Merck Files Suit Against Federal Government Over Drug Pricing Program

Today, the pharmaceutical company, Merck, filed a lawsuit against the Department of Health and Human Services (HHS) and the Centers for Medicare & Medicaid Services (CMS), because of provisions within the Inflation Reduction Act (IRA), which allows Medicare to negotiate directly with pharmaceutical companies on drug prices. This would be conducted through the Drug Price Negotiation Program.

In the legal filing, Merck disagrees with the premise of the program using strong language in its complaint. “In reality, however, this “Drug Price Negotiation Program” is a sham. It involves neither genuine “negotiations” nor real “agreements.” Rather, once HHS unilaterally selects a drug for inclusion in the program, its manufacturer is compelled to sign an “agreement” promising to sell the drug to Medicare beneficiaries at whatever “fair” price the agency dictates, which must represent at least a 25% to 60% discount.”

In its suit, Merck invokes the Fifth Amendment and First Amendment as part of its argument. “…the Fifth Amendment requires the Government to pay “just compensation” if it takes “property” for public use. Yet the singular purpose of this scheme is for Medicare to obtain prescription drugs without paying fair market value. The IRA wields the threat of crippling penalties to force manufacturers to transfer their patented pharmaceutical products to Medicare beneficiaries, for public use,” the lawsuit filing states.

For the latter, Merck takes issue with the language being used and says it is using a “façade of “negotiations” and “agreements.”

“Conscripting companies to legitimize government extortion is the sort of parroted orthodoxy that the First Amendment’s compelled-speech doctrine forbids,” they state in their filing.

Medicare and Medicaid are the biggest public purchasers of medicines in the United States. And according to the Kaiser Family Foundation, Medicare and Medicaid are the second largest payer of drug purchases overall behind private insurers (42%). Medicare accounts for 30%, and Medicaid accounts for 10%.¹

If the negotiation program were to take effect it could potentially create a seismic shift and paradigm in the revenue of pharmaceutical manufacturers and could have larger repercussions in terms of drug development, incentive programs for patients to get discounts as well as other unintended consequences.

It is important to note, the new drug negotiation program is scheduled to begin on September 1 and Merck acknowledged its type 2 diabetes drug, Januvia, is expected to be targeted this year. And in its legal filing, the company said that its diabetes drug, Janumet, and its cancer treatment, Keytruda, are expected to be the subjects of the pricing program the following cycle.

Merck's Statement on the legal filing:

For more than 130 years, Merck has been guided by the view that great medicines and vaccines change the world. We put the patient at the center of everything we do and use the power of leading-edge science to save and improve lives.

Our role is to engage in the most risky and costly part of discovery—to invent something that’s never existed in the history of the world that will unlock treatments and cures for disease. This invention is then followed by extensive clinical trial programs to demonstrate safety and effectiveness. And more often than not, these programs do not result in commercial drug products. In fact, over 90% of the time, these programs do not result in FDA-approved products.

On average, it takes a decade and more than $2.5 billion to develop a new drug. Since 2000, companies like ours have invested more than $1.1 trillion in the search for new treatments and cures, including $102.3 billion in 2021 alone. This investment has led to incredible breakthroughs for patients.

Unfortunately, this progress is now at risk due to unconstitutional provisions in the Inflation Reduction Act (IRA). As a result, Merck has filed a lawsuit in United States District Court for the District of Columbia to obtain relief from the IRA’s Medicare Drug Price Negotiation Program (the “Program”), a law that will impair the biopharmaceutical sector’s ability to address health threats.

By coercing Merck to provide its drug products at government-set prices, the Program takes property for public use without just compensation in violation of the Fifth Amendment. In addition, the IRA creates the false impression that innovators like Merck are voluntary participants in its program by coercing them to sign an “agreement” conveying that the government-set prices are the “fair” result of a “negotiation.” That compelled mirroring of the government’s political message violates the First Amendment.

In addition to its unconstitutionality, the IRA will stifle the biopharmaceutical sector’s world-leading scientific research and development and have potentially devastating consequences for the millions of patients who depend on the biopharmaceutical sector’s innovations. Take for example the impact on cancer therapies. Investments by Merck and others in the biopharmaceutical sector have led to important progress in the treatment of earlier-stage cancer, most notably lung cancer. With increased adoption of screening, we have now reached an inflection point at which we are poised to bend the trajectory of the societal burden of cancer. The IRA makes further investment in treatments for earlier-stage cancer and screening far more difficult.

Because this statute unlawfully impairs our core purpose of engaging in innovative research that saves and improves lives, Merck intends to litigate this matter all the way to the U.S. Supreme Court if necessary. While we do not believe the Program is the right approach for continuing to advance global health on behalf of millions of patients in need, Merck remains committed to working with the US government to enable patient-focused innovation, value and access.

Reference
1. How Does Prescription Drug Spending and Use Compare Across Large Employer Plans, Medicare Part D, and Medicaid? Kaiser Family Foundation. May 20, 2019. Accessed June 6, 2023 https://www.kff.org/medicare/issue-brief/how-does-prescription-drug-spending-and-use-compare-across-large-employer-plans-medicare-part-d-and-medicaid