The IRA has fundamentally changed the Medicare prescription drug market by authorizing CMS to negotiate prices for certain high-expenditure, single-source drugs. 

On August 18, 2026, the U.S. Court of Appeals for the D.C. Circuit issued an important decision in Teva Pharmaceuticals USA, Inc. v. Kennedy, a challenge to the Centers for Medicare and Medicaid Services’ (CMS) implementation of the Medicare Drug Price Negotiation Program established by the Inflation Reduction Act of 2022 (IRA).

The IRA has fundamentally changed the Medicare prescription drug market by authorizing CMS to negotiate prices for certain high-expenditure, single-source drugs. The resulting negotiated prices, known as maximum fair prices, began taking effect in 2026 for the first group of drugs identified by CMS, with subsequent negotiation cycles taking effect in later years. 

Teva challenged several aspects of CMS’s implementation of the program, including CMS’s treatment of certain drugs with the same active ingredient and manufacturer and its interpretation of when a generic drug is sufficiently marketed to cause a branded drug to leave the negotiation program.

First, Teva challenged CMS’s decision to treat certain drugs with the same active ingredient and manufacturer as a single “qualifying single-source drug” for purposes of determining eligibility for Medicare price negotiation. The court upheld CMS’s approach, concluding that the IRA permits CMS to consider drugs with the same active ingredient even when they are approved under separate U.S. Food and Drug Administration (FDA) applications. 

Second, Teva challenged CMS’s requirement that a generic drug must be subject to “bona fide marketing” before CMS will consider the generic to be marketed for purposes of removing the corresponding brand-name drug from the negotiation program. CMS evaluates factors including but not limited to, prescription drug event and average manufacturer price data, as well as whether the generic is regularly and consistently available for purchase. 

The D.C. Circuit did not decide whether CMS’s bona fide marketing standard is legally permissible. Instead, it held that Teva’s challenge is ripe for judicial review, allowing the challenge to proceed, which is significant because the issue could ultimately affect how quickly a brand-name drug can exit the Medicare negotiation program once a generic competitor enters the market.

What Does the Decision Mean for Pharmacies?

At first glance, Teva may look like a dispute between a drug manufacturer and CMS, but the outcome potentially has meaningful downstream consequences for pharmacies.

The decision potentially supports a broader application of the Medicare negotiation program than manufacturers had initially sought. For pharmacies, that means the universe of products subject to negotiated Medicare pricing may remain substantial. Pharmacy owners should not assume that a separate FDA application—or the existence of multiple formulations or products from the same manufacturer—necessarily means that a drug will fall outside CMS’s negotiation framework.

Additionally, the case demonstrates that the economics of prescription drugs increasingly depends on how federal agencies classify and define products, not merely on the published reimbursement rates.

For pharmacy owners, this is particularly important because a change in any of the following can have downstream reimbursement consequences:

• Whether a drug qualifies for Medicare negotiation;
• Whether a generic is considered commercially marketed;
• When a negotiated price becomes effective;
• When a brand exits the negotiation program;
• How maximum fair prices transactions are implemented; and
• How Part D plans and pharmacy benefit managers incorporate those changes into pharmacy reimbursement.

A pharmacy may, therefore, experience the financial consequences of a federal drug-pricing decision even though the pharmacy was not a party to the underlying litigation.

Conclusion

The D.C. Circuit’s decision in Teva Pharmaceuticals USA, Inc. v. Kennedy is not a victory for the pharmaceutical industry’s effort to invalidate Medicare drug negotiation. The court upheld CMS’s authority to treat certain products with the same active ingredient and manufacturer as a single drug for purposes of the program and rejected Teva’s due-process challenge.

But the decision contains an important opening: Courts may review CMS’s generally applicable interpretations and standards, and the D.C. Circuit specifically determined that Teva’s challenge to CMS’s bona fide marketing requirement can proceed. 

For pharmacy owners, the significance is downstream. Changes in whether a drug is subject to Medicare negotiation—and how long it remains there—can ultimately affect acquisition costs, reimbursement, inventory decisions and pharmacy margins.

As Medicare drug pricing becomes increasingly regulated, pharmacy owners should treat changes in CMS’s drug-classification and negotiation rules as operational and financial issues—not simply pharmaceutical industry policy developments.

For More Information

If you have any questions about this Alert, please contact Jonathan L. Swichar, Bradley A. Wasser, Nikki Baniewicz, any of the attorneys in our Pharmacy Litigation Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.