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Global drug manufacturer Merck on Tuesday sued the Biden administration over Medicare’s new powers to significantly reduce drug prices for seniors under the Inflation Reduction Act, the opening salvo in the drug industry’s effort to weaken the program.
In a damning lawsuit in federal district court, Merck condemned the trial process as “sham” and “tantamount to racketeering.”
The drugmaker accused the federal government of using what the company says was an unconstitutional system to use private property for public use without just compensation, in violation of the Fifth Amendment.
Merck said the health ministry is forcing companies to enter into an agreement that effectively dictates the price of a drug at a discount of 25% to 60%, under threat of daily excise taxes many times greater than the drug’s daily revenue.
The company petitioned the United States District Court for the District of Columbia to prevent HHS from compelling the drugmaker to enter into an agreement under the price reduction program and to vacate any agreement the company was forced into.
“Under the IRA, the government will seize Merck’s patented pharmaceutical products and force-sell them to Medicare beneficiaries,” the company’s legal team wrote in the complaint.
“These forced sales — enforced by the threat of draconian penalties that the government has admitted no manufacturer could reasonably afford to pay — will deprive Merck of possession and ownership of its personal property,” Merck’s attorneys wrote .
Merck also argued that Medicare’s new price negotiation powers violate the company’s First Amendment right to free speech. The drugmaker claimed the Inflation Reduction Act compels companies to engage in a “political deception” that portrays the program as a fair price negotiation.
“Recruiting corporations to legitimize government blackmail is the kind of parroted orthodoxy that the First Amendment doctrine of compulsory speech prohibits,” Merck’s attorneys wrote.
As part of the effort to curb inflation, HHS will select 10 drugs to include in a first round of price negotiations. These drugs spend the most money on Medicare Part D and have no generic competition.
Medicare Part D is the program that pays for medications that seniors typically buy from pharmacies.
The Centers for Medicare and Medicaid Services will release a list of drugs selected for the first cycle of trials on September 1. The companies that make these drugs must sign agreements to participate in these negotiations in October.
Merck expects its type 2 diabetes drug Januvia to be the subject of those negotiations later this year. According to financial records, the drugmaker made $2.8 billion in sales from the drug last year.
Merck also anticipates that its blockbuster cancer immunotherapy drug Keytruda and its other diabetes drug Janumet will be subjects of the program in later hearing cycles. The drugmaker had Keytruda sales of $21 billion and Janumet sales of $1.7 billion in 2022.
Keytruda accounted for 35% of Merck’s total sales last year.
According to a timeline released by HHS, CMS will broadcast its initial price offer for the first round of price negotiations on February 1, 2024. According to the department, drugmakers have 30 days to accept that price or make a counter-offer.
Negotiations will end on August 1, 2024 and CMS is scheduled to publish a list of reduced prices in September. These rates are effective January 1, 2026, according to HHS.
The program will expand to Medicare Part B in subsequent years, which generally covers medications and treatments that seniors cannot administer at home on their own.
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