Merck sues Biden administration over Medicare drug price negotiations

Global drug maker Merck sued the Biden administration on Tuesday over new Medicare powers to dramatically reduce drug prices for seniors under the Inflation Reduction Act, the first salvo in the pharmaceutical industry’s efforts to weaken the program.

In a scathing lawsuit filed in federal court in Washington DC, Merck denounced the negotiation process as a “sham” and “amounting to extortion”.

The drugmaker accused the federal government of employing what the company described as an unconstitutional scheme to take private property for public purposes without fair compensation, in violation of the Fifth Amendment.

The Cut Inflation Act, which took effect last summer, was a major victory for President Joe Biden and Democrats in Congress, who have long pushed to give Medicare the means to fight against rising drug prices.

The pharmaceutical industry has fiercely opposed the law, arguing that it will stifle the development of new drugs.

Merck said the Department of Health and Human Services is forcing companies to enter into an agreement that effectively dictates the price of a drug at a 25% to 60% discount under threat of multiple times higher daily excise taxes to the daily income of the drug.

Merck asked a judge to stop HHS from requiring the drugmaker to participate in the program.

“Under the IRA, the government will requisition patented pharmaceutical products from Merck and transfer them to Medicare beneficiaries through forced sales,” the company’s legal team wrote in the lawsuit.

“These forced sales – constrained by the threat of draconian penalties that the government has admitted no manufacturer could ever reasonably afford to pay – will deprive Merck of possession and title to its personal assets,” Merck’s attorneys wrote. .

Merck also argued in its lawsuit that Medicare’s new powers to negotiate prices violate the company’s First Amendment free speech rights. The drugmaker claimed the Cut Inflation Act forces companies to participate in a “political deception” that presents the program as bargaining for fair prices.

“Conscribing corporations to legitimize government extortion is the kind of repeated orthodoxy that the First Amendment’s forced-speech doctrine prohibits,” Merck attorneys wrote.

Under the Inflation Reduction Act, HHS will select 10 drugs to participate in a first round of price negotiations. These drugs will be the ones that Medicare Part D spends the most money on and have no generic competition.

Medicare Part D is the program that covers the cost of drugs seniors typically take from pharmacies.

The Centers for Medicare and Medicaid Services will release a list of drugs selected for the first round of negotiations on September 1. Companies that manufacture these drugs face an October deadline to sign agreements to participate in these negotiations.

Merck said its type 2 diabetes drug, Januvia, will reach a negotiation agreement this year. The drugmaker recorded $2.8 billion in revenue from the drug last year, according to financial filings.

Merck also expects its flagship cancer immunotherapy treatment Keytruda and its other diabetes drug Janumet to be on the program in subsequent trading rounds. The drugmaker recorded $21 billion in sales of Keytruda in 2022 and $1.7 billion in sales of Janumet.

Keytruda accounted for 35% of Merck’s total sales last year.

CMS will send its initial price offer for the first round of price negotiations on February 1, 2024, according to a schedule published by HHS. Drugmakers have 30 days to accept that price or submit a counteroffer, according to the department.

Trading ends August 1, 2024, and CMS will release a list of discounted prices in September, according to the schedule. These prices are effective January 1, 2026, according to HHS.

The program will expand in subsequent years to Medicare Part B, which typically covers drugs and treatments that seniors cannot self-administer at home.

CNBC has reached out to HHS and the White House for comment.