Economic Pressure Is Not Legal Compulsion: Third Circuit Upholds IRA Drug Price Negotiations Against Takings and Compelled‑Speech Challenges

Introduction

In a precedential opinion with national stakes for drug pricing and constitutional doctrine, the U.S. Court of Appeals for the Third Circuit affirmed summary judgment for the federal government in consolidated challenges to the Inflation Reduction Act’s (IRA) Medicare Drug Price Negotiation Program. The cases, brought by Bristol Myers Squibb (BMS) and Janssen Pharmaceuticals after their blockbuster anticoagulants (Eliquis and Xarelto) were selected for the first negotiation cycle, alleged a per se physical taking, First Amendment compelled speech, and unconstitutional conditions.

The court, in an opinion by Judge Freeman, held that:

The Program is voluntary for manufacturers; therefore, it does not effect a physical taking under the Fifth Amendment.
The First Amendment is not violated because the Program regulates conduct (prices) and any required speech is incidental and non-ideological; moreover, participation itself is voluntary.
The unconstitutional‑conditions doctrine does not apply outside the Program’s contours, and the court declined to extend the Nollan–Dolan framework beyond land‑use permitting.

Judge Hardiman dissented, finding the excise tax rendered participation effectively compulsory, converting the arrangement into an uncompensated per se taking and a compelled‑speech regime that is not narrowly tailored. The split crystallizes core questions about government’s role as a market participant, the boundary between economic leverage and legal compulsion, and the scope of compelled‑speech protections in the context of government contracts.

Summary of the Judgment

The Third Circuit affirmed the district court’s summary judgment for the Secretary of HHS and CMS, holding:

No per se taking: The government does not physically appropriate manufacturers’ drugs. Manufacturers may avoid participation (and associated excise taxes) by withdrawing from two specified “Opt‑Out Programs” (the Medicare Coverage Gap/Manufacturer Discount Program and the Medicaid Drug Rebate Program). CMS’s 2023 Revised Guidance, issued under a statutory instruction to implement the Program by guidance for 2026–2028, authorizes a 30‑day “good cause” termination path to make that exit timely.
First Amendment: The Program regulates conduct (price and reimbursement). Contract terms using statutory labels like “maximum fair price” are factual, not ideological; they exist to effectuate the statute, and any speech burden is incidental. Because participation is voluntary, there is no “compulsion” to speak. The unconstitutional‑conditions doctrine is not triggered because the Program does not leverage funding to regulate speech outside its scope.
Nollan–Dolan not extended: The court declined to apply the special land‑use exactions framework to federal procurement/benefit conditions. Even if adapted, the Program would satisfy nexus and proportionality: negotiated pricing advances Medicare’s affordability aims and is proportional to the benefits of participating in Medicare and Medicaid.
NFIB distinguished: Anti‑commandeering principles protect state sovereignty, not private entities. The IRA’s negotiation program conditions participation in federal benefit programs for private manufacturers, not states.

The court aligned with a recent Second Circuit decision, Boehringer Ingelheim Pharmaceuticals, Inc. v. HHS (Aug. 7, 2025), reinforcing a developing inter‑circuit consensus that the negotiation framework does not effect a taking where participation remains optional.

Case Background

Medicare Part D is a voluntary prescription drug benefit administered through private plan sponsors and pharmacy benefit managers. When Congress created Part D in 2003, it imposed a “non‑interference” clause limiting CMS’s role in pricing. The IRA partially reversed that policy by authorizing CMS to negotiate “maximum fair prices” for selected single‑source, high‑expenditure drugs lacking generic or biosimilar competition, subject to statutory ceilings that depend on years on market and market prices.

In 2023, CMS selected ten drugs for the initial 2026 “price applicability year,” including Eliquis and Xarelto. Manufacturers must sign a Medicare Drug Price Negotiation Program Agreement (Agreement) and, after exchanges of offers and justifications, formalize the negotiated price in an Addendum. If the parties do not reach agreement, the statute imposes escalating excise taxes during the noncompliance period. To avoid the tax, a manufacturer can opt out of all Medicare/Medicaid participation for all its products by terminating its agreements in two specific programs (the Opt‑Out Programs).

BMS and Janssen sued on takings, free speech, and unconstitutional-conditions theories. Both ultimately executed Agreements and Addenda while litigating. The district court granted summary judgment to the government; the Third Circuit affirmed.

Detailed Analysis

Precedents Cited and Their Influence

Takings and Voluntariness

Cedar Point Nursery v. Hassid, 594 U.S. 139 (2021): Clarifies per se physical takings require government mandates authorizing physical appropriation or occupation. The majority uses Cedar Point to emphasize the need for a coercive governmental command; absent a mandate to surrender property, a voluntary exchange with the government is not a per se taking.
Valancourt Books, LLC v. Garland, 82 F.4th 1222 (D.C. Cir. 2023): No taking where a party can refuse a government demand by declining a benefit; supports the idea that voluntariness defeats a per se takings claim.
Perkins v. Lukens Steel Co., 310 U.S. 113 (1940): When acting as purchaser, the government, like any market actor, can set terms for contracting. This undergirds the court’s framing of Medicare/CMS as a buyer setting reimbursement conditions.
Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060 (Fed. Cir. 2001): Government-contract settings rarely yield takings liability—support for the “government as contracting party” lens.
Medicare/Medicaid voluntariness line: The court catalogs cases holding that providers cannot state a takings claim because participation is voluntary: Franklin Memorial Hospital (1st Cir.), Garelick v. Sullivan (2d Cir.), Burditt (5th Cir.), St. Francis (7th Cir.), Key Medical Supply (8th Cir.), Baker County (11th Cir.), and Livingston Care (6th Cir.). Each rejects the idea that financial reliance transforms an elective federal program into a compulsory regime.
Boehringer Ingelheim v. HHS (2d Cir. 2025): Harmonizes with today’s holding; the choice to participate remains voluntary even if alternatives are economically unattractive.

Parsing Horne and NFIB

Horne v. Department of Agriculture, 576 U.S. 350 (2015): A per se taking when raisin handlers were compelled to surrender tangible raisins to the government. The Third Circuit distinguishes Horne: raisin growers could avoid the reserve only by exiting the raisin market entirely, whereas here manufacturers can sell in the private market and can avoid the excise tax by exiting the Opt‑Out Programs.
National Federation of Independent Business v. Sebelius (NFIB), 567 U.S. 519 (2012): Anti‑commandeering principles in Spending Clause coercion (threatening all Medicaid funds to force state expansion) do not apply to private manufacturers; NFIB’s federalism rationale is cabined to state sovereignty, not private contracting.

Nollan–Dolan and Exactions

Nollan v. California Coastal Commission, 483 U.S. 825 (1987); Dolan v. City of Tigard, 512 U.S. 374 (1994); Koontz v. St. Johns River Water Mgmt. Dist., 570 U.S. 595 (2013); and Sheetz v. County of El Dorado, 601 U.S. 267 (2024): The court emphasizes this “special application” of the unconstitutional‑conditions doctrine remains confined to land‑use permits, driven by unique permitting dynamics (broad denial discretion; offsetting public costs). It declines to transpose this test into federal procurement/benefit conditions like Medicare.

First Amendment—Conduct vs. Speech; Incidental Burdens

Rumsfeld v. FAIR, 547 U.S. 47 (2006): The Solomon Amendment’s equal‑access mandate for military recruiters regulated conduct; any compelled email/posting notices were incidental factual statements, far from compelled ideological endorsement. The Third Circuit relies on FAIR to label negotiation contracts as conduct‑regulating instruments with incidental, non‑ideological language.
Expressions Hair Design v. Schneiderman, 581 U.S. 37 (2017): A law restricting how a merchant may label prices (surcharge vs. discount) regulates speech rather than prices; the Third Circuit distinguishes the IRA, which directly regulates reimbursement amounts (conduct), not labels in public communications.
NIFLA v. Becerra, 585 U.S. 755 (2018); Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985); United States v. O’Brien, 391 U.S. 367 (1968); Sorrell v. IMS Health, 564 U.S. 552 (2011): Collectively support the conduct/speech line and permit incidental, factual, program‑effectuating disclosures.
Meese v. Keene, 481 U.S. 465 (1987): Statutory terms of art are to be given their statutory meanings. The court uses Keene to neutralize the alleged normative freight of “maximum fair price,” which the IRA defines functionally as the negotiated price for a covered period.

Unconstitutional Conditions—Funding and Speech

Agency for International Development v. Alliance for Open Society, 570 U.S. 205 (2013): Unconstitutional conditions arise when the government leverages a grant to regulate speech outside the funded program’s contours; by contrast, defining program scope is permissible. The court locates any compelled language squarely inside the Program’s implementation and not beyond it.
Rust v. Sullivan, 500 U.S. 173 (1991): No violation where the government steers its own program’s speech; recipients remain free to speak differently “on their own time and dime.”
FCC v. League of Women Voters, 468 U.S. 364 (1984); Regan v. Taxation With Representation, 461 U.S. 540 (1983): Illustrate the outside/inside program line and the permissibility of attaching conditions to a subsidy while leaving off‑program speech unfettered.

Administrative Law—Guidance and “Good Cause” Termination

Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024): Chevron deference retired. The Third Circuit does not rely on deference; it reads the IRA’s “guidance” instruction as Congress’s temporary authorization to implement via program guidance for 2026–2028.
California v. Azar, 911 F.3d 558 (9th Cir. 2018); Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022); Pennsylvania v. President United States, 930 F.3d 543 (3d Cir. 2019), rev’d on other grounds sub nom. Little Sisters: The majority treats the IRA note as establishing an alternative procedure for early years sufficient to dispense with APA notice‑and‑comment temporarily. The dissent disagrees.
Polansky v. Executive Health Resources, 17 F.4th 376 (3d Cir. 2021), aff’d 599 U.S. 419 (2023): “Good cause” is a flexible, capacious standard. The majority uses this to uphold CMS’s promise to effect 30‑day terminations for manufacturers that choose not to participate, making exit realistic.
Encino Motorcars, LLC v. Navarro, 579 U.S. 211 (2016): The court cautions that if CMS later revokes the expedited exit policy, such reversal could be arbitrary and capricious.

The Court’s Legal Reasoning

1) Takings Clause

The touchstone is legal compulsion. A per se physical taking requires a government mandate to surrender property. Manufacturers are not legally compelled to sell drugs to Medicare or Medicaid; they may forgo these markets. While the IRA imposes heavy excise taxes during “noncompliance periods,” those taxes are avoidable by withdrawing all products from the two Opt‑Out Programs. Finding this exit illusory because of contract timing, the court relied on CMS’s 2023 Revised Guidance—issued under the statute’s express instruction to implement the 2026–2028 Program by “program instruction or other forms of program guidance”—to recognize a 30‑day “good cause” termination that permits timely exit.

The court distinguishes Horne: raisin growers had to leave their market entirely; drug manufacturers who exit the Opt‑Out Programs remain free to sell the affected drugs in private channels. And it rejects NFIB’s “economic dragooning” analogy because NFIB guards state sovereignty, not private parties in procurement relationships. The court additionally reiterates a proposition it embraced in AstraZeneca: there is no constitutionally protected property interest in selling to Medicare beneficiaries at historical, more remunerative prices.

2) First Amendment—Compelled Speech

The Program is “directed at conduct,” namely the setting of reimbursement terms; any speech (e.g., signing an Agreement using the IRA’s statutory labels) is merely incidental. The contract text reflects statutory definitions and process mechanics, not ideological viewpoints. The court leans on FAIR, NIFLA, Zauderer, and O’Brien to cabin compelled‑speech claims where the government is structuring its own purchasing program. And because participation is voluntary, there is no “compulsion” to speak. Outside the contract instruments, manufacturers remain free to criticize the Program publicly; the government has not leveraged funding to regulate extramural speech, as proscribed in AID.

3) Unconstitutional Conditions and Nollan–Dolan

The court refuses to extend land‑use exactions doctrine to procurement conditions. Even adopting a generalized “nexus and proportionality” lens, the requirement to furnish drugs at negotiated prices serves the Program’s core aim—Medicare affordability—and is proportionate to the significant benefits of participating across the manufacturers’ Medicare and Medicaid portfolios.

4) The Dissent’s Counter‑Path

Judge Hardiman would find the excise tax so confiscatory and unavoidable as to make participation compulsory, converting the scheme into a per se taking of physical doses. He rejects the 30‑day exit policy as contrary to the statutes’ express 11–23 month termination provisions and questions the legality of implementing such a critical feature by guidance post‑Loper Bright. On speech, he views the compelled use of “agree,” “negotiate,” and “maximum fair price” as expressive and ideological, not incidental: the government effectively forces manufacturers to endorse a political narrative of “negotiation” and “fairness.” He would hold these provisions unconstitutional as applied and invalidate the Agreements.

Impact and Implications

Litigation landscape: The opinion reinforces a growing inter‑circuit consensus (with the Second Circuit’s Boehringer) that the IRA negotiation program does not effect a per se taking and does not compel speech when participation is voluntary. The robust dissent, however, provides a roadmap for further challenges and may invite Supreme Court review, particularly on (i) whether economic pressure plus excise taxation amounts to legal compulsion, and (ii) the expressive character of compelled contractual language.
Government as market participant: The decision strengthens the principle that the government can set terms of trade for its own purchasing and that “economic hardship is not equivalent to legal compulsion” in takings analysis. Expect agencies to lean on this in designing benefit‑program contracts.
Administrative law and guidance: The court’s acceptance of the IRA’s temporary “guidance” track for 2026–2028, and its capacious reading of “good cause” termination, will be cited to defend early‑stage implementations via program instructions. The dissent’s APA critique signals a potential vulnerability: if a future court invalidates the guidance path or the 30‑day exit reading, “voluntariness” could narrow and invite renewed takings claims.
Negotiation dynamics: By confirming that the excise tax is avoidable through timely exit and that participation is elective, the ruling preserves CMS’s negotiation leverage while blunting constitutional end‑runs. Manufacturers must now center disputes on statutory/administrative details (e.g., price ceilings, factor consideration) within the IRA’s judicial‑review constraints.
Compelled speech doctrine: The opinion tightens the line between incidental, factual program mechanics (permissible) and ideological or extramural speech compulsion (impermissible). It forecloses deploying Nollan–Dolan outside land‑use and reaffirms that program‑defining conditions typically fall on the constitutional side of the AID/Rust divide.
Risk flags: The majority expressly notes that rescinding the expedited exit could be arbitrary and capricious. And there is tension between statutory text (excise tax “applies to all sales,” acknowledged by the majority) and evolving IRS rulemaking that could narrow the tax to Medicare‑only sales (criticized in the dissent). Such cross‑agency inconsistencies could spark future APA challenges.

Complex Concepts Simplified

Physical vs. regulatory takings: A physical taking occurs when the government mandates a surrender of property or invades/occupies it. A regulatory taking arises when regulation so limits property use that it is akin to appropriation. The challengers argued a per se physical taking; the court found no mandate because participation is voluntary.
Economic pressure vs. legal compulsion: The Constitution forbids certain government mandates. The fact that exiting a program is economically painful does not make participation legally compelled for takings purposes. That line—sharpened here—turns on whether an actual legal requirement forces the property transfer.
Excise tax (tax‑exclusive vs. tax‑inclusive rates): Tax‑exclusive percentages measure tax as a share of pre‑tax price (e.g., 185.71% to 1,900% in the statute). The dissent stresses these eye‑popping numbers to show coercion; the majority treats the tax as avoidable due to a real exit path.
Opt‑Out Programs: To avoid the excise tax, a manufacturer must withdraw all products from (i) the Medicare Coverage Gap/Manufacturer Discount Program and (ii) the Medicaid Drug Rebate Program. CMS’s guidance promises a 30‑day “good cause” termination when a manufacturer elects not to participate in negotiation—a central plank in the court’s voluntariness analysis.
Unconstitutional conditions (speech): The government may define what it buys (or funds) and attach conditions inside a program, but it cannot leverage funding to control what recipients say or do outside the program. The court found any compelled language here was internal to administering the Program.
Incidental speech vs. compelled ideology: Laws that govern conduct often require some words to implement (e.g., contracts, notices). Such incidental, factual statements are generally okay. For a First Amendment violation, the government typically must force you to affirm an ideological message or restrict what you say beyond the program itself.
Nollan–Dolan (land‑use exactions): A special test for conditions placed on land‑use permits, requiring an “essential nexus” and “rough proportionality” to the project’s impacts. The court refused to extend this real‑property doctrine to Medicare contracts.
Government as proprietor vs. regulator: When the government buys goods or funds programs, it may set terms of purchase (like any buyer), which is different from regulating private conduct across the board.
Statutory terms of art: The IRA defines “maximum fair price.” In contracts effectuating the Program, that phrase is treated as a defined, technical label—not an endorsement of a colloquial “fairness” judgment.

Conclusion

The Third Circuit’s opinion cements three important propositions. First, when the government acts as a purchaser and a program is genuinely optional, even powerful economic incentives do not equal legal compulsion for takings analysis. Second, contractual language used to implement a statutory negotiation process is incidental to conduct regulation and, without more, does not compel speech or impose unconstitutional conditions. Third, the Nollan–Dolan exactions framework remains confined to land‑use.

The dissent underscores nontrivial fault lines: whether the excise tax makes the choice illusory; whether CMS’s 30‑day exit by guidance can supply the needed voluntariness; and whether statutory phrasing like “maximum fair price” carries an ideological valence in this political economy context. Those concerns, especially in the post‑Loper Bright administrative law era, could invite further review. For now, however, the court’s message is clear: economic pressure alone does not convert an elective government program into a per se taking or a compelled‑speech regime. The ruling strengthens CMS’s hand to implement Congress’s drug‑pricing reforms and sets a durable template for evaluating constitutional challenges where the government defines the terms of its own spending.