet been
replaced by the Manufacturer Discount Program. See supra n.6.
Thus, to avoid excise taxes in October 2023, the Companies
needed to ensure that the termination of their agreements under
the Coverage Gap Discount Program had taken effect and give
notice terminating their agreements under the Medicaid Rebate
Program. Id. § 5000D(c)(1)(A).
28a
to avoid any excise taxes beginning to accrue in
October 2023, the statute required them to terminate
their agreements in the Opt-Out Programs before the
IRA was even enacted. But the statute, as clarified by
regulatory guidance with the force of law, says
otherwise.
Congress created two paths to effectuate
termination of a manufacturer’s agreements and
suspend the excise taxes. 17 The first path is
manufacturer-initiated and requires a lengthy period
of notice:
A manufacturer may terminate its
agreements with CMS “for any reason”—even over
CMS’s objection—upon providing 11 to 23 months’
notice. 42 U.S.C. §§ 1395w-114a(b)(4)(B)(ii) (Coverage
Gap Discount Program), 1395w-114c(b)(4)(B)(ii)
(Manufacturer Discount Program). The second path is
CMS-initiated and is much speedier: CMS may
terminate its agreements with a manufacturer “for a
knowing and willful violation of the requirements of
the agreement or other good cause shown” with only
30 days’ notice. Id. §§ 1395w-114a(b)(4)(B)(i),1395w114c(b)(4)(B)(i). And CMS announced in a regulatory
guidance—one that has the force of law—that it will
find “good cause” to use the speedier path to
termination whenever a manufacturer submits notice
of its decision not to participate in the Drug Price
As discussed above, excise taxes are suspended when the
termination of a manufacturer’s agreements under one of the
Opt-Out Programs (the Coverage Gap Discount Program or its
replacement the Manufacturer Discount Program) has taken
effect. See supra Section I.A. A manufacturer need only give
notice of termination from its agreements under the Medicaid
Rebate Program to avoid excise taxes. 26 U.S.C. § 5000D(c)(1)(A),
(2).
17
29a
Negotiation Program. CMS, Medicare Drug Price
Negotiation
Program:
Revised
Guidance,
Implementation of Sections 1191-1198 of the Social
Security Act for Initial Price Applicability Year 2026,
at 120–21 (June 30, 2023) (“2023 Revised Guidance”),
https://www.cms.gov/files/document/revisedmedicare-drug-price-negotiation-program-guidancejune-2023.pdf [https://perma.cc/AV2Z-4F9U]. 18
18 See 42 U.S.C. § 1320f note (allowing CMS to implement the
Program by issuing program guidance for program years 2026
through 2028); 2023 Revised Guidance at 92–93 (stating that the
2023 Revised Guidance is being promulgated without notice and
comment as final). The dissent contends that the IRA does not
authorize CMS to promulgate the 2023 Revised Guidance
without notice and comment. Dissent at 18 n.6; see 5 U.S.C. § 559
(contemplating that a statute may displace the requirements of
the Administrative Procedure Act “to the extent that it does so
expressly”). To determine if a statute displaces the procedural
requirements of the APA, we look for “express language
exempting agencies” or “alternative procedures that could
reasonably be understood as departing from the APA.” California
v. Azar, 911 F.3d 558, 579 (9th Cir. 2018); accord Mann Constr.,
Inc. v. United States, 27 F.4th 1138, 1145 (6th Cir. 2022)
(similar). Language that is “permissive, wide-ranging, . . . and
does not contain any specific deadlines for agency action”
suggests that Congress did not mean to do away with APA
requirements. Pennsylvania v. Pres. United States, 930 F.3d 543,
566 (3d Cir. 2019) (cleaned up), rev’d on other grounds sub nom.
Little Sisters of the Poor Saints Peter & Paul Home v.
Pennsylvania, 591 U.S. 657 (2020). Here, the statute provides an
alternative procedure (issue program instruction or other forms
of program guidance) in mandatory terms (CMS “shall,” rather
than may, do so). 42 U.S.C. § 1320f note. That Congress limited
CMS’s authority to only the first three program years supports
this reading: “that Congress made a deliberate decision to
authorize an exemption (albeit temporary) from the APA’s
requirements.” Boehringer, 2025 WL 2248727, at *14.
30a
CMS issued the 2023 Revised Guidance two months
before it announced the drugs selected for the first
round of price negotiations. So before the Companies’
drugs were selected for negotiation on August 29, 2023,
the Companies had been apprised of their ability to
expedite withdrawal from Medicare if they decided not
to participate in the Program. Had the Companies
exercised that option promptly, they could have
avoided any excise tax liability.
The dissent sees the 30-day expedited withdrawal
as stretching the meaning of “other good cause”
beyond what the statutes can bear. See Dissent at 19–
22. Because the phrase “other good cause” appears
following a specific ground upon which CMS may
terminate an agreement—“a knowing and willful
violation” of the agreement’s requirements—the
dissent would limit “good cause” to other forms of
misconduct. But good cause is “a uniquely flexible and
capacious concept, meaning simply a legally sufficient
reason.” Polansky v. Exec. Health Res. Inc., 17 F.4th
376, 387 (3d Cir. 2021) (internal quotation marks
omitted), affirmed sub nom. United States ex rel.
Polansky v. Exec. Health Res., Inc., 599 U.S. 419 (2023).
Congress chose to include that flexible and capacious
phrase alongside just one example of a legally
sufficient reason for CMS to terminate an agreement
with a manufacturer. And it makes sense that
Congress would permit CMS to use the speedier path
to termination when CMS consents to a
manufacturer’s withdrawal, rather than when a
manufacturer acts unilaterally.
Moreover, the Companies entered into their
Coverage Gap Discount Program agreements before
Congress enacted the IRA.
At that time, the
31a
Companies could not have known that a future statute
would condition excise taxes on the continued
existence of their Coverage Gap agreements. Later,
when CMS selected the Companies’ drugs for
negotiation in August 2023, the Companies had to
decide whether to participate in the Program or
withdraw from their Coverage Gap agreements in
order to suspend the IRA’s excise taxes.
The
unforeseeable legal and economic significance of the
Companies’ Coverage Gap agreements supports
CMS’s conclusion that a manufacturer’s decision not
to participate in the Program constitutes “other good
cause” supporting an expedited withdrawal from those
agreements. 19
If Congress wished to limit CMS’s termination
authority to instances of manufacturer misconduct, it
knew how to do so. See Loper Bright Enters. v.
Raimondo, 603 U.S. 369, 394–95 (2024). We see no
conflict between the expedited withdrawal that the
2023 Revised Guidance permits and the intent of
Congress, as expressed in the Medicare statutes. 20
The dissent also sees tension between a CMS-initiated
termination of a manufacturer’s agreement (which requires CMS
to send notice to the manufacturer) and the excise tax statute
(which says taxes are suspended when CMS receives notice of
terminations, 26 U.S.C. § 5000D(c)(1)(A)(i)). See Dissent at 22–
23.
But all agree that CMS may remove a malfeasant
manufacturer unilaterally for a willful violation of an agreement.
And, post-termination, the malfeasant manufacturer would avoid
excise taxes even though CMS never received any notice from the
manufacturer. Thus, “notice of terminations” must be read to
include all notices, whether initiated by a manufacturer or CMS.
19
20 Of course, if CMS were to retract its assurance in the 2023
Revised Guidance that it will find good cause to terminate a
manufacturer’s agreements whenever a manufacturer submits
32a
B
The Companies argue that even if the Program does
not directly seize their property, it still violates the
Takings Clause because it amounts to extortion. They
ask us to apply the Nollan-Dolan test—a test the
Supreme Court has applied only to takings claims
involving land-use permits—to this case. See Koontz
v. St. Johns River Water Mgmt. Dist., 570 U.S. 595,
604 (2013) (“Nollan and Dolan involve a special
application of th[e] [unconstitutional conditions]
doctrine that protects the Fifth Amendment right to
just compensation for property the government takes
when owners apply for land-use permits.” (internal
quotation marks omitted)).
The Nollan-Dolan test is “modeled on the
unconstitutional conditions doctrine” and is designed
to “address th[e] potential abuse of the permitting
process.” Sheetz v. Cnty. of El Dorado, Cal., 601 U.S.
267, 275 (2024). Under the test, “permit conditions
must have an ‘essential nexus’ to the government’s
land-use interest, . . . [and] have ‘rough proportionality’
to the development’s impact on the land-use interest.”
Id. at 275–76 (first citing Nollan v. Cal. Coastal
Comm’n, 483 U.S. 825 (1987); and then citing Dolan v.
City of Tigard, 512 U.S. 374 (1994)). For example, if a
development were expected to increase traffic, the
government might condition approval on the developer
turning over land needed to widen a public road.
Koontz, 570 U.S. at 605. Such a condition would be
notice of its decision not to participate in the Drug Price
Negotiation Program, that reversal could be deemed arbitrary
and capricious. See Encino Motorcars, LLC v. Navarro, 579 U.S.
211, 221–22 (2016).
33a
related to the government’s interest in protecting
traffic-flows, though it would still need to be
proportional to the development’s impact on traffic. Id.
For over thirty years, the Supreme Court has not
expanded the Nollan-Dolan test beyond conditions on
land-use permitting. Instead, it has emphasized how
that specific context drives its reasoning. A special
test for challenges to land-use permitting is necessary
because of “two realities of the permitting process”: (1)
“the government often has broad discretion to deny a
permit that is worth far more than property it would
like to take,” making “land-use permit applicants . . .
especially vulnerable to the type of coercion that the
unconstitutional conditions doctrine prohibits,” and (2)
“many proposed land uses threaten to impose costs on
the public that dedications of property can offset.”
Koontz, 570 U.S. at 604–05. Plainly, the realities of
land-use permitting have no bearing on Medicare
contracts.
We therefore decline the Companies’
invitation to subject the Program to scrutiny under
Nollan-Dolan. 21
21 Even if an adaptation of the Nollan-Dolan test applied here,
the Program would withstand scrutiny. In the Companies’ view,
a condition on a voluntary government benefit that takes
property from the recipient must (1) have a nexus to the
government program, and (2) be proportional to the benefit
conferred. Here, the Program has the required nexus to
Medicare. Requiring the Companies to make selected drugs
available to Medicare beneficiaries at negotiated prices supports
the government’s aim to provide greater access to affordable
prescription drugs. And the Program’s putative taking of
property is proportional to the benefit conferred. In exchange for
reduced profits from selected drugs, each company is able to
obtain Medicare reimbursements for numerous products that it
manufactures.
34a
*
*
*
In effect, the Companies argue that they have a
constitutionally protected right to be reimbursed for
their products at price levels they have historically
enjoyed. From the creation of Part D until the creation
of the Program, those prices were set by a market in
which the government (far and away the largest buyer)
did not use its purchasing power to negotiate. In
AstraZeneca, we noted that, for purposes of the Fifth
Amendment’s guarantee of procedural due process,
“[t]here is no protected property interest in selling
goods to Medicare beneficiaries (through sponsors or
pharmacy benefit plans) at a price higher than what
the government is willing to pay when it reimburses
those costs.” 137 F.4th at 125–26. This logic applies
with equal force in the context of the Fifth
Amendment’s Takings Clause. The Companies face a
choice: forgo participation in certain Medicare and
Medicaid programs or accept federal reimbursements
for selected drugs on less lucrative terms. Economic
realities may provide a strong incentive for a
manufacturer to choose the latter. But this choice is
not a taking.
IV
The Companies next claim that CMS’s form
Agreement and Addendum compel speech in violation
of the First Amendment.
They object to these
documents’ use of the term “maximum fair price,”
arguing that the phrase suggests that the Companies
previously were not charging fair prices for their drugs.
They also object to these documents’ use of the terms
“agree” and “negotiate” to describe their participation
35a
in the Program. The Companies argue that these
terms mask that they are acting under duress.
The First Amendment claim fails for two
independent reasons: (1) The Program permissibly
regulates conduct, with only an incidental effect on
speech, and (2) participation in the Program is
voluntary, so the Companies are not compelled to
speak at all. The Program also does not place
unconstitutional conditions on participation because it
does not regulate or compel speech outside of the
contracts needed to effectuate the Program itself.
A
I
“The First Amendment does not prevent restrictions
directed at commerce or conduct from imposing
incidental burdens on speech.” Nat’l Inst. of Fam. &
Life Advocs. v. Becerra, 585 U.S. 755, 769 (2018)
(“NIFLA”) (alteration omitted) (quoting Sorrell v. IMS
Health Inc., 564 U.S. 552, 567 (2011)). In other words,
a law may permissibly restrict or compel speech if the
“effect on speech [is] only incidental to its primary
effect on conduct.”
Expressions Hair Design v.
Schneiderman, 581 U.S. 37, 47 (2017).
“While drawing the line between speech and
conduct can be difficult, [courts] have long drawn
it . . . .” NIFLA, 585 U.S. at 769. We must do so
because many government actions impose some
ancillary burden on speech that is unrelated to any
suppression of ideas or creation of a governmentapproved orthodoxy, thus posing no First Amendment
problems. See Sorrell, 564 U.S. at 567 (noting that,
e.g., “a ban on race-based hiring may require
employers to remove ‘White Applicants Only’ signs, . . .
36a
an ordinance against outdoor fires might forbid
burning a flag, and . . . antitrust laws can prohibit
agreements in restraint of trade” because these
government actions have only incidental effects on
speech (cleaned up)); see also, e.g., Zauderer v. Off. of
Disciplinary Couns. of Sup. Ct. of Ohio, 471 U.S. 626,
651 (1985) (allowing states to mandate that
professionals make specific disclosures so long as they
are not “unjustified or unduly burdensome”); United
States v. O’Brien, 391 U.S. 367, 382 (1968) (holding
that, despite the communicative aspect of burning a
draft
card,
a
conviction
based
on
the
“noncommunicative impact of [the defendant’s]
conduct” was permissible).
For example, in Rumsfeld v. Forum for Academic &
Institutional Rights, Inc., 547 U.S. 47 (2006) (“FAIR”),
the Supreme Court rejected a First Amendment
challenge to the Solomon Amendment—a statute that
required schools receiving certain federal grants to
host military recruiters on the same terms as other
employers. A group of law schools opposed to a
military policy argued that the Solomon Amendment
compelled them to speak by requiring them to
accommodate the military recruiters’ messages and
distribute notices on the recruiters’ behalf. Id. at 53,
61–62. The compelled messages were statements of
fact such as “The U.S. Army recruiter will meet
interested students in Room 123 at 11 a.m.” Id. at 61–
62. The Court held that the compelled speech the
schools complained of was subject to First Amendment
scrutiny but was “plainly incidental to the Solomon
Amendment’s regulation of conduct”—i.e., the hosting
of military recruiters on campus. Id. at 62. It
explained that compelling schools to send scheduling
37a
emails and post notices on behalf of military recruiters
is a far cry from “a Government-mandated pledge or
motto that the school must endorse.” Id. 22 And it
reiterated that “it has never been deemed an
abridgment of freedom of speech or press to make a
course of conduct illegal merely because the conduct
was in part initiated, evidenced, or carried out by
means of language, either spoken, written, or printed.”
Id. (quoting Giboney v. Empire Storage & Ice Co., 336
U.S. 490, 502 (1949)).
By contrast, in Expressions Hair Design, the
Supreme Court concluded that a state law related to
credit card surcharges was a regulation of speech. 581
U.S. at 40, 47–48. The law permitted merchants to
charge customers using cash less than customers
using credit cards, but it also regulated what a
merchant could call this differential pricing: referring
to it as a “cash discount” was permissible, while calling
it a “credit card surcharge” was not. See id. at 44.
Therefore, the Court held that the law “regulat[ed] the
communication of prices rather than prices
themselves” making it subject to First Amendment
scrutiny.
Id. at 48. Because the law allowed
merchants to charge whatever they wanted, it
regulated only speech, not conduct. Id. at 47. Such a
regulation could not be said to have an “incidental”
effect on conduct.
The Court also noted that the Solomon Amendment only
compels speech “if, and to the extent, the school provides such
speech for other recruiters.” 547 U.S. at 62. See infra Section
IV.B.
22
38a
II
Applying these principles to the Program, we have
no trouble concluding that the Program is directed at
conduct. When Congress enacted the IRA, it required
CMS to negotiate the prices at which Medicare will
reimburse manufacturers for selected drugs. To
comply with this mandate, CMS must follow the
statute’s process for the exchange of offers and
counteroffers with a manufacturer. That process is
outlined in a contract governing the negotiation: the
Agreement. And when the parties agree to a price,
they memorialize it in a contract governing how much
money CMS will tender and the manufacturer will
accept as reimbursement for covered drugs: the
Addendum.
When a manufacturer signs the Agreement or the
Addendum, it engages in speech entitled to some form
of constitutional scrutiny. After all, the legal effect of
signing a contract does not deprive the signing of its
expressive component. Doe No. 1 v. Reed, 561 U.S. 186,
195 (2010); see also Greater Phila. Chamber of Com. v.
City of Philadelphia, 949 F.3d 116, 135 (3d Cir. 2020)
(noting “the well settled proposition” that negotiating
contract terms “is speech subject to the protections of
the First Amendment”). But any First Amendment
speech contained in those contracts is incidental to the
contracts’ regulation of conduct. 23
23 The dissent contends that FAIR establishes that, even if the
Program primarily regulates conduct, we must ask whether any
incidentally compelled speech is expressive. See Dissent at 33–
34. But all speech is expressive. That is why the Supreme Court
only discussed the “inherently expressive” nature of conduct (not
speech) in FAIR. See 547 U.S. at 64–68. In its separate
assessment of whether the Solomon Amendment’s compelled
39a
Although the Companies view the contracts’ use of
the term “maximum fair price” as normative, the
Agreement expressly states that the parties intend to
give all statutorily-defined terms their statutory
meaning, not their colloquial meaning. And the
statutory meaning of “maximum fair price” is, in
essence, the agreed-upon price for a selected drug
during a specified pricing period. See 42 U.S.C. §
1320f(c)(3) (defining the term). We must construe the
term as defined in the IRA, without reference to how
verbal statements were unconstitutional, the Court looked to
whether the law compelled statements of opinion or of fact. Id.
at 61–62. And although First Amendment scrutiny applies to
both, the factual statements about recruiting that the law schools
were required to make were “a far cry” from the “Governmentmandated pledge or motto” at issue in landmark compelled
speech cases. Id. (citing West Virginia Bd. of Educ. v. Barnette,
319 U.S. 624 (1943), and Wooley v. Maynard, 430 U.S. 705
(1977)). The lack of ideological weight supported the Court’s
conclusion that any speech compulsion was “plainly incidental”
to the Solomon Amendment’s regulation of conduct. Id. at 62.
The Court then independently considered whether the conduct of
hosting recruiters had an inherently expressive quality and
whether accommodating a military recruiter would interfere with
the schools’ speech. Id. at 64. The answer to both questions was
no, as “[n]othing about recruiting suggests that law schools agree
with any speech by recruiters,” military or otherwise, and the
equal-access mandate did not restrict the law schools’ speech. Id.
at 65.
Here, the Program regulates the price at which the companies
will be reimbursed for their products. The challenged contracts
are an ancillary part of a government reimbursement process and
do nothing to limit the Companies’ speech about the Program.
More to the point, notwithstanding the Companies’ subjective
views of the contractual terms, nothing about signing the
Agreement or Addendum suggests that the Companies hold any
particular view.
40a
“it might be read by a layman, or as it might be
understood by someone who has not even read [the
statute].” Meese v. Keene, 481 U.S. 465, 484–85 (1987).
When we do, the term loses the expressive weight the
Companies place on it. Cf. Engelhard Corp. v. NLRB,
437 F.3d 374, 381 (3d Cir. 2006) (citing the “well
established principle[] of contract construction [] to
read . . . all provisions of a contract together as a
harmonious whole”).
The Companies also argue that, because they have
a strong economic incentive to participate in in the
Program, they are not truly negotiating or freely
agreeing to the process or a drug price. As with the
term “maximum fair price,” the IRA uses the terms
“agree” and “negotiate” to describe the parties’
dealings in the Program. E.g., 42 U.S.C. §§ 1320f2(a)(1), 1320f-3(a), 1320f-3(b)(2)(F). Indeed, it is
difficult to imagine how any contract could effectuate
the Program without using the terms “agree” or
“negotiate,” or equivalents that would draw the same
objections from the Companies. 24 This is strong
evidence that the objected-to terms regulate conduct,
despite their presence in written instruments.
In essence, the Companies complain about contract
terms they dislike but do not have the bargaining
24 Although the Companies claim they were coerced into signing
the contracts, agreements between parties with unequal
bargaining power remain agreements. Cf. AT&T Mobility LLC
v. Concepcion, 563 U.S. 333, 346 n.5 (2011) (explaining that
agreements to arbitrate made between parties with “unequal
bargaining power” are enforceable). And it is common for
purchasers to negotiate with a ceiling on what they are willing to
pay, as CMS does here because of the statutory price cap. See 42
U.S.C. § 1320f-3(c).
41a
power to convince CMS to remove. But the terms of
the contracts are meant to effectuate the Program, not
to force the Companies to endorse a governmentmandated message. See FAIR, 547 U.S. at 62.
Notably, the Companies also remain free to criticize
the Program outside of the contracts used to effectuate
it. See id. at 60 (“Law schools remain free under the
statute to express whatever views they may have . . .
all the while retaining eligibility for federal funds.”);
id. at 65 (“[N]othing in the Solomon Amendment
restricts what the law schools may say about the
military’s policies.”). 25
Because the Program regulates conduct, with only
an incidental effect on speech, it withstands First
Amendment scrutiny. 26
25 Separately, Janssen argues that its “forced participation in the
Program” is an independent First Amendment violation:
compelled expressive conduct. Janssen Br. 44–46. It is not. As
discussed throughout this opinion, Janssen is not forced to
participate in the Program. Furthermore, Janssen has not shown
that observers are likely to understand the company’s
participation in the Program communicates something about its
beliefs. See Tenafly Eruv Ass’n, Inc. v. Borough of Tenafly, 309
F.3d 144, 161 (3d Cir. 2002).
26 Arguably, the introductory paragraphs (i.e., the “recitals”) to a
contract do not directly regulate conduct in the way the operative
terms of a contract do. Thus, when government contracts
regulate conduct, the recitals and operative terms could have
different First Amendment implications. However, the recitals
to the Agreement merely provide factual context for the Program:
They state that a manufacturer and CMS will “negotiate to
determine a price (referred to as “maximum fair price” in the
[IRA]) for selected drugs.” Agreement at 1. Thus, like the
operative terms of the Agreement, any burden on speech that the
42a
B
The Companies’ First Amendment challenge also
fails because the Program only “compels” them to
speak if they choose to participate. As with their
takings claims, the economic hardship that would
result from declining to participate in the Program
does not amount to unconstitutional compulsion. 27
“A violation of the First Amendment right against
compelled speech occurs only in the context of actual
compulsion, although that compulsion need not be a
direct threat.” Miller v. Mitchell, 598 F.3d 139, 152 (3d
Cir. 2010) (internal quotation marks omitted). “In
order to compel the exercise of speech, the
governmental measure must punish, or threaten to
punish, protected speech by governmental action that
is regulatory, proscriptive, or compulsory in nature.”
C.N. v. Ridgewood Bd. of Educ., 430 F.3d 159, 189 (3d
Cir. 2005) (cleaned up).
For instance, a state
government compels speech when a prosecutor
promises to criminally charge high school students
unless they write essays about how “sexting” is wrong.
Miller, 598 F.3d at 143–44, 152. But a school district
does not compel speech when it seeks to collect
recitals impose is incidental to the Program’s regulation of
conduct.
27 As discussed above, we join our sister Circuits in holding that
Medicare participation is voluntary for purposes of the Takings
Clause. See supra Section III.A.I. It is unclear if the level of
compulsion required to violate the First Amendment differs from
the level of compulsion needed to violate other constitutional
provisions and, if so, to what extent. Cf. Newman v. Beard, 617
F.3d 775, 780 (3d Cir. 2010). In the absence of clearer authority,
our holding with respect to takings liability counsels against
finding compulsion for purposes of the First Amendment.
43a
information from students without threatening
punishment or discipline for failure to respond. C.N.,
430 F.3d at 189. 28
Here, the government does not threaten to punish
the Companies for declining to participate in the
Program. Although the Companies will lose certain
revenues from Medicare and Medicaid if they decide
not to participate in the Program, Congress can
permissibly leverage funding in this way. 29 In FAIR,
the Solomon Amendment stated that that if any part
of a university denied military recruiters access equal
to that provided other recruiters, the entire
university—not just the particular school that denied
access—would lose federal funds from multiple
government departments. 547 U.S. at 51, 54 n.3.
Despite
these
major
funding
consequences,
universities who disagreed with the Solomon
Amendment’s condition remained “free to decline the
federal funds” that subjected them to the condition. Id.
at 59; cf. Wooley v. Maynard, 430 U.S. 705, 715 (1977)
(finding a state “in effect require[d]” speech by
mandating that drivers display a motto on their
license plates, because driving is “a virtual necessity”).
28 While the First Amendment “right to refrain from speaking at
all . . . is necessarily different in the public school setting,” it still
includes the right not to “profess beliefs or views with which the
student does not agree.” C.N., 430 F.3d at 186–87 (citation
omitted).
The Companies argue that the IRA improperly leverages
Medicare funding for drugs covered by the Program. This
framing artificially cleaves off drugs selected for negotiation from
the rest of Medicare. There is one Medicare funding stream, and
the Program sets conditions on a portion of it.
29
44a
There was no unconstitutional compulsion. The same
is true here. 30
The Companies voluntarily chose to participate in
the Program.
Any ancillary speech component
inherent in Program participation was therefore not
compelled. For this additional reason, their First
Amendment claims fail.
C
The Companies argue in the alternative that even if
the Program does not directly violate the First
Amendment, it imposes an unconstitutional condition
on a voluntary government benefit. This argument
fails, because any speech compulsion does not reach
outside of the contours of the Program.
Generally, when a party complains that a
government benefit comes on objectionable terms, the
party’s remedy is to forego the benefit. See Agency for
Int’l Dev. v. All. for Open Soc’y Int’l, Inc., 570 U.S. 205,
214 (2013) (“AID”) (“As a general matter, if a party
objects to a condition on the receipt of federal funding,
its recourse is to decline the funds . . . [even when] a
condition may affect the recipient’s exercise of its First
Amendment rights.”). That said, a funding condition
that reaches beyond the scope of the program to
compel or regulate a funding recipient’s speech may
violate the First Amendment. Id. at 215–16.
In AID, the Supreme Court distinguished between
two types of conditions of federal funding that burden
First Amendment rights: (1) those “that define the
30 The IRA’s excise tax provisions do not change this conclusion,
as they only apply after a manufacturer chooses to participate in
the Program. See supra note 11.
45a
limits of the government spending program . . . [by]
specify[ing] the activities Congress wants to subsidize,”
and (2) those “that seek to leverage funding to regulate
speech outside the contours of the program itself.” Id.
at 214–15. The former conditions are permissible
while the latter are not.
The condition at issue in AID required
organizations receiving federal funds related to
HIV/AIDS prevention to certify in their award
documents that they have policy of opposing
prostitution and sex trafficking. Id. at 210. The Court
held that the certification requirement regulated
speech outside of the HIV/AIDS prevention program
for two reasons. First, it was unnecessary; a separate
provision barred funds from being used to promote or
advocate prostitution. Id. at 217–18. Second, it was
overbroad; it limited the organization’s First
Amendment activity conducted “on its own time and
dime.” Id. at 218. Similarly, in FCC v. League of
Women Voters of California, federal funding
conditioned on television and radio stations not
“engag[ing] in editorializing” violated the First
Amendment because the stations were “barred
absolutely from all editorializing,” not just when using
the federal funds. 468 U.S. 364, 366, 400 (1984)
(citation omitted). But there was no First Amendment
violation in Rust v. Sullivan, where a condition
barring federal funds from being used on family
planning programs that included abortion “le[ft] the
grantee unfettered in its . . . activities” outside of the
funded program. 500 U.S. 173, 196 (1991); see also
Speiser v. Randall, 357 U.S. 513 (1958) (striking down
requirement that applicants for a tax exemption attest
46a
that they do not seek to overthrow the United States
government by unlawful means).
Finally, in Regan v. Taxation With Representation of
Washington, 461 U.S. 540 (1983), the Supreme Court
held that a federal ban on lobbying by tax-exempt nonprofit organizations was permissible under the First
Amendment. There, organizations with favorable
treatment under 26 U.S.C. § 501(c)(3) received a
government benefit—tax exemptions for the
organization and tax deductions for contributors—on
the condition that they forgo political advocacy. Id. at
542 & n.1. This condition was permissible, in part
because the organizations could organize a lobbying
affiliate under 26 U.S.C. § 501(c)(4), which grants tax
exemptions but not tax deductions for contributors. Id.
at 544–45 & n.6. In short, the restriction on funds,
offered in the form of favorable tax treatment,
survived First Amendment scrutiny because it
reflected Congress’ choice of what activities to
subsidize and permitted participants to engage in
protected activity on their own time and dime. See id.
at 545.
These cases establish that the Program does not
impose an unconstitutional condition on participation.
Any “compelled” speech is squarely within the scope of
the Program because the contracts at issue effectuate
the drug price negotiation process established by
Congress. Any expressive content in the contracts—
including statements that the parties are agreeing to
negotiate a price, and that that price is referred to as
the “maximum fair price” in the IRA—effectuates the
government’s policy choices, rather than “leverage[s]
funding to regulate speech outside the contours of the
47a
program itself.” AID, 570 U.S. at 214–15; cf. Sheetz,
601 U.S. at 275–76.
Moreover, the Program does not limit or compel
speech outside of the contractual documents any
company must sign to participate in the Program. The
Companies remain free to criticize the Program in any
forum or instrument other than the contracts needed
to effectuate the Program. See Rust, 500 U.S. at 197
(“[U]nconstitutional conditions . . . involve situations
in which the Government has placed a condition on the
recipient of the subsidy rather than on a particular
program or service” (internal quotation marks
omitted)).
*
*
*
For the foregoing reasons, we will affirm the District
Court’s orders granting summary judgment to the
government.
48a
Bristol Myers Squibb Co. v. Sec’y HHS & Janssen
Pharms. Inc. v. Sec’y HHS, Nos. 24-1820 & 24-1821
HARDIMAN, Circuit Judge, dissenting.
These consolidated appeals pit two large
pharmaceutical
manufacturers—Bristol
Myers
Squibb (BMS) and Janssen Pharmaceuticals
(collectively, the Companies)—against the federal
government.
The Companies appeal adverse
summary judgments. They contend that the District
Court erred when it rejected their constitutional
challenges to the Inflation Reduction Act of 2022 (the
Act). The Act established a “Drug Price Negotiation
Program” (the Program) to reduce skyrocketing
expenses. The Program directs the Department of
Health and Human Services (HHS)—through the
Centers for Medicare and Medicaid Services (CMS)—
to “negotiate” prices with drug manufacturers. See 42
U.S.C. § 1320f(a)(3).
The Companies contend that the Program takes
their property without just compensation in violation
of the Fifth Amendment and compels them to speak in
violation of the First Amendment. This Court rejects
these arguments and affirms the District Court. I see
things differently. The Companies have persuasively
argued that their constitutional rights were violated
and that they are entitled to invalidation of the
Program as applied to them.
I
Begin with some general principles. The federal
government now accounts for almost half of all
spending on prescription drugs—some $200 billion per
year. See Sanofi Aventis U.S. LLC v. HHS, 58 F.4th
49a
696, 699 (3d Cir. 2023); KFF, 10 Prescription Drugs
Accounted for $48 Billion in Medicare Part D Spending
in 2021, or More Than One-Fifth of Part D Spending
That Year (July 12, 2023), https://perma.cc/76RCDDJR. As a dominant market participant, the United
States can do business with whomever it wishes, and
it may offer whatever prices it deems proper. So
businesses—including pharmaceutical companies like
BMS and Janssen—have no constitutional right to sell
their wares to the federal government or its
designated beneficiaries. And counsel for both sides
agree that Congress could have sought to reduce
federal outlays simply by passing a law setting prices
for the costliest Medicare drugs.
Instead, the Act compelled the Companies to
participate in the Program by threatening them with
unavoidable, enterprise-crippling tax liabilities if they
refused to sell drugs at prices set by CMS (an arm of
the Executive Branch). Because the Companies could
not avoid participating in the Program without paying
those taxes, I would hold that the Act effects a taking
of their property under the Fifth Amendment and
compels them to speak in violation of the First
Amendment. So I would reverse and remand.
II
The Program at issue targets Medicare Parts B and
D. See AstraZeneca Pharms. LP v. Sec’y U.S. Dep’t of
HHS, 137 F.4th 116, 120 (3d Cir. 2025). When
Congress enacted Part D in 2003, it prohibited CMS
from “interfer[ing] with the negotiations between drug
manufacturers and pharmacies and . . . sponsors” and
from “institut[ing] a price structure for the
reimbursement of covered part D drugs.” 42 U.S.C. §
50a
1395w-111(i)(1), (3) (2003). Almost twenty years later,
however, the Act created an exception, directing CMS
to “negotiate . . . maximum fair prices” for certain
drugs, id. § 1320f(a)(3), subject to price ceilings
derived from a benchmark market-based price, id. §
1320f-3(c). A “selected drug’s ‘maximum fair price’
applies beginning in a given drug-pricing period (a
period of one calendar year), the first of which is 2026,
until the drug is no longer eligible for negotiation or
the price is renegotiated.” AstraZeneca, 137 F.4th at
120 (citing 42 U.S.C. § 1320f(b)(1)–(2), 1320f–1(c),
1320f–3(f)).
The Act required CMS to select ten drugs for the
first drug-pricing period. See 42 U.S.C. §§ 1320f(d)
and 1320f–1(a). As the Program ramps up, CMS must
select 15 more drugs per year for the 2027 and 2028
drug-pricing periods and up to 20 more drugs per year
for 2029 and subsequent drug-pricing periods. See id.
§ 1320f–1(a). The selected drugs must have accounted
for the largest costs for Medicare that prior year. See
id. § 1320f–1(b)(1)(A). A selected drug remains in the
Program until CMS determines that a generic or
biosimilar version of the drug has been approved and
is being marketed. See id. §§ 1320f–1(c)(1), 1320f–2(b).
When CMS selects a drug for the Program, its
manufacturer must “enter into [an] agreement[]” to
“negotiate . . . a maximum fair price for such selected
drug.” Id. § 1320f–2(a)(1). For the first round of
selections, the manufacturer of a selected drug had
until October 1, 2023, to enter an agreement
obligating it to “negotiate” a “maximum fair price” for
the drug (hereinafter, the Agreement). See id. §
1320f(b)(4), (d)(2)(A).
51a
CMS drafted the Agreement that manufacturers
must sign to comply with this “negotiation” obligation.
See CMS, Medicare Drug Price Negotiation Program
Agreement, https://perma.cc/ZC3E-XCQ5 (last visited
June 20, 2025), at 1–6 (Agreement). The Agreement
states that “CMS and the Manufacturer agree” that
they “shall negotiate to determine (and, by not later
than the last date of [the negotiation] period, agree to)
a maximum fair price for the Selected Drug.”
Agreement at 2; see also 42 U.S.C. § 1320f–2(a)(1).
Once a manufacturer signs the Agreement, the
agency makes a “written initial offer.” 42 U.S.C. §
1320f–3(b)(2)(B). The agency must issue the offer by
a statutory deadline, propose a “maximum fair price,”
and include a concise justification for the offer based
on statutory criteria. Id. The manufacturer then has
30 days to accept the offer or make a counteroffer. See
id. § 1320f–3(b)(2)(C). CMS must respond in writing
to any counteroffer. See id. § 1320f–3(b)(2)(D).
“Negotiations” for the first round of selections were
to end by August 1, 2024. See id. §§ 1320f(b)(4),
(d)(2)(B), (d)(5)(C) and 1320f–3(b)(2)(E). Before that
deadline, the manufacturer had to “respond in writing”
to the agency “by either accepting or rejecting the final
offer.”
CMS, Medicare Drug Price Negotiation
Program:
Revised Guidance, Implementation of
Sections 1191-1198 of the Social Security Act for Initial
Price Applicability Year 2026, at 158 (June 30, 2023)
(2023 Revised Guidance), https://perma.cc/AV2Z4F9U. The agency and manufacturers must follow a
similar process for future drug-pricing periods, except
the deadlines will be set for different times of the
calendar year. See id. § 1320f–3(b)(2).
52a
The Act sets a price ceiling for selected drugs that
CMS cannot exceed when it makes a manufacturer an
offer. Id. § 1320f–3(c)(1)(A). And it requires CMS to
“aim[] to achieve the lowest maximum fair price for
each selected drug,” id. § 1320f–3(b)(1), not to exceed
75 percent of a benchmark based on private market
prices for the drug, id. § 1320f–3(b)(2)(F), (c)(1)(C),
(c)(3)–(5). Lower price ceilings (65 or 40 percent) apply
to drugs that have been approved for a longer time (at
least 12 or 16 years, respectively). Id. There is no
price floor, but the offer must be “justified” based on
certain factors identified in the statute. Id. § 1320f–
3(b)(2)(B), (b)(2)(C)(ii)(II), (e). The Act forecloses
judicial review of, among other things, CMS’s pricing
decisions, selection of drugs, and determinations about
which drugs are eligible for selection. See id. § 1320f–
7.
In addition to the Agreement, CMS created an
addendum a manufacturer must sign to participate in
the Program (hereinafter, the Addendum).
See
Agreement at 7–9. The Addendum states that “[t]he
parties agree to a price of [$],” which the Addendum’s
recitals note is called a “maximum fair price” in the
statute. Agreement at 7. Once the process is
completed, the Act directs CMS to publish the
“maximum fair price” that it “negotiated with the
manufacturer” and its “explanation” for the price. 42
U.S.C. § 1320f–4(a).
The Agreement obliges the manufacturer to
“provide access to such price” to Medicare beneficiaries
beginning in 2026 for the first round of ten drugs.
Agreement at 2; 42 U.S.C. § 1320f–2(a)(1). Failure to
do so triggers a civil monetary penalty of ten times the
difference between the price charged and the
53a
maximum fair price for every unit sold. 42 U.S.C. §
1320f–6(a). An offending manufacturer also will be
subject to a civil monetary penalty of $1,000,000 for
each day the Agreement was violated. Id. § 1320f–6(c).
Once CMS includes a drug in the Program, the
manufacturer can theoretically walk away and choose
not to do business with the government. But a
manufacturer that does so must pay a daily excise tax
that begins at 185.71 percent and rises to 1,900
percent of the selected drug’s total daily revenues from
all domestic sales. 1 See 26 U.S.C. § 5000D. The
Congressional Budget Office observed that “[t]he
combination of that excise tax and corporate income
taxes could exceed a manufacturer’s profits from that
product.” Congressional Budget Office, How CBO
Estimated the Budgetary Impact of Key Prescription
Drug Provisions in the 2022 Reconciliation Act, at 9
(February 17, 2023), https://perma.cc/Y74A-ATLS and
1 The Government downplays the excise tax rate, contending that
it ranges from 65 to 95 percent. But those percentages refer to
the tax-inclusive rate—what the Act calls the “applicable
percentage,” 26 U.S.C. § 5000D(a), (d)—instead of the taxexclusive rate—the ordinary way to express an excise tax rate.
See, e.g., Imposition and Calculation of the Manufacturers Excise
Tax on Sales of Designated Drugs, [2025] Fed. Tax Coordinator
2d (RIA) ¶ W-6603, 2022 WL 10409574 (Mar. 12, 2025). A taxinclusive rate calculates the tax as a percentage of the total sale
price plus the tax, while the tax-exclusive rate calculates the tax
as a percentage of the pre-tax price alone. The tax-exclusive rate
is what matters to taxpayers because it reflects the actual burden
of the tax relative to earnings per sale. There is no dispute that
the tax-exclusive rate ranges from 185.71 to 1,900 percent. See
26 U.S.C. § 5000D(a), (d); Molly F. Sherlock et al., Cong. Rsch.
Serv., R47202, Tax Provisions in the Inflation Reduction Act of
2022 (H.R. 5376) 4 (2022), https://perma.cc/2XPR-G7NL.
54a
https://perma.cc/2WVR-47TS. Indeed, the excise tax
would be so confiscatory that Congress’s Joint
Committee on Taxation projected that a nearly
identical excise tax provision in a precursor bill would
raise “no revenue.” Joint Comm. on Tax’n, Estimated
Budget Effects of the Revenue Provisions of Title XIII—
Committee On Ways And Means, of H.R. 5376, Fiscal
Years
2022-2031,
at
8
(Nov.
19,
2021),
https://perma.cc/SMC3-GZMF (calculating the excise
tax in Build Back Better Act, H.R. 5376, 117th Cong.
§ 139002 (1st Sess. 2021) (as passed by the House of
Representatives, Nov. 19, 2021)). To state the obvious,
Congress knew that no manufacturer would ever be
able to pay this tax.
But is there an escape hatch from this confiscatory
tax? My colleagues think so, reasoning that a
manufacturer can decline to participate in the
Program by terminating Medicare and Medicaid
coverage of all its products. See 26 U.S.C. § 5000D(c).
A manufacturer can cause the excise tax to be
“suspend[ed]” by terminating its extant Medicare and
Medicaid agreements (under the Medicare Coverage
Gap Discount Program, the Manufacturer Discount
Program, and the Medicaid Drug Rebate Program).
See id.
There is a practical problem that made this exit
option illusory, however. Because nearly all large
manufacturers (including BMS and Janssen) once
participated in the Coverage Gap Discount Program
and now participate in the Manufacturer Discount
Program, they will be subject to the excise tax if they
refuse to participate in the Program. A manufacturer
that terminates its Medicare Coverage Gap and
Discount Program agreements must wait between 11
55a
and 23 months, depending on when the notice is given
in a calendar year, before the termination becomes
effective. See 42 U.S.C. §§ 1395w-114a(b)(4)(B)(ii),
1395w-114c(b)(4)(B)(ii). Thus, to avoid being subject
to the Program’s excise tax for refusing to sign an
Agreement by October 1, 2023, a manufacturer would
have had to accomplish the impossible: provide notices
of termination by January 29, 2022, before the Act
became law.
III
BMS’s drug Eliquis and Janssen’s drug Xarelto
were among the first ten drugs selected for the
Program by CMS. Both manufacturers signed the
necessary Agreements by the October 1, 2023,
deadline. And both signed the Addendum setting a
“maximum fair price” by the August 1, 2024,
deadline. 2
BMS submitted evidence to the District Court that
if it had refused to sign the Agreement, the excise tax
on sales of Eliquis would have been hundreds of
millions of dollars on the first day after the deadline
and would have soon exceeded one billion dollars per
day. App. 87. Janssen likewise submitted evidence
that the excise tax on sales of Xarelto would have
2 According to CMS, the list price for a 30-day supply of Eliquis
was $521.00 in 2023. See CMS, Medicare Drug Price Negotiation
Program: Negotiated Prices for Initial Price Applicability Year
2026 (Aug. 15, 2024), https://www.cms.gov/newsroom/factsheets/medicare-drug-price-negotiation-program-negotiatedprices-initial-price-applicability-year-2026. The price set by the
Program is $231.00, which represents a 56 percent discount. Id.
The list price for a 30-day supply of Xarelto was $517.00 in 2023.
Id. The price set by the Program is $197.00, which represents a
62 percent discount. Id.
56a
started at over $50 million per day and escalated to
more than $600 million per day, likely exceeding $90
billion in the first year.
App. 795–96.
The
Government has not disputed these calculations.
IV
Having described the complexities of the Program, I
turn to the Companies’ constitutional arguments.
A
Consider first the Takings Clause argument. The
Fifth Amendment provides:
“nor shall private
property be taken for public use, without just
compensation.” U.S. Const. amend. V. “[A] physical
appropriation of property [gives] rise to a per se taking,
without regard to other factors.” Horne v. Dep’t of
Agric., 576 U.S. 350, 360 (2015). That is true for
physical appropriations of real and personal property.
Id. An owner of personal property has the “rights to
possess, use, and dispose of” it. Id. at 361–62 (citation
omitted). So the Companies have a right to decline to
sell the doses of their drugs that sit in warehouses to
Medicare beneficiaries.
In Horne, the Supreme Court recognized that a
reserve requirement for raisin growers imposed “a
clear physical taking” because it forced them to turn
over possession of a percentage of their raisin crop to
the government. Id. at 361. Like that reserve
requirement, here the Act imposes a clear physical
taking by forcing the Companies to turn over physical
doses of Eliquis and Xarelto to Medicare beneficiaries
at certain prices.
The Act forces the Companies to turn over their
property to Medicare beneficiaries by threatening
them with ruinous excise tax liability. Although
57a
participation in Medicare and Medicaid is voluntary,
participation in the Program is not. If a Medicare
provider declines to participate in the Program, the
Act imposes an unavoidable tax on all sales of its
selected drug, including sales outside the Medicare
system. See 26 U.S.C. § 5000D(a). That extraordinary
threat compels manufacturers to turn over their drugs
at prices set by CMS. See Horne v. Dep’t of Agric., 569
U.S. 513, 523–24 & n.4 (2013) (Horne I); cf. E. Enters.
v. Apfel, 524 U.S. 498, 529 (1998) (plurality opinion).
The Act’s threat of excise taxes and civil penalties
looms like a sword of Damocles, creating a de facto
mandate to participate. 3
As it did in Horne, the Government identifies
theoretical options a manufacturer has to avoid the
taking of property. For example, the Government
suggests that manufacturers can divest their interests
in selected drugs. But the Court’s decision in Horne
forecloses that argument because the growers there
could have divested their property interests as well.
See 576 U.S. at 365. The Government also contends
that the Companies have the “option” to refuse to
participate in the Program, continue selling their
drugs to Medicare beneficiaries, and pay the excise tax.
The majority cites cases rejecting the argument that
participation in Medicare is involuntary because foregoing
participation would hurt providers’ profits. See Majority Op.
Section III-A-I & n.10. I agree that declining profitability does
not raise a constitutional problem, but in none of those cases did
the government threaten to impose major financial penalties on
providers if they declined to participate in Medicare. So their
reasoning has little bearing on the key issue here, which is
whether manufacturers can avoid the excise tax if they decline to
participate in the Program.
3
58a
Once again, Horne rejected the argument that a
property owner’s “option” to pay a major financial
penalty is relevant to determine whether the
government has taken property under the Fifth
Amendment. 4 See Horne I, 569 U.S. at 523–24 & n.4;
cf. Cedar Point Nursery v. Hassid, 594 U.S. 139, 144
(2021).
1
The Government offers several reasons why the
excise tax did not compel the Companies to participate
in the Program. Those arguments are unavailing
because they are based on efforts by CMS and the IRS
to rewrite the statute, as the majority does in its
opinion. But administrative agencies (and courts) lack
the power to amend laws enacted by Congress. See
Loper Bright Enters. v. Raimondo, 603 U.S. 369, 412–
13 (2024).
The Act directs CMS to implement the Program “for
2026, 2027, and 2028 by program instruction or other
forms of program guidance.” 42 U.S.C. § 1320f note.
CMS interpreted this language to absolve it of the duty
to provide notice and an opportunity to comment to
interested parties before it promulgates legislative
rules. See 2023 Revised Guidance at 8–11. Consistent
with that interpretation, CMS issued extensive
4 While the Government does not advance
it as an “option,” a
manufacturer could avoid incurring excise tax liability by ceasing
to sell its drug entirely, so that it never enters the stream of
commerce. But Horne rejected the argument that the growers
had the “option” to stop selling their product, explaining that a
property owner’s right to sell his goods to private market
participants is a “basic and familiar use[] of property.” 576 U.S.
at 366.
59a
guidance documents for the 2026, 2027, and 2028
drug-pricing periods. See id.; CMS, Medicare Drug
Price Negotiation Program:
Final Guidance,
Implementation of Sections 1191 – 1198 of the Social
Security Act for Initial Price Applicability Year 2027
and Manufacturer Effectuation of the Maximum Fair
Price in 2026 and 2027 (Oct. 2, 2024),
https://perma.cc/M59V-V2A9; CMS, Medicare Drug
Price Negotiation Program:
Draft Guidance,
Implementation of Sections 1191 – 1198 of the Social
Security Act for Initial Price Applicability Year 2028
and Manufacturer Effectuation of the Maximum Fair
Price in 2026, 2027, and 2028 (May 12, 2025),
https://perma.cc/G4CW-VANR.
Citing these guidance documents, the Government
has adopted at least three new positions since the Act
became law. First, it suggests the excise tax applies to
sales of a selected drug only to Medicare beneficiaries.
See BMS Dist. Ct. Dkt. No. 38-1 at 8 (citing IRS Notice
No. 2023-52, 2023-35 I.R.B. 650 (Aug. 4, 2023),
https://perma.cc/A5KB-Y48X);
Excise
Tax
on
Designated Drugs, 90 Fed. Reg. 31, 32–34 (Jan. 2,
2025). Second, the Government contends that the
statutorily prescribed exit period of 11 to 23 months is
no longer effective because CMS will allow a
manufacturer to stop its sales to Medicare and
Medicaid upon just 30 days’ notice. See 2023 Revised
Guidance at 120–21. Third, the Government argues a
manufacturer can avoid the excise tax simply by
ceasing to sell its selected drug to Medicare
beneficiaries; it need not terminate all sales to
Medicare and Medicaid. As I shall explain, none of
these attempts to save the Act works.
60a
a
The Government asserts that the excise tax applies
when a manufacturer sells a selected drug only to a
Medicare beneficiary. Not so. The excise tax applies
to all domestic sales of a selected drug. Here’s what
the statute provides:
There is hereby imposed on the sale by the
manufacturer, producer, or importer of any
designated drug during a day described in
subsection (b) a tax in an amount such that the
applicable percentage is equal to the ratio of—
(1) such tax, divided by (2) the sum of such tax
and the price for which so sold.
26 U.S.C. § 5000D(a) (emphasis added). Rather than
limiting the tax to sales to Medicare beneficiaries, it
refers only to “the sale . . . of any designated drug” and
“the price” at which those sales occur. Id. Nor does it
grant the IRS discretion to interpret the tax as
applying to sales to Medicare beneficiaries alone,
especially since that would conflict with the statutory
text. See Loper Bright, 603 U.S. at 412–13.
Adopting
the
Government’s
reading
is
inappropriate for another reason: it would render two
parts of the law superfluous. See Duncan v. Walker,
533 U.S. 167, 174 (2001) (“It is our duty to give effect,
if possible, to every clause and word of a statute.”
(citation modified)). The tax is “suspend[ed]” once a
manufacturer has completely exited the Medicare and
Medicaid markets. 26 U.S.C. § 5000D(c). If, as the
Government suggests, the tax applied to Medicare
sales alone, there would be no need to suspend the tax
once a manufacturer stopped all sales to Medicare
beneficiaries. Similarly, the tax does not apply to
61a
exports. Id. § 5000D(g). Because Medicare is a
domestic program, there would be no need to exclude
exports if the tax applied only to Medicare sales.
The IRS has proposed the same interpretation of the
excise tax as the one proffered here by the Government.
But the IRS notice, issued on August 4, 2023, has no
relevant analysis. See IRS Notice No. 2023-52, at 3.
In January 2025, the IRS published a notice of
proposed rulemaking announcing that it will
promulgate a rule adopting the same interpretation.
See Excise Tax on Designated Drugs, 90 Fed. Reg. 31,
32–34 (Jan. 2, 2025).
But the notice of proposed rulemaking conflicts with
the statutory text and merely emphasizes “the broader
statutory context of the Program.” Id. at 33. It
suggests that “[b]ecause the . . . tax depends
substantively on, and operates only in relation to, the
Program, the scope of the Program—which provides
access to selected drugs at the negotiated prices only
to Medicare beneficiaries and their pharmacies . . .—
is reflected in the scope of the tax.” Id. at 34. The
IRS’s attempt to rewrite the statute through vague
references to statutory context is inappropriate and
should have no legal effect. See Loper Bright, 603 U.S.
at 412–13. By its terms, the excise tax applies to all
domestic sales of a selected drug, including private
market sales. It’s as simple as that.
b
CMS has attempted to rewrite the statute in a
different way from the IRS. Tacitly acknowledging the
confiscatory penalties of the 11 to 23-month delay in
withdrawal, CMS promises in a guidance document
that it will offer manufacturers an expedited 30-day
62a
exit from the Program, the Coverage Gap Discount
Program, and the Manufacturer Discount Program.
CMS assures the manufacturers that this will allow
them to avoid incurring excise taxes and civil
monetary penalties. See 2023 Revised Guidance at
33–34. But here again, the expedited exit option
conflicts with the Act. However vast the powers of
CMS may be, it cannot vitiate the requirements of a
law passed by Congress.
Recall that a manufacturer could have avoided
excise tax liability only by terminating Medicare and
Medicaid coverage for all its products. The tax is
“suspend[ed]” when the manufacturer has terminated
its extant Medicare or Medicaid agreements. See 26
U.S.C. § 5000D(c). Historically, manufacturers signed
agreements to sell drugs to Medicare under the
Medicare Coverage Gap Discount Program. See 42
U.S.C. § 1395w-114a. The Act phased out that
program; since January 1, 2025, manufacturers have
signed such agreements as part of the Medicare
Manufacturer Discount Program. See 42 U.S.C. §
1395w-114c.
Like the Coverage Gap Discount
Program, the Manufacturer Discount Program allows
a manufacturer to unilaterally terminate an
agreement for Medicare coverage of its drug. But the
manufacturer must wait between 11 and 23 months,
depending on when the notice is given in a calendar
year, before the termination becomes effective. See 42
U.S.C. §§ 1395w-114a(b)(4)(B)(ii) and 1395w114c(b)(4)(B)(ii).
The upshot is that the Companies could not have
declined to participate in the first year of the Program.
To avoid being subject to the excise tax on October 2,
2023, they had to do the impossible: terminate their
63a
Medicare agreements by January 29, 2022, months
before the Act became law. And if they had provided
such notice when Eliquis and Xarelto were selected on
August 29, 2023, they would have incurred excise tax
liability for the 15 months between October 2, 2023,
and December 31, 2024.
Apparently recognizing this Catch-22, CMS
purports to offer the Companies a solution based on its
own statutory authority to terminate such agreements.
See 2023 Revised Guidance at 120–21. CMS is correct
that Congress granted CMS the power to unilaterally
terminate Coverage Gap and Discount Program
agreements at times. The two relevant statutory
provisions state that:
The Secretary may provide for termination of
an agreement under this section for a knowing
and willful violation of the requirements of the
agreement or other good cause shown. Such
termination shall not be effective earlier than
30 days after the date of notice to the
manufacturer of such termination.
The
Secretary shall provide, upon request, a
manufacturer with a hearing concerning such a
termination, and such hearing shall take place
prior to the effective date of the termination
with sufficient time for such effective date to be
repealed
if
the
Secretary
determines
appropriate.
42 U.S.C. §§ 1395w-114a(b)(4)(B)(i) and 1395w114c(b)(4)(B)(i) (same language except stating “[t]he
Secretary shall provide for termination . . . .”
(emphases added)) (emphasis added).
64a
Citing these provisions, CMS promised in a
guidance document for 2026 that, if a manufacturer
“decide[d] not to participate in the [ ] Program,” it
would “facilitate an expeditious termination of” the
manufacturer’s Medicare Coverage Gap Discount
Program and Manufacturer Discount Program
agreements. 2023 Revised Guidance at 33. According
to CMS, that would mean that the Companies could
have “avoid[ed] incurring excise tax liability” by
submitting notice and termination requests 30 days
before liability would otherwise have begun to accrue.
Id. at 33–34.
CMS purports to offer the Companies this offramp
based on its statutory authority to terminate
agreements for “other good cause shown.” 42 U.S.C.
§§ 1395w-114a(b)(4)(B)(i) and 1395w-114c(b)(4)(B)(i).
It promises to “find good cause to terminate . . . [the
Companies’] agreement(s)” if they submit to CMS: “(1)
a notice of decision not to participate in the [ ] Program;
and (2) a request for termination of . . . [their]
applicable agreements under the Medicaid Drug
Rebate Program, the Medicare Coverage Gap Discount
Program, and the Manufacturer Discount Program.”
2023 Revised Guidance at 120–21.
In other words, as the Government said at oral
argument in a related case, CMS has promised to help
manufacturers avoid the excise tax whenever they
claim the Program is unconstitutional. 5 All the
5 See Novartis Pharms. Corp. v. Sec’y U.S. Dep’t of HHS, No. 24-
2968, Oral Arg. at 37:15–26 (“CMS has said that your
constitutional objections to this program, we will determine that
that is good cause for you to withdraw from the statute. That is
a reasonable interpretation of the statutory phrase ‘good
cause.’”); see also id. at 37:00–39:20. But see id. at 41:10–41:35
65a
manufacturers need to do is formally cease doing
business with Medicare and Medicaid while trusting
the federal government to follow through on CMS’s
promise. Cold comfort, indeed.
CMS also says it is offering an exit option to
manufacturers even if they have signed Program
Agreements. See id. at 34 (“[A]ny manufacturer that
has entered into an Agreement will retain the ability
to promptly withdraw from the program prior to the
imposition of civil monetary penalties or excise tax
liability.”). To take this exit option, a manufacturer
must take the steps it would have had to take under
the expedited exit option just mentioned. See id. at
130.
CMS’s efforts to rewrite the statutory scheme by
making promises in nonbinding guidance documents
should fail for several reasons. 6 First, CMS lacks
(“I apologize for saying that it had to be for a specific
constitutional reason . . . . All you have to do is ask.”).
CMS and the majority suggest that CMS’s guidance
implementing the Program has the force of law. Majority Op.
Section III-A-II & n.18. I disagree. A statutory note to the Act
provides that HHS “shall implement [the Program] . . . for 2026,
2027, and 2028 by program instruction or other forms of program
guidance.” 42 U.S.C. § 1320f (note). CMS claims this note
authorizes it to issue binding guidance without following notice
and comment procedures.
6
It is true that Congress may “expressly” authorize an agency to
conduct rulemaking without following those procedures. 5 U.S.C.
§ 559; see also 42 U.S.C. § 1395hh(b)(2)(A) (similar). But
Congress did not do so here. The question is “whether Congress
has established procedures so clearly different from those
required by the APA that it must have intended to displace”
66a
authority to offer this expedited exit option. The
statutory provisions governing the Medicare Coverage
Gap Discount Program and Manufacturer Discount
Program describe two ways a manufacturer may exit
those programs. A manufacturer may voluntarily
withdraw by providing notice and waiting 11 to 23
months for its terminations to become effective. See
42 U.S.C. §§ 1395w-114a(b)(4)(B)(ii) and 1395w114c(b)(4)(B)(ii). Or CMS may remove a manufacturer
for engaging in misconduct. See 42 U.S.C. §§ 1395w114a(b)(4)(B)(i) and 1395w-114c(b)(4)(B)(i).
As for misconduct, CMS can terminate an
agreement “for a knowing and willful violation of the
requirements of the agreement or other good cause
shown.” Id. But contrary to CMS’s (and the majority’s)
reading, “other good cause shown” does not include a
notice-and-comment rulemaking. Asiana Airlines v. FAA, 134
F.3d 393, 397 (D.C. Cir. 1998).
The statutory note fails that test. The terms “guidance” and
“program instruction” refer to nonbinding interpretive rules and
policy statements.
See, e.g., Admin. Conf. of the U.S.,
Recommendation 2017-5, Agency Guidance Through Policy
Statements, 82 Fed. Reg. 61728, 61734 (Dec. 29, 2017); see also
Perez v. Mortg. Bankers Ass’n, 575 U.S. 92, 96–97 (2015). And
CMS can promulgate interpretive rules and policy statements
without following notice and comment procedures. 5 U.S.C. §
553(b)(A). So the statutory note’s instruction that CMS must
“implement” the Program through guidance and program
instruction does not direct CMS to take any action that would
conflict with the APA’s notice and comment requirements. After
all, it would be oxymoronic to say an agency may promulgate
legislative rules by issuing “guidance.”
Regardless of whether CMS’s guidance is binding, it is also
inconsistent with the Act and the Medicare Act for the reasons I
explain.
67a
manufacturer’s request for termination. That reading
would require us to disregard the phrase “a knowing
and willful violation of the requirements of the
agreement,” which provides important context for the
meaning of “other good cause shown.” 7 See McDonnell
v. United States, 579 U.S. 550, 568–69 (2016) (“Under
the familiar interpretive canon noscitur a sociis, a
word is known by the company it keeps.” (citation
modified)). In sum, the language that appears right
before “good cause” makes clear that it refers to other
forms of misconduct, not whatever CMS wishes it to
mean. 8
A contrary interpretation also would render the
voluntary termination provisions “insignificant, if not
7 The majority reasons that “a knowing and willful violation of
the requirements of the agreement” is “just one example of a
legally sufficient reason for CMS to terminate an agreement.”
Majority Op. Section III-A-II. But Congress knows how to
indicate when a concept is but one example of many. See, e.g., 42
U.S.C. § 1320f–1(d)(3)(B) (instructing CMS to aggregate data
“across dosage forms and strengths of the drug, including new
formulations of the drug, such as an extended release
formulation” (emphasis added)).
Here, the statutory text
primarily targets knowing and willful violations, while including
a catchall for similar conduct that does not quite meet that high
bar.
8 The majority contends that “good cause” is “a uniquely flexible
and capacious concept, meaning simply a legally sufficient
reason.” Majority Op. Section III-A-II (citation omitted). But the
ultimate source for that gloss is simply the definition of “good
cause” as “[a] legally sufficient reason.” Cause, Black’s Law
Dictionary (12th ed. 2024). Indeed, “good cause” is often a
“burden placed on a litigant . . . to show why a request should be
granted or an action excused.” Id. While that standard leaves
courts with some discretion, it cannot bear the extraordinary
weight the majority and the Government place on it.
68a
wholly superfluous,” Walker, 533 U.S. at 174, which is
particularly inappropriate here as they are “another
part of the same statutory scheme.” Marx v. Gen.
Revenue Corp., 568 U.S. 371, 386 (2013). Congress
required manufacturers that provide notice of
termination of their extant Medicare and Medicaid
agreements to wait 11 to 23 months before the
terminations are effective. 9 Automatically deeming
such requests “good cause” for CMS to terminate those
agreements effective upon just 30 days’ notice would
negate the option Congress enacted. Indeed, at oral
argument in a related case, the Government struggled
to explain how its reading of “good cause” would not
mean anything and everything. 10
9 The
majority also argues that “[t]he unforeseeable legal and
economic significance” placed by the Program on the Companies’
extant Medicare agreements “supports CMS’s conclusion” that it
has “good cause” to terminate those agreements to facilitate its
exit option. Majority Op. Section III-A-II. But as the majority
observes, Congress passed the Act into law after the Medicare
Coverage Gap Discount Program statute was enacted, and it
replaced the termination language for that program with nearly
identical language in the Manufacturer Discount Program
statute. So although this outcome was “unforeseeable” to the
Companies, it was precisely the scheme Congress chose to enact.
The design of its statutory scheme, standing alone, cannot
constitute “good cause” to avoid complying with the scheme.
10 See Novartis Pharms. Corp. v. Sec’y U.S. Dep’t of HHS, No. 242968, Oral Arg. at 37:00–42:15. At one point, the Government
said CMS would find any constitutional objection to the Program
to be good cause. Id. at 37:15–26. At another point, it clarified
that CMS would find any objection to the Program to be good
cause and that “[a]ll [a manufacturer] ha[s] to do is ask” for the
exit option. Id. at 41:10–41:35. Yet incongruously, “if [a
manufacturer] want[s] to [exit] for other reasons, then [it] ha[s]
to follow the normal process.” Id. at 41:39–41:44. CMS
69a
In sum, CMS may terminate extant Medicare
agreements only for knowing and willful violations or
similar misconduct. CMS lacks authority to terminate
those agreements to facilitate an expedited exit option
that contravenes the exit option already provided in
the statute.
See 26 U.S.C. § 5000D(c)(1)(A)(ii)
(providing that the excise tax is suspended once a
manufacturer’s extant Medicare agreements are no
longer effective).
Second, even if CMS could terminate a
manufacturer’s extant Medicare agreements upon
request for “good cause,” its expedited exit option still
would not allow a manufacturer to avoid the excise tax.
The Act “suspend[s]” the tax when, among other
things, “the notice of terminations of all applicable
agreements of the manufacturer have been received by
the Secretary of Health and Human Services.” 26
U.S.C. § 5000D(c)(1)(A)(i), (2). When a manufacturer
terminates its extant agreements, it must send a
termination notice to CMS. See 42 U.S.C. §§ 1395w114a(b)(4)(B)(ii) and 1395w-114c(b)(4)(B)(ii). The tax
is suspended once the termination notice has been
received by the agency and has become effective. See
26 U.S.C. § 5000D(c)(1)(A)(i)–(ii).
But if a manufacturer declines to participate in the
Program by taking CMS’s supposed expedited exit
option, it has to send a written request to CMS asking
the agency to terminate its agreements. CMS must
then send the manufacturer a termination notice that
has legal effect under its authority to terminate for
apparently trusts that manufacturers will not “be lying” when
they explain why they have asked to take the exit option or will
attempt to discern when manufacturers do so. Id. at 41:52–41:57.
70a
“other good cause shown.” 42 U.S.C. §§ 1395w114a(b)(4)(B)(i) and 1395w-114c(b)(4)(B)(i). So the
Secretary would not have “received” any “notice of
termination” under the statute (because the
termination notice would emanate from the agency)
and the excise tax would not be suspended. 26 U.S.C.
§ 5000D(c)(1)(A)(i) (linking suspension of the excise
tax to notices of termination sent with legal effect
pursuant to 42 U.S.C. §§ 1395w-114a(b)(4)(B)(i) and
1395w-114c(b)(4)(B)(i)); see also 42 U.S.C. § 1320f–
5(a)(6) (instructing CMS to share “the date on which
[it] receives” such notices with the Treasury so that tax
liability can be determined). Further, although CMS
may promise not to collect excise taxes accrued by a
manufacturer that has taken its supposed expedited
exit option, it concedes that it has no control over
whether the IRS collects the tax. See Novartis Pharms.
Corp. v. Sec’y U.S. Dep’t of HHS, No. 24-2968, ECF No.
25, Government Br. 34 (“If [a manufacturer] chooses
to sell the selected drug to Medicare beneficiaries at
non-negotiated prices, [it] will incur tax liability, and
the IRS can collect on that tax regardless of anything
CMS does.”).
Third, CMS lacks the statutory authority to offer an
expedited exit option to a manufacturer after it has
signed a Program Agreement. For the same reasons it
lacked the statutory authority to offer the expedited
exit option to avoid the October 1, 2023, deadline, CMS
lacked statutory authority to offer the expedited exit
option to avoid the August 1, 2024, deadline. And
CMS’s promise to grant an expedited exit to
manufacturers after they have signed Agreements
conflicts with a separate part of the Act: once a drug
is selected, it must remain in the Program until
71a
generic competition is approved and marketed. See 42
U.S.C. §§ 1320f–1(c) and 1320f–2(b) (providing that a
selected drug “shall” remain in the Program until CMS
determined that a generic or biosimilar version of the
drug has been approved and is marketed). Once a
manufacturer has signed an Agreement, it is bound by
it, full stop. And after a manufacturer has done so,
CMS “shall” impose civil monetary penalties each time
it violates an Agreement. Id. § 1320f–6.
Fourth, the Government contends that, even under
the Companies’ reading of the statute, they could have
avoided the excise tax by sending termination notices
to CMS by January 30, 2025. 11 Not so. That
contention conflates a manufacturer’s ability to
terminate its extant Medicare agreements with its
ability to terminate its Agreements under the
Program. The Act would have imposed excise taxes on
the Companies beginning on October 2, 2023, if they
did not sign Program Agreements. See 26 U.S.C. §
5000D(b)(1). Likewise, it would have imposed the
excise tax beginning on August 2, 2024, if they did not
sign Agreement Addendums. See id. § 5000D(b)(2).
If the Companies refused to sign on the dotted line,
the Act purported to offer them one way to avoid the
excise tax: by providing notice that they were
terminating all their extant Medicaid agreements and
11 The Manufacturer Discount Program changed the termination
deadline from January 29 to January 30 in 2024 for Coverage
Gap and Discount Program agreements set to take effect in 2025.
See 42 U.S.C. §§ 1395w-114a(b)(4)(B)(ii) and 1395w114c(b)(4)(B)(ii). So my analysis discusses the January 29
deadline on a backward-looking basis and the January 30
deadline on a forward-looking basis.
72a
no longer had Medicare agreements in effect. See id.
§ 5000D(c)(1)(A). But the Companies could terminate
their Medicare agreements only by providing 11 to 23
months’ notice, which prevented them from taking this
illusory option to avoid the excise tax before the
October 2023 and August 2024 deadlines. See 42
U.S.C. §§ 1395w-114a(b)(4)(B)(ii) and 1395w114c(b)(4)(B)(ii).
Under the threat of the excise tax, the Companies
signed Agreements and Addendums. Once they did so,
they had to participate in the Program. And the Act
neither offers them a way to terminate their
Agreements, nor grants CMS unfettered discretion to
terminate them to facilitate an early exit. See 42
U.S.C. §§ 1320f–1(c) and 1320f–2(b).
So the
Companies must abide by the terms of their
Agreements, or they will be subject to civil penalties.
See id. § 1320f–6.
To sum up:
once the Companies signed the
Agreements by the October 1, 2023 deadline, their
prior ability to terminate their extant Medicare
agreements upon 11 to 23 months’ notice became
irrelevant. They were bound by the Agreements to
participate in the Program even if they ceased all other
business with Medicare and Medicaid.
*
*
*
The majority errs fundamentally when it concludes
that the Companies voluntarily joined the Program.
The Companies could not have refused to participate
in the Program without incurring enterprise-crippling
excise taxes, even if they had stopped doing business
with Medicare and Medicaid. To avoid the excise taxes,
they could have notified CMS that they wished to
73a
terminate their extant Medicare and Medicaid
agreements. See 26 U.S.C. § 5000D(c). But the excise
tax would not have been suspended until the
terminations of their Medicare agreements became
effective, which would have taken 11 to 23 months.
See id. § 5000D(c)(1)(A)(ii); 42 U.S.C. §§ 1395w114a(b)(4)(B)(ii), 1395w-114c(b)(4)(B)(ii). During that
period, the tax would have been imposed on the sales
of Eliquis and Xarelto. See 26 U.S.C. § 5000D(b),
(c)(1)(A)(ii). And if they signed a Program Agreement
and then violated it, the Act would have subjected
them to civil monetary penalties. 42 U.S.C. § 1320f–
6(a)–(c). CMS, like Don Corleone in The Godfather,
made the Companies “an offer [they] [couldn’t] refuse.”
(Paramount Pictures 1972).
2
Having concluded that the Companies were
compelled to participate in the Program, I now
consider whether the Program forces them to turn over
physical doses of their drugs to Medicare beneficiaries.
It does.
The Government argues that the manufacturers
have one other “option” to avoid a taking. It contends
that the Program merely sets a price cap on drugs,
providing only that if a manufacturer sells a dose of a
selected drug to a Medicare beneficiary, then it must
do so at the “maximum fair price” set by CMS. In other
words, the Government suggests that manufacturers
participating in the Program can refuse to sell doses of
their selected drugs to Medicare beneficiaries while
continuing to sell other drugs to Medicare and
Medicaid beneficiaries. Here again, the text and
74a
structure of the Program and the Agreement show
otherwise.
Compelling a property owner to turn over his
personal property effects a per se taking. Horne, 576
U.S. at 362. That is true even though setting a price
limit on sales does not. Id. “[T]hat distinction flows
naturally from the settled difference . . . between
appropriation and regulation” because “[t]he
Constitution [] is concerned with means as well as
ends.” Id.
The Act requires the Secretary of HHS to sign
Agreements with manufacturers that require them to
provide “access to the maximum fair price . . . with
respect to . . . a selected drug . . . to . . . maximum fair
price eligible individuals.” 42 U.S.C. § 1320f-2(a),
(a)(3).
Likewise, the Agreement requires a
manufacturer to “provide access to [the maximum fair]
price . . . to maximum fair price eligible individuals.”
Agreement at 2. So the statute and Agreement require
participating manufacturers to offer their drugs to
Medicare beneficiaries at the price set by CMS.
The Government reads the statute and Agreement
differently. It contends that the scheme allows a
manufacturer to refuse to sell a selected drug without
withdrawing from Medicare and Medicaid or paying
civil penalties. On that view, the scheme does not
compel the manufacturers to provide access to
physical doses of its products.
But the Government’s interpretation clashes with
the Act’s exit option, which allows a manufacturer to
decline to participate in the Program only if it stops
selling to Medicare and Medicaid beneficiaries (and
pays the excise tax during the 11-to-23-month
75a
termination period). See 26 U.S.C. § 5000D(c). On the
Government’s reading of the Act, two exit options exist:
an explicit one that requires a manufacturer to
abandon roughly half the U.S. pharmaceutical market
(i.e., ceasing all Medicare and Medicaid sales) and an
implicit one that allows a manufacturer to avoid most
of those consequences (i.e., refusing to sell a single
selected drug to Medicare purchasers).
Its
interpretation has two vices: it both invents a second
exit option that is not in the statute and negates the
statute’s explicit exit option. See Marx, 568 U.S. at
386 (“[T]he canon against surplusage is strongest
when an interpretation would render superfluous
another part of the same statutory scheme.”).
An adjacent provision the Act added to the Social
Security Act highlights the flaw in the Government’s
proposed interpretation. See 42 U.S.C. § 1395w104(b)(3)(I)(i). Section 1395w-104(b)(3)(I)(i), which
guarantees “[a]ccess to covered Part D drugs,”
provides that private plan sponsors “shall include each
covered part D drug that is a selected drug under
section 1320f-1 of this title for which a maximum fair
price (as defined in section 1320f(c)(3) of this title) is
in effect with respect to the year.” Id. In other words,
sponsors must include drugs selected for the Program
in the prescription drug plans they offer to Medicare
beneficiaries. There is no option to provide only some
selected drugs.
The Government noted in a related case that this
provision binds only plan sponsors, not manufacturers.
True enough. But that does not cure the disharmony
between the Government’s interpretation of the Act’s
mandate to provide “access to the maximum fair price”
and the “beneficiary protection[]”guaranteed by this
76a
provision. 42 U.S.C. §§ 1320f-2(a), (a)(3) and 1395w104(b)(3)(I)(i). That protection would be illusory if a
manufacturer could refuse to sell its selected drug to a
Medicare beneficiary who is guaranteed “access”
under the Program. See Romero v. SmithKline
Beecham, 309 F.3d 113, 119 (3d Cir. 2002) (Alito, J.)
(explaining interpretations that would “frustrate the
evident purposes of [a] provision” are disfavored). So
the Program forces the manufacturers to turn over
physical doses of their drugs to Medicare beneficiaries.
*
*
*
For the reasons stated, the Program violates the
Companies’ right to refuse to sell doses of their drugs
to Medicare beneficiaries and dispensers. None of the
illusory alternative “options” proposed by the
Government negates that fact. Because the Program
forces the Companies to turn over their drugs to
Medicare beneficiaries, it effects a per se taking. See
Horne, 576 U.S. at 361–62. So the Companies cannot
be compelled to participate in the Program unless they
are provided with just compensation in return. U.S.
Const. amend. V; Horne, 576 U.S. at 367.
B
I next consider the Companies’ argument that the
Act violates their First Amendment rights because it
compels them to engage in expressive speech.
Under threat of the excise tax, the Act orders the
Companies to participate in “negotiations.” See 42
U.S.C. §§ 1320f–2(a) and 1320f–3(a). As part of that
process, they must sign an Agreement stating that
they “agree” to “negotiate” a “maximum fair price” for
their selected drugs. See id. § 1320f–2(a)(1). After the
process is completed, they must sign an Addendum
77a
stating “[t]he parties agree to a price of [$ ],” which
the statute calls the “maximum fair price.” Agreement
at 7. Thus, the Act compels the Companies to attest
that they agreed to negotiate a “maximum fair price”
for their drugs even though they were compelled to
participate in the Program for the reasons I have
explained.
1
The First Amendment states: “Congress shall make
no law . . . abridging the freedom of speech.” U.S.
Const. amend. I. The Government cannot “compel a
person to speak its own preferred messages.” 303
Creative LLC v. Elenis, 600 U.S. 570, 586 (2023). Nor
may it “compel affirmance of a belief with which the
speaker disagrees.” Hurley v. Irish-Am. Gay, Lesbian
& Bisexual Grp. of Bos., 515 U.S. 557, 573 (1995). And
the “freedom of speech ‘includes . . . the right to refrain
from speaking at all.’” Janus v. Am. Fed’n of State,
Cnty. & Mun. Emps. Council 31, 585 U.S. 878, 892
(2018) (citation omitted).
Compelled speech violates the First Amendment
“only in the context of actual compulsion.” C.N. v.
Ridgewood Bd. of Educ., 430 F.3d 159, 189 (3d Cir.
2005). Yet compulsion “need not take the form of a
direct threat or a gun to the head.” Id. (citation
modified). According to one of our sister courts, “[t]he
consequence may be an indirect discouragement,
rather than a direct punishment, such as
imprisonment, fines, injunctions or taxes.” AxsonFlynn v. Johnson, 356 F.3d 1277, 1290 (10th Cir. 2004)
(citation modified). In this case, the Companies are
78a
compelled to speak by the threat of “a direct
punishment”: an enterprise-crippling tax. 12 Id.
2
The Government (and the majority) contend that
the Program regulates conduct, not speech, reasoning
that its purpose is to “determine the price
manufacturers may charge” and “[t]he agreements are
ordinary commercial contracts that the government is
using to set agreed-upon prices.” Government Br. 46–
47 (citation modified). On its view, because the
Program
primarily
regulates
non-expressive,
commercial conduct, it affects speech only incidentally.
I disagree.
The Government inverts the distinction between
regulations of conduct and speech.
Conduct
regulations can burden speech indirectly without
offending the First Amendment. For example, bans on
“outdoor fires” incidentally forbid flag burning. Sorrell
v. IMS Health Inc., 564 U.S. 552, 567 (2011) (citation
modified). Likewise, a “typical price regulation”
regulates a “seller’s conduct” by prohibiting him from
12 The majority holds that the Companies were not compelled to
speak. Majority Op. Section IV-B & n.30. I disagree because the
Companies could not have avoided the excise tax if they declined
to participate in the Program. See supra Section IV-A-1. And the
majority’s statement that “[t]he IRA’s excise tax provisions . . .
only apply after a manufacturer chooses to participate in the
Program,” Majority Op. Section IV-B n.30, can be true only if one
concludes that CMS’s expedited exit option is lawful. But because
it is unlawful, the excise tax would have applied to any
manufacturer that participated in the Medicare Coverage Gap
Discount Program before the Act was signed into law, even if the
manufacturer did not want to participate in the Program from
day one. See supra Section IV-A-1.
79a
charging certain prices, which affects speech
“indirectly” by forbidding him from advertising prices
above the limit.
Expressions Hair Design v.
Schneiderman, 581 U.S. 37, 47 (2017).
The Program does the opposite: it compels speech
as a means to regulate conduct. It orders the
Companies to sign a document stating that they “agree”
to “negotiate” a “maximum fair price” for their selected
drugs. See 42 U.S.C. § 1320f–2(a)(1). By doing so, it
forces the Companies to convey the government’s
message about the Program—that it is a voluntary
“negotiation” that resulted in an agreement on a
“maximum fair price”—to incidentally set prices. To
primarily regulate conduct, the Program could have
capped what the Companies may charge or what CMS
will pay for selected drugs. That would, in turn,
incidentally require the Companies to sign
agreements containing certain words and numbers—
prices—for drugs they sell to Medicare and Medicaid.
But the Act does much more than that.
To support its position, the Government analogizes
to Rumsfeld v. Forum for Academic & Institutional
Rights, Inc., 547 U.S. 47, 62 (2006) (FAIR). But its
reliance on FAIR is misplaced. There, the plaintiffs
challenged a law that, as a condition on federal
funding, required universities to give military
recruiters and non-military recruiters equal access to
their campuses. 547 U.S. at 51–52. The Supreme
Court held that the law did not violate the First
Amendment because its equal access mandate
regulated conduct, not speech. Id. at 60. Any speech
was “plainly incidental.” Id. at 62. For example, if a
school offered to send emails or post notices on an
80a
employer’s behalf, it was also required to do so on
behalf of the military. Id. at 61–62.
The Court recognized that such “compelled
statements of fact (‘The U.S. Army recruiter will meet
interested students in Room 123 at 11 a.m.’), like
compelled statements of opinion, are subject to First
Amendment scrutiny.” Id. at 62. Nonetheless, the
mandate did not violate the First Amendment because
the compelled speech was “not inherently expressive.”
Id. at 64. The Court reasoned that “[n]othing about
recruiting suggests that law schools agree with any
speech by recruiters.” Id. at 65.
Here, by contrast, the Act’s burdens on speech are
not incidental to regulated conduct. The Act orders
the Companies to speak meaningfully and
substantively—by forcing them to sign the
Agreements and Addenda in which they must “agree”
to “negotiate” a “maximum fair price.” See 42 U.S.C.
§§ 1320f–2(a)(1); Agreement at 2, 7. Had the law
challenged in FAIR required universities to send
emails expressing certain opinions or representations
on behalf of military recruiters, that case likely would
have come out differently. So too here. The Act could
have avoided First Amendment scrutiny simply by
setting prices the United States would pay for the
selected drugs or directing CMS to do likewise. See
Expressions Hair Design, 581 U.S. at 47. Instead, the
Act directly compels speech—rather than regulate
conduct—so it is subject to First Amendment scrutiny.
FAIR, 547 U.S. at 62.
Put simply, because the Act directly compels the
Companies to make “statements of fact,” it is “subject
to First Amendment scrutiny.” FAIR, 547 U.S. at 62.
81a
So I must determine whether that compelled speech is
expressive. See id. at 61–68. That determination
would be required even if the majority were correct in
asserting that the Program primarily regulates
conduct. See id.
3
I conclude that the speech compelled by the Act is
expressive. That is true whether the Program’s
mandate that the Companies sign Agreements and
Addendums is framed as compelling pure speech (i.e.,
utter these words) or expressive conduct (i.e., sign this
document). The Supreme Court has recognized that
signing a document—including government funding
agreements—can constitute expression, although it
has not clarified whether doing so is pure speech or
inherently expressive conduct. See, e.g., John Doe No.
1 v. Reed, 561 U.S. 186, 194–95 (2010); Agency for Int’l
Dev. v. All. for Open Soc’y Int’l, 570 U.S. 205, 210, 218
(2013) (AID).
In any case, the First Amendment protects
“conduct . . . inten[ded] to convey a particularized
message” where “the likelihood was great that the
message would be understood by those who viewed it.”
Texas v. Johnson, 491 U.S. 397, 404 (1989) (citation
modified). Here, the Act forced the Companies to sign
an Agreement saying they “agree” to “negotiate” a
“maximum fair price” for Eliquis and Xarelto. See 42
U.S.C. §§ 1320f–2(a)(1). It also forced them to sign an
Addendum stating they “agree to a price of [$].”
Agreement at 7. Both statements are expressive. By
attesting that they “agree” to “negotiate,” the
Companies represented that their participation in the
negotiation was voluntary. And by stating that they
82a
have “agree[d]” that the price is a “maximum fair
price,” they are confessing to having previously
charged unfair prices.
The Agreements at issue are similar to the funding
award agreement at issue in AID, although they are
further from the heartland of the First Amendment
than the referendum petition at issue in Reed. In any
event, “[t]he expressive, overtly political nature of”
forcing the Companies to sign the Agreements is “both
intentional and overwhelmingly apparent.” 13 Johnson,
491 U.S. at 406. For example, the President said in a
State of the Union address that “Medicare is
negotiating lower prices for some of the costliest drugs.”
The White House, Remarks by President Biden in
State of the Union Address (Mar. 8, 2024),
https://perma.cc/J67S-MVU4.
The President also
released a video “announc[ing] that the manufacturers
of ten drugs are coming to the negotiating table to
lower prices. They’re taking steps to participate in the
negotiating program so we can give seniors the best
possible deal.”
The White House, Biden-Harris
13 Although the statute defines “maximum fair price” and uses
the terms “agree” and “negotiate,” that does not render these
terms non-expressive. After all, “if the law were otherwise, there
would be no end to the government’s ability to skew public debate
by forcing companies to use the government’s preferred
language.” Nat’l Ass’n Mfrs. v. SEC, 800 F.3d 518, 530 (D.C. Cir.
2015) (citation modified). The majority relies on Meese v. Keene,
481 U.S. 465, 467 (1987), to hold otherwise, but it is telling that
even the Government was unwilling to do so in its brief. In Keene,
the challenged statutory term—”political propaganda”—did not
appear on the form that the regulated parties had to sign. Id. at
471. But here, the Act forces the Companies to use certain terms
by compelling them to sign Agreements “agreeing” to “negotiate”
a “maximum fair price.” See 42 U.S.C. § 1320f–2(a)(1).
83a
Administration Takes Major Step Forward in
Lowering
Health
Care
Costs;
Announces
Manufacturers
Participating
in
Drug
Price
Negotiation
Program
(Oct.
3,
2023),
https://perma.cc/N23L-CWVK.
The White House
similarly “announced that all manufacturers of all ten
drugs selected for negotiation have signed agreements
to participate.” Id. And despite the excise tax
precluding exit, CMS claimed that “entering into an
Agreement is voluntary.” CMS, Medicare Drug Price
Negotiation Program:
Initial Memorandum,
Implementation of Sections 1191 – 1198 of the Social
Security Act for Initial Price Applicability Year 2026,
and Solicitation of Comments, at 27 (Mar. 15, 2023),
https://perma.cc/SRN2-FQHF; see also 2023 Revised
Guidance at 120.
It bears repeating that the Act could have avoided
First Amendment scrutiny simply by setting prices the
United States would pay for the selected drugs or
directing CMS to do likewise. See Expressions Hair
Design, 581 U.S. at 47. Instead, in Orwellian fashion,
the Act forced the Companies to sign Agreements that
include representations they have abjured from the
start. See 42 U.S.C. § 1320f–2(a)(1). Their consistent
view has been that they “agree” only under protest and
there is no true “negotiation” because they must
participate in the Program.
As for “maximum fair price,” the Companies reject
both the concept and substance of that phrase. And
with very good reason. A fair price, both in common
parlance and as defined by the United States Treasury,
is what a knowledgeable buyer would pay a
knowledgeable seller, with neither compelled to act.
See, e.g., 26 C.F.R. § 1.170A-1(c)(2); see also 4 Nichols
84a
on Eminent Domain § 12.02 (Matthew Bender, 3rd ed.
2025) (same). Measured against those standards, the
phrase “maximum fair price” is oxymoronic at best.
And even if the phrase were intelligible, the
Companies have rejected it because it suggests that
the prices they had charged—which were
substantially higher than the prices set by the
Program—were strikingly “unfair.”
In sum, the Act forced the Companies to convey the
Government’s message about a subject of great
political significance and debate:
whether the
Program is a voluntary negotiation or a forced sale at
prices set by CMS. 14 See Reed, 561 U.S. at 195 (“[T]he
expression of a political view implicates a First
Amendment right.”).
14 At oral argument in related cases, the Government argued for
the first time that the Program is consistent with the First
Amendment because CMS will not release signed Agreements to
the public. See Novo Nordisk Inc. v. Sec’y U.S. Dep’t of HHS, No.
24-2510, Oral Arg. at 39:30–41:48; Novartis Pharms. Corp. v.
Sec’y U.S. Dep’t of HHS, No. 24-2968, Oral Arg. at 30:00–30,
33:00–45. But compelled speech is not rendered constitutional
because it is made only to the government. See Americans for
Prosperity Found. v. Bonta, 594 U.S. 595, 616 (2021); see also
NetChoice, LLC v. Bonta, 113 F.4th 1101, 1117–18 (9th Cir.
2024). And nothing prevents CMS from making the Agreements
public if it changes its mind. Moreover, even if the Agreements
remain private, the public can easily connect the dots: CMS has
released the template Agreement and Addendum, the names of
manufacturers that have signed Agreements, the drugs selected,
and the prices it has set. So a manufacturer could disclaim its
value-laden actions and statements “only at the price of evident
hypocrisy.” AID, 570 U.S. at 219.
85a
4
CMS has added a disclaimer to the Agreement,
which states that its terms are statutory terms of art
and do not hold their colloquial meaning. The
disclaimer says:
In signing this Agreement, the Manufacturer
does not make any statement regarding or
endorsement of CMS’ views, and makes no
representation or promise beyond its intention
to comply with its obligations under the terms
of this Agreement with respect to the Selected
Drug. Use of the term “maximum fair price”
and other statutory terms throughout this
Agreement reflects the parties’ intention that
such terms be given the meaning specified in
the statute and does not reflect any party’s
views regarding the colloquial meaning of those
terms.
Agreement at 4. That effort falls short because
“general disclaimer[s] . . . [do] not erase [] First
Amendment infringement[s].”
Circle Schools v.
Pappert, 381 F.3d 172, 182 (3d Cir. 2004); see also Pac.
Gas & Elec. Co. v. Pub. Utilities Comm’n of California,
475 U.S. 1, 15 n.11 (1986) (plurality opinion); Hurley,
515 U.S. at 576. The Government cannot “require
speakers to affirm in one breath that which they deny
in the next.” Hurley, 515 U.S. at 576 (citation omitted).
For the same reason, the Companies’ ability to criticize
the Program does not erase the First Amendment
infringement. See id.; AID, 570 U.S. at 219. While
CMS couched the disclaimer’s language in lawyerly
terms, it is also telling that the Government
recognized the public could “view[] . . . the colloquial
86a
meaning of those terms,” Agreement at 4, as conveying
a politically charged message.
5
Because the Program compels expressive, contentbased speech, it triggers strict scrutiny. Turner Broad.
Sys., Inc. v. FCC, 512 U.S. 622, 653–55 (1994). To
survive, “it must be narrowly tailored to promote a
compelling Government interest.” United States v.
Playboy Ent. Grp., Inc., 529 U.S. 803, 813 (2000). And
the Government must “choose[] the least restrictive
means to further the articulated interest.” Sable
Commc’ns of California, Inc. v. FCC, 492 U.S. 115, 126
(1989).
The speech mandate fails strict scrutiny. The
Government does not have a compelling interest in
requiring the Companies to sign Agreements
misrepresenting that they “agree[d]” to “negotiate” a
“maximum fair price” for their drugs when they could
not decline to do so without incurring enterprisecrippling tax liabilities. And while the Government
surely has a legitimate interest in reducing Medicare
expenditures, the Program is not narrowly tailored to
further that interest. The Government often sets
limits on what it will pay for drugs, including through
voluntary
negotiations,
without
requiring
counterparties to sign Agreements attesting that they
“agree” to “negotiate” the “maximum fair” terms. See,
e.g., 38 U.S.C. § 8126(a)–(h) (setting price limits on
what the Departments of Defense and Veterans
Affairs will pay for prescription drugs and enabling
them to negotiate lower prices). So the Program quite
gratuitously compels speech in violation of the First
Amendment.
87a
V
Because I would find several provisions of the Act
unconstitutional, I must consider whether they are
severable. I apply a “well established” two-part test.
Alaska Airlines, Inc. v. Brock, 480 U.S. 678, 684 (1987).
First, I must determine whether the rest of the statute
will operate as Congress intended. Id. at 685. If not,
I must conclude that the rest of the statute is invalid.
Id. Second, even if the remaining provisions can
operate as Congress intended, I must determine
whether Congress would have enacted them standing
alone. Id.
The provisions I would hold unconstitutional as
applied to the Companies—26 U.S.C. § 5000D and 42
U.S.C. §§ 1320f–1, 1320f–2, 1320f–3, and 1320f–6—
are not severable from the rest of the Program. First,
the rest of the statute would not operate as Congress
intended if the unconstitutional provisions were
severed.
See id.
As for the Companies’ Fifth
Amendment claims, the excise tax provision works
together with the provisions governing the very heart
of the Program—selections, negotiations, Agreements,
and monetary penalties—to effect a taking. See 26
U.S.C. § 5000D; 42 U.S.C. §§ 1320f–1 (selections),
1320f–2 (Agreements), 1320f–3 (negotiations), and
1320f–6 (civil penalties). The Program would not work
as Congress intended if manufacturers could decline
to participate without incurring excise tax or civil
penalty liability, particularly because that would
allow manufacturers to continue to sell their selected
drugs to Medicare beneficiaries at any price they chose
without immediate consequences.
26 U.S.C. §
5000D(a)–(c); 42 U.S.C. § 1320f–6(a)–(c). Nor would
the Program function as Congress intended without
88a
the clear rules Congress set about how long selected
drugs must remain in the Program, 42 U.S.C. §§
1320f–1(c) and 1320f–2(b), Congress’s command that
Agreements guarantee Medicare beneficiaries access
to the “maximum fair price,” id. § 1320f–2(a)(1), (3),
and participating manufacturers’ obligation to
complete “negotiations,” id. § 1320f–3(a).
As for the Companies’ First Amendment claims, the
excise tax provision works combined with another
provision at the heart of the Program:
the
requirement for the Program to be implemented
through Agreements signed by the manufacturer after
“negotiat[ions].” See 26 U.S.C. § 5000D; 42 U.S.C. §
1320f–2(a). The Program cannot function at all
without such Agreements, much less operate as
Congress intended.
The next question is whether the unconstitutional
provisions of the Program are severable from the
remaining portions of the Inflation Reduction Act.
They are. The Act addressed a broad array of topics,
including corporate taxes, stock repurchases, IRS
funding, prescription drug inflation rebates, other
amendments to Medicare Part D, energy production,
carbon emissions, and more. See Inflation Reduction
Act of 2022, Pub. L. No. 117–169, 136 Stat. 1818 (2022).
The only significant relationship between the Program
and the rest of the Act is that the Program’s excise tax
links liability to the withdrawal provisions of a
separate program created by the Act: the Medicare
Manufacturer Discount Program.
See Inflation
Reduction Act of 2022 § 11201(c)(1) (codified at 42
U.S.C. § 1395w–114c(b)(4)(B)(i)–(ii)).
89a
First, the rest of the statute would operate as
Congress intended standing alone.
See Alaska
Airlines, 480 U.S. at 685. The Medicare Manufacturer
Discount Program replaced the Coverage Gap
Discount Program and governs how CMS normally
enters agreements with manufacturers to cover
prescription drugs. While the Drug Price Negotiation
Program links liability to certain actions governed by
the Manufacturer Discount Program, nothing in the
operation of the Manufacturer Discount Program
turns on a provision of the Drug Price Negotiation
Program. So the rest of the Act remains “fully
operative as a law.” Id. at 684 (citation omitted).
Second, there is no evidence that Congress would
not have enacted the remaining provisions standing
alone. See id. at 685. And no party suggests otherwise.
The rest of the Act does not turn upon the legal
mechanisms of the Program, and there is no sign that
the policy goals of the remaining provisions will be so
disrupted without the Program that Congress would
not have enacted them standing alone. So my
conclusion that the challenged statute cannot lawfully
be enforced is limited to the Program. See Inflation
Reduction Act of 2022 §§ 11001–03 (codified at 26
U.S.C. § 5000D and 42 U.S.C. §§ 1320f, 1320f–1,
1320f–2, 1320f–3, 1320f–4, 1320f–5, 1320f–6, and
1320f–7).
VI
Finally, I turn to the proper remedy. I would hold
that the Program takes property from the Companies
and compels them to speak. Still, the Government
may take property so long as it provides just
compensation in exchange. See U.S. Const. amend. V;
90a
see also Horne, 576 U.S. at 367. But I need not reach
whether the Program could provide the Companies
with just compensation in certain circumstances
because the Government cannot compel them to speak.
By its plain terms, the Act requires the Companies
to sign Agreements in which they must attest that
they “agree” to “negotiate” a “maximum fair price” for
their drugs. See 42 U.S.C. § 1320f–2(a)(1). Because I
would hold that this mandate compels speech in
violation of the First Amendment, the constitutional
infringement could not be remedied by removing
certain terms from the Agreements. The Companies
were forced to sign these Agreements under the threat
of unavoidable, enterprise-crippling tax liability. So I
would hold that they cannot be compelled to sign
Agreements to participate in the Program and that
such Agreements obtained in violation of the
Constitution cannot be enforced against them.
*
*
*
This appeal is of great importance to consumers of
pharmaceutical drugs, the companies that provide
them, and the public at large. The United States
spends an estimated $200 billion per year on
prescription drugs. See KFF, supra. As the dominant
purchaser of those drugs, the federal government is in
a strong position to negotiate, in arms-length
transactions, favorable prices to benefit consumers
and the public fisc alike. Or, as counsel for both sides
and the Government agreed, Congress could simply
pass a law setting drug prices. 15
15 Oral Arg. at 3:00–4:05, 25:15–26:45.
91a
Instead of doing that, Congress compelled
manufacturers to subject themselves to prices set by
CMS. The byzantine scheme established by the Act
forced BMS and Janssen to turn over Eliquis and
Xarelto at prices set by CMS while requiring the
Companies to misrepresent that they agreed to such
prices. That scheme violates the Companies’ First and
Fifth Amendment rights. With respect, I dissent.
92a
_____________________
APPENDIX B
_____________________
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
BRISTOL MYERS
SQUIBB COMPANY,
Plaintiff,
v.
Civil Action No. 23-3335
(ZNQ) (JBD)
XAVIER BECERRA, et
al.,
OPINION
Defendants.
JANSSEN
PHARMACEUTICALS,
INC.,
Plaintiff,
Civil Action No. 23-3818
(ZNQ) (JBD)
v.
XAVIER BECERRA, et
al.,
Defendants.
QURAISHI, District Judge
THIS MATTER comes before the Court upon
Cross-Motions for Summary Judgment. Plaintiff
Bristol Myers Squibb Company (“BMS”) and Plaintiff
Janssen
Pharmaceuticals,
Inc.
(“Janssen”)
93a
(collectively, “Plaintiffs”) each filed a Motion for
Summary Judgment. (“BMS’s Motion”, ECF No. 36;
“Janssen’s Motion”, ECF No. 30) (collectively,
“Plaintiffs’ Motions for Summary Judgment”).
Defendants Xavier Becerra, Chiquita Brooks-Lasure,
U.S. Department of Health & Human Services
(“HHS”), Centers for Medicare & Medicaid Services
(“CMS”), and Ananda V. Burra (collectively,
“Defendants”) filed Cross-Motions for Summary
Judgment (“Defendants’ Cross-Motion for Summary
Judgment”) against BMS (ECF No. 38) and Janssen
(ECF No. 33.) The Court has under consideration the
following submissions: 1
BMS’s brief in support of its Motion. (“BMS
Moving Br.”, ECF No. 36-3.)
Janssen’s brief in support of its Motion. (“Janssen
Moving Br.”, ECF No. 30-1.)
Defendants’ combined brief in opposition to
Plaintiffs’ Motions and in support of their
Cross-Motion.
(“Defs.’ Cross-Br.”, ECF
2
No. 38-1.)
1 There are also several amicus briefs filed in both
cases. The
amici include: Fresenius Kabi USA, LLC, Public Citizen, Patients
for Affordable Drugs Now, Doctors for America, Protect Our Care,
Families USA, AARP and AARP Foundation, Intellectual
Property Law And Health Law Scholars, American Public Health
Association, American College of Physicians, Society of General
Internal Medicine, American Geriatrics Society, American
Society of Hematology, Constitutional Accountability Center,
Economists and Scholars of Health Policy, Abrams Institute for
Freedom of Expression, Alliance for Aging Research, and
Nationally Recognized Healthcare and Medicare Experts.
2 Defendants filed identical Cross-Briefs against BMS and
Janssen, ECF Nos. 38-1 and 33-1, respectively. For the purpose
of this Opinion, the Court cites to the brief filed at ECF No. 38-1.
94a
BMS’s combined brief in opposition to Defendants’
Cross-Motion and reply in support of its Motion.
(“BMS’s Resp. Br.”, ECF No. 80.)
Janssen’s combined brief in opposition to
Defendants’ Cross-Motion and reply in support
of its Motion. (“Janssen’s Resp. Br.”, ECF No.
71.)
Defendants’ reply in support of their CrossMotion. (“Defs.’ Reply Br.”, ECF No. 84.) 3
The Court has carefully considered the parties’
submissions and held oral argument on March 7, 2024
(“Oral Arg. Tr.”, ECF No. 107). For the reasons set
forth below, the Court will GRANT Defendants’ CrossMotions for Summary Judgment and DENY Plaintiffs’
Motions for Summary Judgment.
I.
BACKGROUND
HISTORY
AND
PROCEDURAL
A. GENERAL BACKGROUND
This action arises out of BMS and Janssen’s claims
challenging the constitutionality of the Drug Price
Negotiation Program (“Program”) created by the
Inflation Reduction Act of 2022, Pub. L. No. 117-169
(“IRA”). See 42 U.S.C. § 1320f et seq. In considering a
challenge against the Program brought by Plaintiffs
AstraZeneca Pharmaceuticals LP and AstraZeneca
AB, our sister court in Delaware carefully and
meticulously provided a general background of the
Program. See AstraZeneca Pharms. LP v. Becerra, Civ.
No. 23-931, 2024 WL 895036, at *1–5 (D. Del. Mar. 1,
3 Defendants similarly filed identical Reply briefs against BMS
and Janssen, ECF Nos. 84 and 75, respectively. For the purpose
of this Opinion, the Court cites to the brief filed at ECF No. 84.
95a
2024) (explaining the history, enactment, and
functions of the Program). Given the thoroughness of
the court’s factual background, and for judicial
economy, this Court incorporates by reference the
background of the Program set forth by the Delaware
District Court.
B. PLAINTIFF SPECIFIC BACKGROUND &
PROCEDURAL HISTORY
BMS initiated this action by filing a Complaint on
June 16, 2023. (“BMS Compl.”, ECF No. 1.) Janssen
filed its Complaint on July 18, 2023. (“Janssen
Compl.”, ECF No. 1.) BMS and Janssen are both
pharmaceutical manufacturers with their principal
place of business in New Jersey. (BMS Compl. ¶ 11;
Janssen Compl. ¶¶ 17–18.) Among other medications,
BMS manufactures and sells Eliquis; Janssen
manufactures and sells Xarelto. (BMS Compl. ¶ 12;
Janssen Compl. ¶ 18.) Both medicines are used to
prevent blood clots and reduce the risk of strokes.
(BMS Compl. ¶ 12; Janssen Compl. ¶ 18.) Notably,
Eliquis and Xarelto are both subject to the first round
of Program as “negotiation eligible” drugs. 4 (BMS
Compl. ¶ 12; Janssen Compl. ¶ 77.)
BMS and Janssen allege three claims in their
Complaints. First, Plaintiffs allege that the Program
is an uncompensated physical taking of personal
property in violation of the Fifth Amendment’s Taking
Clause (“Takings Clause claim”). (BMS Compl. ¶¶ 93–
101; Janssen Compl. ¶¶ 129–39). Next, Plaintiffs
allege that the Program compels their speech in
4 To be consistent with the language of the Program, for the
purposes of this Opinion, the Court will use the term “drug” or
“drugs” to refer to Eliquis and Xarelto.
96a
violation of the First Amendment (“Compelled Speech
claim”). (BMS Compl. ¶¶ 102–07; Janssen Compl. ¶¶
140–49.) Finally, Plaintiffs allege that the Program is
an unconstitutional condition on Medicare and
Medicaid participation. 5 (BMS Compl. ¶ 88; Janssen
Compl. ¶¶ 150–55.)
Plaintiffs and Defendants in both cases have
“conferred, and agree that these cases present
sufficiently similar legal questions about the
constitutionality of a federal statute that can—and
should—be resolved through coordinated dispositive
motions, without the need for discovery.” (ECF No. 34
at 1.) Accordingly, the Court dispensed with any
submission of statements of disputed facts by the
parties given they are strictly challenging the
constitutionality of the Program. (ECF No. 35.)
II.
JURISDICTION
The Court has subject matter jurisdiction pursuant
to 28 U.S.C. § 1331.
III. LEGAL STANDARD
A motion for summary judgment may be granted
when “there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). If there is “no
genuine dispute over material facts,” then courts “will
order judgment to be entered in favor of the party
deserving judgment in light of the law and undisputed
facts.” Iberia Foods Corp. v. Romeo, 150 F.3d 298 (3d
Cir. 1998).
5 For the purposes of this Opinion, the Court uses the term
Medicare when it refers to both Medicare and Medicaid.
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IV. DISCUSSION 6
The Court will address the following three issues
raised by the parties. First, the Court will consider
whether the Program is a physical taking in violation
of the Fifth Amendment’s Taking Clause. Next, the
Court will consider whether the Program compels
speech in violation of the First Amendment. Finally,
the Court will consider whether the Program violates
the unconstitutional conditions doctrine.
A. FIFTH AMENDMENT TAKINGS CLAUSE
CLAIM
1.
Parties’ Positions
a)
Plaintiffs
Plaintiffs’ main position is that the Program effects
a physical taking of Plaintiffs’ drugs in violation of the
Fifth Amendment. (BMS Moving Br. at 12.) Plaintiffs
argue that their drugs are private property protected
by the Takings Clause. (Id. at 24; Janssen Moving Br.
at 26.) Next, Plaintiffs claim that the Program is not
“a mere price cap” but rather a “forced transfer dressed
up as a ‘sale.’”
(BMS Moving Br. at 13, 16.)
Accordingly, Plaintiffs contend that “the Program’s
forced sales are functionally equivalent to physically
seizing the medicine from the warehouse.” (BMS Resp.
Br. at 4.) Ultimately, Plaintiffs assert that “[t]he
whole point of [the Program] is for the Government to
avoid paying just compensation by paying far less than
the fair market price” for the selected drugs. (BMS
Moving Br. at 14–15.)
6 Given the substantial similarity between BMS and Janssen’s
legal claims, arguments, and briefs, for the purpose of this
Opinion, the Court will primarily cite to the briefs filed by BMS.
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Plaintiffs explain that this compelled transfer
occurs through the following scheme.
First,
pharmaceutical companies, like Plaintiffs, that are
selected to participate in the Program must comply
and agree to sell the selected drugs at the maximum
fair price. (Id. at 7.) If Plaintiffs do not agree with the
maximum fair price and want to sell the selected drug
to Medicare at a different price, then Plaintiffs will
incur a very high tax 7 on all of their drug sales from
all sources. (Id. at 8.) Second, the only way a
manufacturer could avoid the tax is if they withdraw
from all Medicare sales entirely. 8 (BMS Resp. Br. at
7 The parties view the excise tax differently. Plaintiffs’ position is
that the excise tax starts at 186% and can go up to 1900% . (See
BMS Moving Br. at 8.) In contrast, Defendants claim that the
excise tax is 95%. (See BMS Moving Br. at 8.)
8 Plaintiffs claim that they could not withdraw from the Program
within adequate time to avoid the tax because the Program
requires a manufacturer to give at least 11 months, and as many
as 23 months, notice of termination; this deadline would have
been January 2022, months before the Program was even
enacted. (BMS Moving Br. at 32.) Defendants explain that there
two ways in which Defendants can still withdraw from the
Program. First, Defendants explained that under the 11-to-23month statutory period, Plaintiffs remain eligible to file their
notice of termination by “no later than January 30th, 2025 to be
out of Medicare in time for the first sales that are actually subject
to the maximum fair price.” (Oral Arg. Tr. 61:22–62:6.) Second,
pursuant to CMS’s Revised Guidance, the HHS Secretary can
terminate a manufacturer’s agreement “before the manufacturer
would incur liability for any excise tax, so long as the
manufacturer notifies CMS of its desire to withdraw at least 30
days in advance of when that tax would otherwise begin to
accrue.” (Defs.’ Cross-Br. at 7.) Defendants also explained that a
manufacturer can satisfy the good cause requirement under the
second method of withdrawal by simply expressing their desire to
no longer participate in the Program. (Oral Arg. Tr. 62:19–23.)
99a
6.) Finally, even if Plaintiffs withdraw from selling to
Medicare, it would not defeat their argument the
Program is still a physical taking under Supreme
Court precedent set by Horne v. Department of
Agriculture, 576 U.S. 350 (2015). Plaintiffs argue that
just because this forced transfer is “dressed-up” as a
sale does not protect it from a Takings Clause claim.
(BMS Moving Br. at 13.)
b)
Defendants
In contrast, Defendants argue that the Program is
not a physical taking and Plaintiffs incorrectly
characterize it as a forced transfer.
Instead,
Defendants underscore that “neither the [Program]
nor any other part of Medicare ‘legally compel[s]’
manufacturers to negotiate with CMS or sell their
drugs to Medicare beneficiaries.” (Defs.’ Cross-Br. at
11 (quoting Dayton Area Chamber of Com. v. Becerra,
No. 3:23-cv-156, 2023 WL 6378423, at *11 (S.D. Ohio
Sept. 29, 2023))). For a claim to be valid under the
Takings Clause, a property owner must be “legally
compelled” to participate in a price-regulated activity.
(Id. at 12, 19.) Here, pharmaceutical manufacturers
can “opt out” of the Program in several ways, including
(1) fully divesting “their interests in the drugs subject
to negotiation before 2026” or (2) withdrawing from
the Medicare markets. (Id. at 2.)
Instead, Defendants argue that participation in
Medicare is voluntary. (Id. at 12 (quoting Livingston
Care Ctr., Inc. v. United States, 934 F.2d 719, 720 (6th
Cir. 1991))). Further, Defendants explain that the
Program is a “valid exercise of Congress’s
constitutional authority to control the government’s
spending as a market participant.” (Id. at 11.)
100a
Defendants distinguish Horne on the basis that
Plaintiffs in this case can avoid the statutory regime.
Defendants explain that unlike the plaintiffs in Horne,
Plaintiffs can sell their drugs to the wider market at
their discretion if they do not choose to participate in
the Program. Defendants also note that no statutory
provision requires entities to sell their property to a
government, especially when the government is acting
as a market participant. (Id. at 12–13.) As such, when
the government determines the price it is willing to
pay, or “imposes caps on the amount the government
will reimburse,” the government “deprives [entities] of
no property interest for the purposes of the Fifth
Amendment.” (Id. at 13.)
Further, Defendants argue that when Congress
enacted the IRA, it did so pursuant to its powers under
the Spending Clause, which “operates based on
consent: in return for federal funds, the [recipients]
agree to comply with federally imposed conditions.’”
(Id.; quoting Cummings v. Premier Rehab Keller,
PLLC, 142 S. Ct. 1562, 1570 (2022)).
Finally,
Defendants contend that Plaintiffs’ argument that
they cannot withdraw from the programs are
“academic” because neither Plaintiff has expressed
intent to withdraw from the program. (Id. at 15.)
2.
Analysis
The Fifth Amendment’s Takings Clause prohibits
the government from taking private property for
public use without just compensation. River Valley
Heights Corp. v. Twp. of W. Amwell, Civ. No. 21-2042,
2023 WL 1433634, at *2 (3d Cir. Feb. 1, 2023); see also
U.S. Const. amend. V. (“nor shall private property be
taken for public use, without just compensation”).
101a
“The paradigmatic taking requiring just compensation
is a direct government appropriation . . . of private
property.” Horne, U.S. at 358 (quoting Lingle v.
Chevron U.S.A. Inc., 544 U.S. 528, 537 (2005)).
Requirements that a private owner “reserve” portions
of their personal property for the use of the
government are a “clear physical taking.” Id. at 361.
Property owners subject to a reserve requirement “lose
the entire ‘bundle’ of property rights in the
appropriated [property]—‘the rights to possess, use
and dispose of’ them.” Id. at 361–62 (quoting Loretto
v. Teleprompter Manhattan CATV Corp., 458 U.S. 419,
432 (1982)).
The fact that a property owner may be entitled to
net proceeds from a sale of their physical property
“does not mean there has been no physical taking,”
particularly when the value of any contingent interest
in the property is at the “discretion of the taker.” Id.
at 363. The government’s “categorical duty to pay just
compensation” upon a governmental taking remains
the same whether applied to government
appropriation of personal property or real property. Id.
at 358. Historically, patents have received the same
protection in federal courts as other types of property.
“[A patent] confers upon the patentee an exclusive
property in the patented invention which cannot be
appropriated or used by the government itself, without
just compensation, any more than it can appropriate
or use without compensation land which has been
patented to a private purchaser.” Id. at 359–60
(quoting James v. Campbell, 104 U.S. 356, 358 (1882)).
Although courts have devised formulas and
structures for evaluating claims under the Fifth
Amendment, “[t]here is no abstract or fixed point at
102a
which judicial intervention under the Takings Clause
becomes appropriate.” Andrus v. Allard, 444 U.S. 51,
65 (1979). “Resolution of each case . . . ultimately calls
as much for the exercise of judgment as for the
application of logic.” Id.
The Court’s analysis of Plaintiffs’ Taking Clause
claim takes place in two stages. First, the Court
addresses whether the Program constitutes a physical
taking in violation of the Fifth Amendment. Second,
the Court addresses whether Plaintiffs’ participation
in the Program is voluntary.
a)
The Program is Not a Physical Taking
The crux of Plaintiffs’ principal argument is that the
Program is a physical taking. To support their
position, Plaintiffs rely heavily on the Supreme
Court’s decision in Horne. 576 U.S. 350 (2015).
The Horne family were raisin growers and handlers.
Id. at 356. Under the United States Department of
Agriculture’s California Raisin Marketing Order, the
Hornes, like all growers and handlers, were required
to set aside a percentage of their crop for the
government’s use. Id. at 354. The government would
not pay for this reserve, and it could choose to sell,
allocate, or otherwise dispose of the reserved raisins.
Id. The Raisin Administrative Committee (the “Raisin
Committee”) determined the allocation to be set aside,
and then acquired title to the reserve raisins. Id.
Under the Marketing Order, raisins were sold “in
noncompetitive markets . . . to exporters, federal
agencies, or foreign governments” or the government
“donate[d] them to charitable causes; release[d] them
to growers who agree to reduce their raisin production;
or dispose[d] of them by any other means consistent
103a
with the raisin program.”
Id. at 355 (internal
quotation omitted). The growers retained a contingent
interest in the raisins, and if they were sold, the
growers received the net proceeds of the sales from the
Raisin Committee. Id. at 363. Notably, in the years
examined by the Supreme Court in Horne, the
proceeds were either less than the cost of the
production of the raisins or there were no proceeds at
all. Id. at 355.
If growers, like the Hornes, did not create a raisin
reserve for the government, they were assessed a fine
“equal to the market value of the missing raisins.” Id.
at 356. In the Hornes’ case, they refused to set aside
a raisin reserve, and when trucks sent by the
government came to pick up the raisins, the trucks
were turned away. Id. The Hornes were then assessed
the fine, upon which they proceeded to federal court.
Id.
Neither side in Horne contested that the
government would have been within its powers to
entirely bar the Hornes from growing raisins in the
first place. Id. at 362.
Ultimately, the Supreme Court held that the
“reserve requirement imposed by the Raisin
Committee is a clear physical taking” and th
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