A federal appeals court upheld the constitutionality of the Medicare drug price negotiation program and the excise tax that enforces it, rejecting claims that the program unlawfully delegated legislative power, imposed an excessive fine, and violated due process. (National Infusion Center Association v. Kennedy, 2026 WL 2517285, 8/26/2026)
Background
At issue is the Inflation Reduction Act (IRA), P.L. 117-169, which directed the Department of Health and Human Services (HHS) to negotiate the prices of certain high-cost drugs covered under Medicare. To secure manufacturer participation, the IRA created an escalating excise tax under IRC § 5000D.
According to the 5th U.S. Circuit Court of Appeals, the statute expresses the tax rate as a percentage of the total sale price, including the tax amount, with the rate beginning at 65% and, after 271 days, reaching 95%. Expressed as a share of the post-tax amount the manufacturer keeps, that translates to a rate starting at 186% and climbing to 1,900%.
Suing in the U.S. District Court for the Western District of Texas, the National Infusion Center Association, the Global Colon Cancer Association, and the Pharmaceutical Research and Manufacturers of America argued that the program violates the nondelegation doctrine, the Eighth Amendment’s excessive fines clause, and the Fifth Amendment’s due process clause.
The district court granted summary judgment to the government, and the plaintiffs appealed to the 5th Circuit.
Judge finds IRA’s delegation of authority constitutional
Writing for the panel, Judge Leslie H. Southwick affirmed that the program does not run afoul of the nondelegation doctrine. Plaintiffs had argued that Congress handed HHS sweeping authority to set prices without an “intelligible principle” to cabin its discretion.
Disagreeing, the 5th Circuit concluded the statute supplies ample guidance. In its analysis, the court explained that the IRA sets a ceiling through a formula pegged to a percentage of a benchmark price and establishes a floor through its directive to reach a “fair” price, and that it requires HHS to weigh nine statutory factors, including research and development costs, federal funding, and alternative treatments.
“In sum, Congress supplied an intelligible principle by defining the general policy HHS must pursue,” Judge Southwick wrote, along with “the boundaries of HHS’s delegated authority.”
Judge Southwick also rejected the argument that a drug’s price could be driven to zero, reasoning that “HHS could not set a price of zero because doing so would not be fair in light of a manufacturer’s presumably significant costs in developing and distributing such a drug.”
Plaintiffs separately contended that the program’s bar on judicial review and its exemption from notice-and-comment rulemaking, combined with HHS’s discretion, together crossed a constitutional line. Although the panel did not treat that combination theory as foreclosed by precedent, it held that even if the features were considered together, the plaintiffs had not shown a violation.
Those features, the court said, do not “transform the constitutionally valid discretion that the IRA provides to HHS into an unconstitutional delegation.”
Excise tax survives Eighth Amendment challenge
On the excise tax, the court upheld the dismissal of the Eighth Amendment claim, though on different grounds than the district court. It first held that the Anti-Injunction Act (AIA), which generally bars suits to restrain the assessment or collection of taxes, did not strip it of jurisdiction. A post-payment refund suit was not a realistic alternative, the court reasoned, because the accruing liability “could well be staggering,” and “any taxpayer subject to the tax would find it extraordinarily difficult to pay.”
On the merits, the 5th Circuit held that the tax is not an “excessive fine.” It explained that the excessive fines clause reaches punishments tied to criminal conduct, and that the tax “lacks any connection to criminal conduct.” Manufacturers, the panel wrote, “become subject to the tax through their lawful choices concerning sales reimbursed by Medicare.”
While the plaintiffs characterized the tax as punishment for declining the government’s pricing, the court said “that form of governmental pressure does not make the Excessive Fines Clause applicable.”
No due process violation in pricing program
Finally, the panel rejected the plaintiffs’ due process arguments. It concluded that “manufacturers lack a protected interest in selling to Medicare beneficiaries at a preferred price because participation in Medicare and Medicaid, and thus in the Program, is voluntary,” agreeing with a 2nd Circuit decision in Boehringer Ingelheim Pharmaceuticals Inc. v. U.S. Department of Health & Human Services, 150 F.4th 76, that a “company suffers no deprivation of its property interests by voluntarily submitting to a price-regulated government program.”
Citing another 2nd Circuit decision in Garelick v. Sullivan, 987 F.2d 913, the panel added that a program does not become involuntary simply because participation is financially important, since “economic hardship is not equivalent to legal compulsion for purposes of takings analysis.”
The court further held that providers, such as the infusion centers represented by the National Infusion Center Association, have no property interest in reimbursement at their preferred levels, but only at the rates set by law. It likewise found no basis to conclude that patients have a due process right of access to particular prescription drugs.
For more information on the drug manufacturers excise tax under § 5000D, see Checkpoint’s Federal Tax Coordinator 2d ¶ W-6601.
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