A domino has fallen, but the question remains whether there are more to come. On February 12, 2024, the U.S. District Court for the Western District of Texas dismissed a challenge to the Department of Health and Human Services (HHS) over the controversial Medicare Drug Price “Negotiation” (yes, in quotes) Program passed under the Inflation Reduction Act (IRA). This dismissal is a win for the government, with eight other cases pending in various district courts across the nation. Although the government may find this dismissal to be a cause for celebration, it will be interesting to see if it has a significant impact on the other pending lawsuits because the dismissal did not reach the merits of the case.

The case before the Western Texas District Court was dismissed due to a procedural issue relating to the exhaustion of administrative remedies and the unique circumstances of two out-of-state plaintiffs, which raised a venue issue. As to the first issue, evaluating 42 U.S.C. § 405, the Court found that the claims advanced by Plaintiff National Infusion Center Association (NICA) arose under the Medicare Act and thus required exhaustion of administrative remedies before HHS prior to a federal litigation being filed. Although NICA contended that the case at hand did not fall under Section 405 because it is a “constitutional challenge” to the IRA, Judge Ezra pointed to U.S. Supreme Court and Fifth Circuit precedent to find otherwise. The case also did not qualify for the narrow, recognized exception to the exhaustion doctrine, and therefore the Court found that there was no subject matter jurisdiction over the case.

The Court then granted defendants’ motion to dismiss the case for improper venue as to the other plaintiffs in the case – the Pharmaceutical Research and Manufacturers of America (PhRMA) and the Global Colon Cancer Association. The only reason why venue was proper in the Western District of Texas was because NICA resided there. With NICA dismissed as a plaintiff, no plaintiff or defendant was residing in the district, and therefore venue was improper. The other plaintiffs did not offer a transferee venue, potentially because they would fall under the same challenge relating to exhaustion of administrative remedies.

The case was dismissed without prejudice given that it was not decided on the merits. Although HHS and the plaintiffs in the other pending actions will certainly be scrutinizing this decision, it remains to be seen whether the unique facts and procedural disposition in the Texas action will have a significant impact on the other challenges to the IRA.

“The Court lacks jurisdiction over NICA’s claims because the claims here “arise under” the Medicare Act and the claims do not fall under the exception carved out for when claims may completely avoid judicial or administrative review.