Voluntariness as a Constitutional Safe Harbor: Third Circuit Upholds IRA Drug Price Negotiation Against Takings and Compelled‑Speech Challenges

Introduction

In Bristol Myers Squibb Co. v. Secretary U.S. Department of HHS (consolidated with Janssen Pharmaceuticals Inc. v. Secretary U.S. Department of HHS), the United States Court of Appeals for the Third Circuit (precedential, Sept. 4, 2025) upheld the Inflation Reduction Act’s (IRA) Medicare Drug Price Negotiation Program against high-stakes constitutional attacks brought by two major manufacturers, Bristol Myers Squibb (BMS) and Janssen. The panel (Judge Freeman writing for the court; Judge Hardiman dissenting) affirmed summary judgment for the government on two core questions:

Does the Program effect a per se physical taking in violation of the Fifth Amendment?
Does it compel speech in violation of the First Amendment (and/or impose unconstitutional conditions)?

The majority answered both questions “no,” anchoring its analysis in a voluntariness principle: because manufacturers are not legally compelled to participate in Medicare and can withdraw via statutory schemes (as interpreted and implemented by CMS’s Program guidance), there is neither a physical taking nor compelled speech. The court also declined to export the land‑use exactions framework (Nollan/Dolan) to this procurement‑like setting and rejected reliance on NFIB’s anti‑commandeering analysis beyond the federalism context.

Summary of the Judgment

Takings (Fifth Amendment): No per se physical taking. Medicare participation (including the negotiation Program) is voluntary. Manufacturers can avoid the Program’s excise tax by withdrawing from specified “Opt‑Out Programs” (the Medicare Coverage Gap/Manufacturer Discount Program and the Medicaid Drug Rebate Program), a process CMS has committed to expedite on “good cause” in Program guidance for the initial years. Economic pressure or market reality does not equal legal compulsion. Horne and NFIB do not alter the result.
Unconstitutional conditions (Takings): The court declined to apply the Nollan/Dolan exaction test outside land‑use permitting. Even if applied, the Program would satisfy nexus and proportionality.
First Amendment: The Program regulates conduct (government pricing/reimbursement) with incidental effects on speech. Contractual use of statutory terms (e.g., “maximum fair price,” “negotiate,” “agree”) does not force manufacturers to adopt a government ideology. Participation is voluntary; any speech within the Program’s agreements is not “compelled.” No unconstitutional conditions because any speech regulation is confined to the Program’s administration, and manufacturers remain free to criticize the Program publicly.
Disposition: Affirmed. The District Court’s summary judgment for the government stands.

Case Background and Issues

Congress’s 2022 IRA authorized CMS to “negotiate” a “maximum fair price” (MFP) for high‑spend, single‑source drugs lacking generic/biosimilar competition. CMS selected ten drugs for the first pricing year (2026), including BMS’s Eliquis and Janssen’s Xarelto. Manufacturers that refuse to comply face escalating excise taxes under 26 U.S.C. § 5000D during “noncompliance periods,” unless they exit certain Medicare/Medicaid programs.

BMS and Janssen sued, arguing:

Takings: The Program is a government appropriation of their drugs (a per se taking) without just compensation.
First Amendment: The Program compels them to “agree,” “negotiate,” and adopt the term “maximum fair price,” forcing them to speak under duress and to endorse a misleading, normative label.
Unconstitutional conditions: The Program coerces speech and property concessions as a condition of doing business with Medicare.

Both manufacturers signed CMS’s Agreement and Addendum while their suits were pending; they then argued the contracts were not voluntary because refusal would trigger confiscatory taxes and the exit paths were illusory or unlawful.

Detailed Analysis

I. The Takings Claim

A. Majority: No physical taking; Medicare participation is voluntary

The court framed physical takings as appropriations or occupations mandated by the sovereign (Cedar Point Nursery v. Hassid). It emphasized a foundational procurement principle: when the government acts as a purchaser, it may set terms like any market participant (Perkins v. Lukens Steel). Where private entities choose to do business with the government by contract, takings claims rarely lie (Hughes Communications).

Relying on a line of cases rejecting takings challenges by providers upset with reimbursement limits because Medicare/Medicaid participation is voluntary, the court held the same logic governs here:

Franklin Memorial Hospital v. Harvey (1st Cir.)
Garelick v. Sullivan (2d Cir.)
Burditt v. HHS (5th Cir.)
St. Francis Hospital Center v. Heckler (7th Cir.)
Key Medical Supply v. Burwell (8th Cir.)
Baker County Medical Services v. Attorney General (11th Cir.)

The Second Circuit’s recent Boehringer Ingelheim decision—upholding the IRA Program on indistinguishable facts—reinforced that participation remains voluntary even if non‑participation is economically painful.

Crucially, the court found manufacturers had a workable path to avoid the Program’s excise taxes: withdraw from the specified Opt‑Out Programs. For the initial Program years, CMS’s 2023 Revised Guidance (promulgated pursuant to a statutory “program guidance” directive for 2026–2028) recognizes “other good cause” to expedite a 30‑day termination when a manufacturer elects not to participate in negotiation, thereby suspending the excise tax exposure. The court viewed this guidance as having the force of law for the initial years, and it harmonized “other good cause” with the statutory structure.

B. Distinguishing Horne and NFIB

Horne v. Department of Agriculture: The raisin “reserve” compelled growers to surrender raisins; opting out meant exiting the raisin market itself. Here, manufacturers remain free to sell to the private market; the Program conditions only Medicare reimbursement. Horne’s compelled appropriation paradigm does not fit.
NFIB v. Sebelius: NFIB’s “economic dragooning” analysis rests on federalism and anti‑commandeering concerns unique to sovereign states. Extending NFIB to private parties would constitutionalize federal contracts and hamstring procurement; the Third Circuit declined to do so.

C. Nollan/Dolan exactions theory rejected (and would fail even if applied)

The court refused to extend the land‑use exactions test (Nollan, Dolan, Koontz; reaffirmed in Sheetz) to this price negotiation context, emphasizing the special coercion dynamics and public‑cost offsets unique to permitting. It added that the Program would pass nexus and rough proportionality in any event: conditioning Medicare reimbursements on offering Medicare beneficiaries negotiated drug prices ties directly to Medicare’s affordability objective, and the concession (reduced margin on selected drugs) is roughly proportional to the benefit (access to substantial federal reimbursement streams across portfolios).

D. A through‑line principle: No protected entitlement to a particular reimbursement level

Building on its due process analysis in AstraZeneca v. HHS, the court underscored there is no property interest in selling to Medicare at historically higher prices than the government is willing to pay. The Takings Clause does not guarantee manufacturers their prior margins; a shift in terms offered by the government purchaser is not an appropriation of property.

II. First Amendment (Compelled Speech and Unconstitutional Conditions)

A. Majority: The Program regulates conduct; any speech burden is incidental

The court characterized the Agreement/Addendum as operational instruments that implement a conduct regulation—price setting and reimbursement terms. Drawing on FAIR (law schools hosting military recruiters) and the speech/conduct line in O’Brien, NIFLA, and Zauderer, it held that:

The use of “negotiate,” “agree,” and “maximum fair price” in contracts does not create a government‑approved orthodoxy; these are statutory terms of art, expressly defined, and disclaimed for colloquial meaning within the Agreement itself.
Manufacturers remain fully free to denounce the Program outside those implementing instruments; nothing restricts their public speech.

Expressions Hair Design (a statute regulating how prices may be described) was inapposite: there the law regulated speech about prices rather than prices themselves. Here, the Program regulates the price the government will reimburse.

B. Voluntariness defeats “compelled” speech

As with the Takings analysis, the court found no actual compulsion: manufacturers can forego participation (including by taking the expedited exit path), so any speech within the agreements is not compelled. Mere economic pressure does not establish unconstitutional compulsion.

C. Unconstitutional conditions (speech)

Applying the Rust/AID/League of Women Voters/Regan line, the court concluded the condition here defines the contours of the subsidized program. It neither restricts speech “off program” nor forces ideological affirmation; it uses terms necessary to administer the negotiated price regime. That is permissible.

III. Administrative Law and the Role of CMS Guidance

A pivotal feature of the majority’s voluntariness analysis is CMS’s 2023 Revised Guidance, which:

Commits CMS to treat a manufacturer’s decision not to participate as “good cause” for expedited termination (30 days) of its Medicare manufacturer agreements, enabling immediate suspension of excise tax exposure upon withdrawal.
Was issued under a specific IRA directive authorizing CMS to implement the Program for 2026–2028 via “program instruction or other forms of program guidance.”

The majority read that directive as supplying an alternative procedure with the force of law (for those initial years), sufficient to displace APA notice‑and‑comment requirements to that extent. It also reasoned that reading “other good cause” capaciously fits Congress’s choice to provide a flexible catchall next to the specific “knowing and willful violation” ground, and that treating the manufacturers’ unforeseeable post‑IRA need to exit as “good cause” accords with the statutes’ structure and purpose.

Notably, the court cautioned that if CMS were to reverse this “good cause” policy, such a reversal could be arbitrary and capricious (Encino Motorcars).

IV. The Dissent: An “Offer You Can’t Refuse” and Compelled Expression

Judge Hardiman dissented, viewing the excise tax as an unavoidable, ruinous penalty that transformed the ostensible “choice” into compulsion—forcing a de facto sale at government‑set prices (a per se taking under Horne) and compelled speech in the agreements.

Exit is illusory: By statute, voluntary manufacturer‑initiated termination of Medicare manufacturer agreements takes 11–23 months; because the first compliance deadlines arrived far sooner, manufacturers could not avoid the tax in time. The dissent argued CMS cannot lawfully rewrite those timelines via guidance by invoking “other good cause.”
Good‑cause termination: The dissent reads “other good cause” narrowly under noscitur a sociis, limited to misconduct akin to “knowing and willful” violations, not merely a policy choice to exit. It also argued that § 5000D suspends the tax only upon the Secretary’s receipt of the manufacturer’s own termination notices, which CMS‑initiated terminations would not satisfy.
Scope of the excise tax: The dissent read § 5000D to apply to all domestic sales, not just Medicare sales, and criticized IRS efforts (via notice and proposed rule) to narrow it.
Compelled speech: Because the government forced the manufacturers to “agree,” “negotiate,” and sign an MFP addendum, the dissent found expressive, content‑based compulsion that fails strict scrutiny. The Agreement’s disclaimer can’t cure it. The dissent emphasized the political messaging around “negotiation” and “fairness.”
Remedy and severability: The dissent would invalidate the Program provisions as applied to the Companies (but sever them from the rest of the IRA), declaring the Agreements unenforceable.

V. Precedents Cited and How They Shaped the Decision

Procurement and voluntariness: Perkins v. Lukens Steel (government as market participant may set terms); a long line of Medicare/Medicaid voluntariness cases (1st, 2d, 5th, 7th, 8th, 11th Circuits); and the Second Circuit’s Boehringer (2025) are the backbone of the majority’s Takings analysis.
Per se takings: Cedar Point Nursery (physical occupation) and Horne (personal property appropriation) are distinguished on the absence of any mandate to turn over property and the availability of exit.
NFIB: Confined to anti‑commandeering/federalism; not a template for private counterparties.
Nollan/Dolan/Koontz/Sheetz: Exactions test limited to land use; concerns about vulnerability in discretionary permitting don’t translate to Medicare reimbursement.
First Amendment: FAIR (conduct regulation with incidental speech), Expressions Hair Design (distinguishing price regulation from speech regulation), Zauderer/O’Brien/NIFLA (incidental burdens), Rust/AID/League of Women Voters/Regan (limits of unconstitutional conditions), and Meese v. Keene (statutory terms of art).
Administrative law: The majority’s brief APA analysis leans on the IRA’s explicit “program guidance” authorization for initial years and on general principles (5 U.S.C. § 559; California v. Azar; Mann Construction) to recognize alternate procedures. After Loper Bright, the court does not defer but instead reads the statute to authorize the guidance pathway for 2026–2028.
Third Circuit context: AstraZeneca v. HHS (2025) supplies design details about Part B/D and the Program and supplies the “no protected property interest in higher reimbursement” theme.

VI. Impact and Outlook

A. Immediate effects

Program viability: The Third Circuit’s precedential decision, together with the Second Circuit’s Boehringer, solidifies judicial acceptance of the IRA negotiation framework against facial Takings/First Amendment attacks—at least within circuits that accept the voluntariness/exit rationale.
Negotiation leverage: Manufacturers retain the public‑relations megaphone to criticize MFPs but have limited constitutional leverage to resist negotiated rates if they remain in Medicare/Medicaid. Expect continued participation and settlements at or below the statutory MFP caps.
Operational reliance on CMS guidance: The majority’s voluntariness finding leans on the 2023 Revised Guidance promising a 30‑day “good cause” termination path. That assurance is now part of the constitutional equilibrium. A policy reversal could provoke APA challenges and potentially revive constitutional arguments.

B. Open doctrinal questions and litigation risk

Scope of the excise tax: The dissent forcefully argues the tax applies to all domestic sales; IRS has proposed narrowing. While not dispositive to this appeal, future tax litigation may test the statutory text against IRS rules.
“Good cause” termination: The majority’s capacious reading and “notice” construction may face challenges elsewhere. If another circuit rejects CMS’s termination shortcut, a split could develop.
Beyond initial years: The IRA’s “program guidance” authority is time‑limited (initial pricing years). For later years, agencies will likely use notice‑and‑comment rulemaking. How courts treat any changes to withdrawal pathways or agreement terms after 2028 bears watching.
Supreme Court review: The dissent’s framing—Program as coercive forced sale plus compelled endorsement—presents a crisp cert-worthy narrative. That said, the emerging cross‑circuit consensus (3d and 2d Circuits) and the procurement voluntariness doctrine may dampen prospects absent a split.

C. Policy and market implications

Government-as-buyer model: The opinion reinforces that large‑buyer policies (including price caps/negotiations) are constitutionally secure when participation is voluntary and exit exists—even if exit is economically unattractive.
Design cues for future legislation: Using statutory terminology with internal definitions, building clear program‑specific instruments (agreements/addenda), preserving off‑program speech, and offering a credible opt‑out pathway will help inoculate similar programs from Takings/First Amendment attacks.

VII. Complex Concepts Simplified

Physical vs. regulatory taking: A physical taking is when the government forces you to hand over or host your property; a regulatory taking is when a regulation goes so far it effectively strips property value. The companies pressed only a physical‑takings theory.
Government as purchaser: The U.S. can decide the terms on which it buys goods or pays reimbursements. Choosing not to buy at a particular price is not a taking.
Voluntariness: If you can say “no” (even at economic cost) you are not legally compelled. That defeats claims of physical taking and compelled speech.
Excise tax: A tax on sales of designated drugs during noncompliance periods; it escalates over time. The majority accepted that manufacturers can avoid it by exiting the specified Medicare/Medicaid programs under CMS’s expedited process.
“Maximum fair price”: A statutory term of art meaning the negotiated price under the IRA for a selected drug; in the Agreement it is expressly used with the statute’s meaning, not the everyday meaning of “fair.”
Unconstitutional conditions: The government may define the bounds of a program it funds (e.g., how money is used) but may not coerce recipients’ speech or beliefs beyond the program itself.
Nollan/Dolan (exactions): A land‑use test asking whether permit conditions are closely related and roughly proportional to a project’s impacts. The court declined to export this test to Medicare pricing.
NFIB’s “dragooning”: A limit on using federal funds to coerce sovereign states to adopt federal policies. It doesn’t apply to private companies entering federal contracts.

Conclusion

The Third Circuit’s decision establishes a consequential constitutional through‑line for the IRA’s Drug Price Negotiation Program: voluntariness—grounded in credible exit paths—defeats per se takings and compelled‑speech claims. The court confines NFIB’s coercion analysis to federalism, refuses to transplant land‑use exaction doctrine to procurement, and treats the Program’s speech as incidental to a conduct regulation implemented through contracts that use statutorily defined terms.

While the dissent spotlights substantial statutory‑interpretation questions about the excise tax and the legality/effectiveness of CMS’s expedited termination pathway, the majority’s framework—echoed by the Second Circuit—sets a durable precedent: so long as manufacturers can choose whether to do business with Medicare on stated terms and retain free rein to criticize those terms publicly, the IRA’s negotiated prices are constitutionally sound. Future litigation may focus on the durability of the exit option, the precise scope of the excise tax, and the procedural posture of CMS implementation beyond the initial guidance years, but the Program itself now rests on a fortified constitutional foundation in the Third Circuit.