What’s come over the Second Circuit? The riders of the federal court’s appeals circuit have often been a judicial bulwark against some of liberalism’s most egregious excesses in policy and law. Yet a panel of circuit judges just endorsed President Biden’s scheme to dictate how much drugmakers can charge under the Medicare program. The ruling swings behind federal price controls, traversing the laws of economics while also endangering medical innovation.  

The price controls were enacted in the deceptively named Inflation Reduction Act of 2022. It let the Medicare program start to “negotiate” with drugmakers over the prices of pharmaceuticals. What company can bargain with the federal leviathan, though? “Negotiating,” the former lieutenant governor of New York, Betsy McCaughey, has said, “is a euphemism for price controls that will shortchange drugmakers, dulling their incentive to innovate.”

Drug companies have filed several lawsuits against the price caps, arguing that they are a constitutional overreach. In the Second Circuit case, Boehringer Ingelheim had sued over the price caps on its diabetes drug, Jardiance. The drugmaker argues that the government price control scheme amounted to a “physical taking” of the drug “in violation of the Fifth Amendment,” the riders said, and “compels speech in violation of the First Amendment.”

The judges on the Second Circuit panel included two nominees of President Trump, William Nardini and Joseph Bianco, and one Clinton judge, Pierre Leval. Far from objecting to the compulsory reality behind the federal claim to be “negotiating” with the drugmaker, the riders rejected Boehringer’s claim. “Participation in the Negotiation Program is voluntary and thus does not entail an unlawful deprivation of rights,” the judges said with a straight face. 

That conclusion comes despite the acknowledgement, as Judge Nardini puts it, that the bargains struck with the federal Centers for Medicare Services, “unlike typical negotiations,” have “strict parameters for pricing, and they end with CMS effectively getting the final word.” Since Medicare is the default health insurance for American seniors, drugmakers have little choice but to go along with what Uncle Sam dictates — in effect, take it or leave it.

Drugmakers that fail to play ball with Medicare also face punitive fees and excise taxes. In another chilling reminder of the federal government’s power, the circuit judges reckon that a manufacturer that “does not wish to participate in the Negotiation Program” has the ability to avoid these penalties only “by transferring ownership of the selected drug to another entity, or withdrawing all its products from Medicare and Medicaid.”

Plus, the circuit judges point out, “there is no floor on the maximum fair price” imposed by the government, meaning there is no minimum envisioned under the law, regardless of the drugmaker’s research and development expenses. That’s some negotiation, eh? Yet even if drugmakers wanted to sell their products on the free market without any interference by Medicare, that possibility seems foreclosed once Uncle Sam takes an interest.

The circuit panel shrugs off the drugmaker’s complaint. “Putting aside the excise tax,” they say, “Boehringer can simply opt out of Medicare and Medicaid.” Yet the drugmaker explains that if it did so, “it would lose more than half its U.S. net sales,” Judge Nardini said. “The choice to participate in a voluntary government program does not become involuntary,” he added, “simply because the alternatives to participation appear to entail worse” outcomes.

Under what reading of the Constitution, one wonders, can the circuit riders acquiesce to this government coercion? The price caps, if they survive eventual Supreme Court scrutiny, threaten to stifle life-saving medical research by curbing drugmakers’ ability to recoup their investments. They call to mind, too, Ronald Reagan’s warnings in the early 1960s, along with the American Medical Association, against government-run insurance plans like Medicare. 

“One of the traditional methods of imposing statism or socialism on a people has been by way of medicine,” the Gipper cautioned. The warning was ignored in the Democrats’ rush to create a new entitlement program under LBJ’s Great Society. The result today, featuring a vast bureaucracy and draconian regulations, is a reminder of unintended consequences that can follow from expanding federal power at the expense of freedom of enterprise.