Merck sues federal government over law that lets Medicare negotiate drug prices

Pharmaceutical company Merck sued the federal government on June 6, claiming a law passed last year that would let Medicare negotiate drug prices directly with pharmaceutical companies is unconstitutional.

The law, passed as part of the Inflation Reduction Act, requires the Centers for Medicare and Medicaid Services to negotiate the prices of a small number of brand-name drugs with no generics or biosimilars that are covered under Medicare Part B and Part D, starting in 2026.

“We believe this program will negatively impact biopharmaceutical innovation and the sector’s work to develop lifesaving and life-changing innovations. In turn, it will have devastating consequences for millions of patients in need,” Merck wrote in a statement released alongside the lawsuit, which was filed in federal court Tuesday.

In the lawsuit, Merck claimed the law violates the Fifth Amendment, which says the government can’t take property for public use without providing just compensation.

“The singular purpose of this scheme is for Medicare to obtain prescription drugs without paying fair market value,” the lawsuit stated.

Merck also claimed the law “makes a mockery of the First Amendment” by requiring drugmakers to sign agreements stating that the negotiated drug prices are fair and a result of negotiation.

“This ‘Drug Price Negotiation Program’ is a sham. It involves neither genuine ‘negotiations’ nor real ‘agreements,’ according to the lawsuit.

Ameet Sarpatwari, an expert in pharmaceutical policy at Harvard Medical School, told the New York Times that Merck’s constitutional argument is weak.

“What Merck argues is ‘coercion’ is actually the establishment of a freer, more rational marketplace,” he said.

Other drugmakers, including Bristol Myers Squibb, have said the new law will hurt their drug development programs. Alnylam Pharmaceuticals, a Massachusetts-based drugmaker, said in October 2022 that it canceled a planned clinical trial of an eye disease drug because of the law.

The first 10 drugs subject to Medicare negotiation will be announced in September 2023, and Merck’s diabetes drug Januvia is expected to be on that list, according to researchers from the West Health Policy Center in Washington, DC, and the University of California. Another of Merck’s diabetes drugs, Janumet, is expected to be subject to negotiation in 2027, and its blockbuster cancer drug, Keytruda, is on the list for 2028.

Januvia and Janumet brought Merck a combined $4.5 billion last year, while Keytruda made $20.9 billion.

The Congressional Budget Office estimated the law will save the federal government $288 billion over 10 years.

“The number one reason seniors are leaving their prescriptions at the counter is because they can’t afford them,” Bill Sweeney, SVP of government affairs at AARP, said in a statement sent to Healthcare Brew. “The new law is going to finally require Medicare to leverage its buying power and begin to negotiate with drug companies for lower prices, saving seniors and Medicare billions of dollars.”