May 1 (Reuters) - Healthcare and drug industry groups on

Wednesday urged a U.S. appeals court to revive their challenge

to a law requiring manufacturers to negotiate the prices of some

drugs with the U.S government's Medicare health insurance

program or pay heavy penalties.

Pharmaceutical Research and Manufacturers of America

(PhRMA), the Global Colon Cancer Association and the National

Infusion Center Association (NICA) sued the government last

year, claiming the program, a signature initiative of Democratic

President Joe Biden, violated the U.S. Constitution by giving

too much power to federal regulators and imposing excessive

fines on companies that refuse to participate.

But the arguments before a three-judge panel of the 5th U.S.

Circuit Court of Appeals in New Orleans hinged on a narrower

issue: whether a Texas judge was right to throw out the case

after concluding that he lacked jurisdiction over it.

U.S. District Judge David Ezra in Austin, Texas, ruled in

February that NICA can only pursue its claims through an

administrative process for challenging Medicare reimbursement

decisions. The organization has said that its infusion center

members' Medicare reimbursements are tied to the prices of drugs

they administer, meaning that a ceiling on prices could lead to

lower reimbursements.

Because NICA is the only plaintiff based in Texas, the judge

said, the other plaintiffs cannot go forward with their lawsuit

there without it.

John Elwood of Arnold & Porter Kaye Scholer, arguing for the

plaintiffs, told the 5th Circuit panel that the administrative

process, which begins within the U.S. Department of Health and

Human Services, cannot address NICA's constitutional claims. He

also said it was the negotiation program itself, rather than any

loss of money, that the group was challenging.

"We are injured by the decision-making process that is

constitutionally invalid," he said.

Catherine Padhi, a lawyer for the government, said there was

no right for healthcare providers to be involved in the

government's decisions about Medicare.

Circuit Judge Jennifer Elrod, who was appointed by

Republican former President George W. Bush, appeared sympathetic

to the plaintiffs' arguments. She said the government was using

"monopsony power" by forcing companies to negotiate, pay heavy

fines or leave Medicare altogether, and that "the (Federal Trade

Commission's) heads would explode" if a private company acted

similarly.

"This is challenging a novel, unprecedented price-setting

program in a setting where the government is the 800-pound

gorilla," she told Padhi, later asking, "How would this at all

be lawful in any way?"

Padhi stressed that the appeal concerned only the claims of

NICA members, who do not sell drugs directly to the government,

and not drugmakers' claim that the program is unlawfully

coercive and punitive. But she also rejected the idea that

drugmakers' rights were violated.

"There's certainly no right to sell a product to the

government at any price you wish," she said.

The other two members of the panel - Circuit Judges Kyle

Duncan, who was appointed by Republican former President Donald

Trump, and Irma Ramirez, who was nominated by Biden, a Democrat

- did not ask any questions.

The argument came two days after a New Jersey judge rejected

challenges by Johnson & Johnson and Bristol Myers Squibb to the

drug pricing program, which is part of the 2022 Inflation

Reduction Act. So far all four federal judges to rule on

lawsuits over the program have rejected them.

If the price negotiations are allowed to go forward, the

negotiated prices for the first set of drugs chosen for the

program would be set in September, with more drugs added in

future years.

The chosen drugs include Merck's ( MRK ) diabetes drug Januvia,

Bristol Myers Squibb ( BMY ) and Pfizer's ( PFE ) blood thinner Eliquis and

AbbVie's ( ABBV ) leukemia treatment Imbruvica.

The program aims to save $25 billion in drug costs annually

by 2031. Industry analysts have said that the negotiated

discounts could be steep, ranging from the statutory minimum of

25% to as much as 60%.

The case is National Infusion Center Association v. Becerra,

5th U.S. Circuit Court of Appeals, No. 24-50180.

For plaintiffs: John Elwood of Arnold & Porter Kaye Scholer

For the government: Catherine Padhi of the U.S. Department

of Justice

Read more:

J&J, Bristol Myers lose challenges to US drug price

negotiation program

Pharmaceutical group's lawsuit over Medicare drug price

program dismissed

Pharmaceutical trade group sues US over Medicare drug price

negotiation plans

(Reporting By Brendan Pierson in New York)