While other federal agencies that purchase pharmaceutical products negotiate with manufacturers to determine the prices they pay, in 2003, Congress created a sweetheart deal for the pharmaceutical industry when it prevented Medicare from negotiating prices. This essentially allowed the pharmaceutical industry to name its price when selling drugs to Medicare.

In 2022, with the cost of prescription drugs on the rise, Congress revoked this deal in the Inflation Reduction Act, creating a drug pricing negotiation program for the ten most common and expensive drugs covered by Medicare. Under the negotiation program, CMS determines an initial price offer, then refines it through information supplied by the manufacturer. The manufacturer can then accept the offer or take one of three options: it can continue selling its product through Medicare at the old price and pay an excise tax, it can stop offering its portfolio of products to Medicare and Medicaid, or it can transfer its interests in the drug selected for negotiation to another manufacturer and continue selling the rest of its portfolio to Medicare and Medicaid at prices of its choosing. In short, the drug manufacturers can no longer unilaterally name a price that the government must accept.

Ten drugs were selected for the first round of negotiations, and negotiations will be finalized by 2026. Drug manufacturers across the country have sued the federal government over the program, including Janssen Pharmaceuticals and Bristol Myers Squibb in the District of New Jersey. The Constitutional Accountability Center filed an amicus brief in support of the government, explaining that the drug manufacturers’ interpretation of the Takings Clause is at odds with constitutional text and history, as well as Supreme Court precedent. The New Jersey District Court agreed that there was no violation of the Takings Clause. The drug manufacturers appealed, and in September 2024, CAC filed an amicus brief in the Third Circuit Court of Appeals.

Our brief makes three principal points. First, as originally understood, the Takings Clause only applied to the direct appropriation of physical property. Initially drafted to prevent the kinds of lawless requisitioning of property that was widespread in the Continental Army during the American Revolution, it was also motivated by the Framers’ concern that the people would seize land from the wealthy landowning class. The Framers of the Clause, including its drafter James Madison, understood that the Clause would have a limited scope, applying only to the actual seizure of property, not any regulation that affects a property’s worth. As Justice Scalia once wrote, “early constitutional theorists did not believe the Takings Clause embraced regulations of property at all.”

Second, even as the Supreme Court somewhat expanded the scope of the Clause beginning in the late nineteenth century, it continued to limit it to the functional equivalent of the involuntary physical appropriations of property. The regulation had to act as a “complete destruction of rights” of the property owner, specifically, the “bundle of rights” to “possess, use and dispose of” one’s property, as well as the right to exclude trespassers from real property. Moreover, even as the Court held that some regulatory programs can run afoul of the Clause, it has made clear that regulatory programs can only constitute a taking if they compel participation. In other words, a taking must be involuntary.

Third, the drug price negotiation program is not a direct appropriation of property or the functional equivalent thereof and is therefore not a per se physical taking. To start, the Program is not a physical taking because it does not authorize the physical taking of a single pill. The drug manufacturers in these cases retain full legal rights over all pharmaceutical products in their custody, and they remain free to sell any of their products within the commercial insurance market, and to any other buyers in the world, at any price, in any quantity. The drug negotiation program simply allows Medicare to play a role in deciding what prices it is willing to pay. Plaintiffs claim that their participation is not truly voluntary because of the excise tax, but Plaintiffs will be subject to the excise tax only if they refuse to negotiate but still choose to reap the benefits of participating in Medicare and Medicaid. And even then, the excise tax will be only on the Medicare sales of the selected drug. They also argue that because Medicare and Medicaid cover a large share of their potential customer base, any choice about whether to participate in the Program is illusory. But the fact that plaintiffs may not like the choice does not make it any less a choice.

Quite simply, the Constitution does not entitle Plaintiffs to maintain their bottom line by dictating the prices Medicare must pay.