Big Pharma Takes Another L in Medicare Negotiation Lawsuits

Plus, America’s biggest retailers have turned around on the economy and more in our business round-up.

By Eric Gardner, More Perfect Union

On March 1, a Trump-appointed federal judge in President Joe Biden’s home state of Delaware threw out AstraZeneca’s lawsuit against the Biden Administration’s keystone Medicare drug price negotiation legislation. 

The company argued that having to negotiate the price the government pays for drugs would violate its right to due process, but District Court Judge Colm Connolly dismissed this argument. “AstraZeneca has no legitimate claim of entitlement to sell its drugs to the Government at any price other than what the Government is willing to pay; its due process claim fails as a matter of law,” Connolly wrote in his ruling. 

The Medicare price negotiation provision in the Inflation Reduction Act gave Medicare the power to negotiate the price it pays for ten drugs. According to the Center for Medicare and Medicaid Services (CMS), during a recent 13-month span, taxpayers spent $50 billion on the first batch of drugs up for negotiation. These drugs include AstraZeneca’s Farxiga, a popular drug used to treat diabetes and kidney disease.

During that time, Medicare paid AstraZeneca over $3 billion for Farxiga, which helped the London-based pharmaceutical giant record $3 billion in profit last year. 

In response to the legislation, the pharmaceutical industry declared legal war against the administration, filing ten lawsuits to stop negotiations from happening. So far, judges have ruled on two cases, agreeing with the government in both instances. 

“The whole point of the [drug negotiation] program is to lower the prices of selected drugs that lack generic competition and account for a disproportionate share of Medicare's expenses,” Connolly wrote, noting that the company lobbied Congress to not pass the IRA in 2022. “Understandably, drug manufacturers like AstraZeneca don't like the IRA. Lower prices mean lower profits.”

In his State of the Union address, President Biden proposed more than doubling the size of the drug negotiation program, calling for Medicare to be allowed to negotiate the price of 50 drugs per year, up from 20.

Watch our report on the pharmaceutical industry’s plan to kill price negotiations:

America’s Major Retailers Are Optimistic About 2024

The country’s biggest retailers are becoming more and more optimistic about the economy, a significant turnaround after recessionary concerns dominated recent headlines. “Fortunately we avoided that (recession),” Walmart chief financial officer John David Rainey told investors last month. “I think overall, we feel a little better about the health of the economy right now.” 

In the summer of 2022, Walmart fueled panic about a possible recession following a downward revision of its profit forecast. Subsequently,  however, the pace of inflation moderated, with the big box retailer beating analysts' sales projections after it lowered prices across select items. For next year, Walmart is predicting growth between 3 and 5 percent, in line with where it was pre-pandemic.

A similar theme was found across America’s other publicly traded retail giants. Combined, Costco, Kroger, Target, and Walmart sold nearly a trillion dollars worth of products to American consumers in the most recent fiscal year, and each struck a measured but optimistic tone in recent investor calls. The news mimics the most recent job report, which showed that the economy added more jobs than expected in February, though unemployment ticked up.

“We're planning for a modest increase in comparable sales,” Target CFO Michael Fiddelke said, referring to an industry benchmark that measures sales growth for the same stores over time. 

The forecast is a big turnaround, as Target sold less in 2023 than in 2022, largely driven by consumers cutting back on discretionary purchases. In the next ten years, the company expects to grow an average of 4 percent a year, primarily through opening new stores, remodeling old ones, and bringing new products to market. 

The company, which typically targets higher-income households, made headlines when it announced its new membership program to compete with Amazon Prime. Perhaps more notable for most consumers was its announcement of  “Deal Worthy,” a low-cost store brand that promises to sell household basics for 50 percent less than what’s currently on shelves.

Costco, which beat analysts’ profit expectations but missed revenue, believes inflation will hover around zero, enabling the company to reduce prices. “We always want to be the first out there trying to lower prices,” CFO Richard Galanti said. 

Kroger, the nation’s largest grocer, struck the most optimistic tone in almost two years—despite the FTC challenging its planned $24.6 billion acquisition of rival retailer Albertsons. “We expect consumer sentiment to improve in 2024, but our customers will still have to manage many of the same macro pressures as last year,” Kroger CEO Rodney McMullen said. Those “macro pressures” include rising interest rates and the expiration of expanded SNAP benefits. 

This year, Kroger plans to generate about $4.7 billion in operating profit. In the past, Kroger regularly used that profit to reward shareholders at the expense of its workforce. In a recent five-year period, the company spent $8 billion on stock buybacks while its median employee earned under $27,000 a year. 

In 2022, Kroger paused all buybacks to help finance the Albertsons acquisition. But with the acquisition in peril, it’s not hard to imagine that a significant buyback is on the horizon. 

SNAP Expiration Is Weighing on Consumers and Businesses

Last spring, 40 million Americans saw Supplemental Nutrition Assistance Program (SNAP) benefits decline after Republicans and some Democrats blocked President Biden’s push to make the pandemic-era increase permanent. 

A year later, major retailers and food processors are starting to call out the impact, which saw the average recipient's monthly payment decrease by at least $95. “Frankly, it’s a business that is driven disproportionately by our SNAP exposure,” Carlos Abrams-Rivera, the CEO of Kraft-Heinz, told investors when asked about the company’s struggles selling Mac & Cheese. Organic revenue at the ketchup and cheese North American division grew to over $26 billion for 2023, and higher prices offset fewer sales by 1 percent. 

Kroger, America’s largest traditional grocer, echoed the sentiment this week, telling investors that the reduction in SNAP benefits pressured consumers, forcing them to stretch their budgets and deplete their savings. CEO Richard Dreiling of Dollar Tree, which operates over 16,000  Dollar Tree and Family Dollar stores, said that “lower-income customers at Family Dollar have been especially pressured by reductions in government SNAP benefits.” 

The cost of food skyrocketed throughout the pandemic, with supply chain disruptions and conflicts in the Middle East and Europe sending the price of everything from meat to sunflower oil skyrocketing. Compounding matters is the growing evidence that corporations were colluding around meat prices and using the surrounding chaos to pad profits through price increases. The Federal Reserve estimates that corporate price mark-ups constitute half of all inflation. 

In 2024 the Department of Labor index that tracks food prices is 25 percent higher than it was in 2020—and low-income Americans have paid the bulk of the cost, spending nearly a third of their after-tax income on food.