Merck sues US government to halt Medicare drug price negotiation

© Reuters. Signage is seen at the Merck & Co. headquarters in Kenilworth, New Jersey, U.S., November 13, 2021. REUTERS/Andrew Kelly//File Photo

By Michael Erman

NEW YORK (Reuters) -Merck & Co sued the U.S. government on Tuesday, seeking to halt the Medicare drug price negotiation program contained in the Inflation Reduction Act (IRA), which it argues violates the Fifth and First Amendments to the U.S. Constitution.

This is the first attempt by a drugmaker to challenge the law, which the pharmaceutical industry says will result in a loss of profits that will force them to pull back on developing groundbreaking new treatments.

Americans pay more for prescription medicines than any other country. The Biden administration's drug pricing reform aims to save $25 billion annually by 2031 through price negotiations for drugs paid for by Medicare, the government health plan for those age 65 and over.

The lawsuit, filed in U.S. District Court for the District of Columbia, argues that under the law, drugmakers would be forced to negotiate prices for drugs at below market rates.

Merck asserts this violates the part of the Fifth Amendment that requires the government to pay just compensation for private property taken for public use.

After the government released its roadmap for price negotiations in March, industry lobbyists and lawyers told Reuters that drugmakers were likely to file lawsuits arguing that the government is not complying with the U.S. Constitution.

Merck called the talks with the Centers for Medicare and Medicaid Services (CMS) coercive and said it forces drugmakers to participate in "political Kabuki theater" by pretending negotiations are voluntary.

"This is not 'negotiation.' It is tantamount to extortion," Merck said in the suit.

The drugmaker also argues that the law will force companies to sign agreements conceding that the prices are fair, which it claims is a violation of the First Amendment's protections of free speech.

Merck filed its suit against the U.S. Department of Health & Human Services (HHS) and CMS, as well as HHS Secretary Xavier Becerra and CMS Administrator Chiquita Brooks-LaSure.

"Big Pharma regularly forces Americans to pay many times what they do customers in other countries for the exact same medicines," White House spokeswoman Karine Jean-Pierre said in a statement on Tuesday. "We are confident we will succeed in the courts. There is nothing in the Constitution that prevents Medicare from negotiating lower drug prices."

HEAVY LIFT

Ameet Sarpatwari, a lawyer and professor at Harvard Medical School, said in an email that Merck's lawsuit stands on weak claims.

"The government is not coercing Merck. It is exercising its rights and responsibility to negotiate on behalf of seniors and taxpayers the prices of a small number of drugs that have already been on the market for several years," he said.

Robin Feldman, a law professor at UC College of the Law, San Francisco, agreed that Merck will have a heavy lift convincing the courts, but said issues in this area of the law are undecided and the case is likely headed to the Supreme Court.

Wells Fargo (NYSE:WFC) analyst Mohit Bansal said in a research note that the lawsuit could be the first of many filed by drugmakers, who could also challenge the law for more procedural reasons.

Merck said it plans to litigate the matter all the way to the U.S. Supreme Court if necessary.

The first ever Medicare drug price reduction process is due to begin in September when CMS identifies its 10 most costly drugs. Following negotiations on that first wave of drugs, new prices will go into effect in 2026, which could cut industry sales by $4.8 billion in that first year.

Merck's top-selling drug, cancer immunotherapy Keytruda, could be subject to negotiations as soon as 2028. Last year, Keytruda sales topped $20 billion - more than a third of Merck's total sales - and are expected top $30 billion in 2026, according to analyst estimates.