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Merck sues US government over new law allowing Medicare to negotiate drug prices

By Nithya Bose in US Business & Employment News, posted June 7, 2023

Pharmaceutical giant Merck has sued the Biden administration for granting Medicare the authority to negotiate prices with drugmakers for the first time directly.

The lawsuit, submitted in a Washington federal court, marks the pharmaceutical industry's significant response to a substantial change in health policy set to take effect in 2026.

Democrats introduced the Medicare-negotiation program last summer as part of the Inflation Reduction Act, positioning it as a means to lower drug prices.

Under the law, only select drugs without market competition for several years will be subject to negotiation with Medicare.

Despite this , Merck, which amassed $14.5 billion in profit last year, argues the law will hinder its ability, along with other companies, to make risky investments in new treatments.

Numerous drug makers have already said they may cut specific drug development programs due to the projected impact on their revenue, with some re-evaluating their research plans.

Merck seeks a court order or alternative legal remedy to exempt itself from participating in the negotiation program.

Xavier Becerra, Secretary of Health and Human Services, said the Biden administration would "vigorously defend" the law, asserting "the law is on our side."

In Tuesday's (June 6) complaint, Merck's legal representatives from Jones Day contend the Medicare-negotiation program is unconstitutional.

They argue the program would force Merck to supply its products at government-set prices.

They say it violates the Fifth Amendment's clause prohibiting the government from seizing private property for public use without compensation.

They also claim the program would infringe on Merck's freedom of speech by compelling the company to sign an agreement it does not agree with following negotiations.

However, industry experts say the constitutional arguments put forth by Merck are weak and face an uphill battle in court.

Dr. Ameet Sarpatwari, an expert in pharmaceutical policy at Harvard Medical School, said what Merck considers "coercion" is, in fact, the establishment of a freer and more rational marketplace, addressing a crucial root cause of high drug prices.

Experts also note the negotiation process allows drugmakers to reject Medicare's final offer and walk away without a deal if dissatisfied, albeit subject to a tax.

Merck's suit argues that for one of its drugs, refusing an offer could result the loss of tens of millions of dollars in taxes on the first day, escalating to hundreds of millions daily after a few months.

In September, the government plans to announce the initial ten drugs subject to negotiation in 2026.

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Merck's widely used diabetes drug, Januvia, will likely be included.

The program may impact Merck's long-term plans for its highly successful cancer drug, Keytruda.

When negotiations begin in 2028 for drugs administered in healthcare settings, Keytruda could be one of the first products targeted.

Regardless of the program's focus, Keytruda's sales are expected to decline in 2028 as it faces competition for the first time.

However, Merck had expected substantial revenue from a new formulation of Keytruda currently in development, which could be subject to negotiation under the government's program if approved.

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