Jakub Porzycki | NurPhoto | Getty Images
Global drug manufacturer Merck on Tuesday sued the Biden administration over Medicare’s new powers to significantly cut 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 complaint filed in federal court in Washington DC, Merck denounced the negotiation process as a “sham” and “amounts to extortion.”
The drugmaker accused the federal government of using what the company described as an unconstitutional scheme to take private property for public use without any compensation, in violation of the Fifth Amendment.
The Inflation Reduction Act, which took effect last summer, was a major victory for President Joe Biden and Congressional Democrats, who have long pushed for Medicare to be able to fight rising drug prices.
The pharmaceutical industry has vehemently opposed the law, arguing that it will hinder 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 discount of 25% to 60% under the threat of daily excise taxes many times higher than the daily income of the drug.
Merck has asked a judge to prevent HHS from forcing the drugmaker to participate in the program.
“Under the IRA, the government will requisition Merck’s patented pharmaceutical products and transfer them to Medicare beneficiaries through forced sale,” the company’s legal team wrote in the complaint.
“Those foreclosures — compelled by the threat of draconian penalties that the government has admitted no manufacturer could ever rationally afford — will deprive Merck of possession and title to its personal property,” Merck’s attorneys wrote.
Merck also argued in its lawsuit that Medicare’s new powers to negotiate prices violate the company’s freedom of speech under the First Amendment. The drugmaker claimed the Inflation Reduction Act forces companies to participate in a “political deception” that presents the program as a negotiation for fair prices.
“Employing corporations to legitimize government extortion is the kind of parroted orthodoxy that the First Amendment doctrine of coerced speech outlaws,” Merck’s lawyers wrote.
Under the Inflation Reduction Act, HHS will select 10 drugs to enter into a first round of price negotiations. Those drugs will be those 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 medications seniors usually pick up at pharmacies.
The Centers for Medicare and Medicaid Services will publish a list of the drugs selected for the first cycle of negotiations on September 1. The companies that make these drugs face an October deadline to sign agreements to participate in those negotiations.
Merck said its type 2 diabetes drug Januvia will be the subject of a negotiation deal this year. The drugmaker posted $2.8 billion in revenue from that drug last year, according to financial records.
Merck also expects Keytruda, its blockbuster cancer immunotherapy treatment, and its other diabetes drug Janumet to be subject to the program in subsequent negotiation cycles. The drugmaker posted $21 billion in Keytruda sales and $1.7 billion in Janumet sales in 2022.
Keytruda represented 35% of Merck’s total sales last year.
CMS will send its initial price quote for the first round of price negotiations on February 1, 2024, according to a timeline published by HHS. The drugmakers have 30 days to accept that price or submit a counteroffer, according to the department.
Negotiations will end on August 1, 2024, and CMS will publish a list of the reduced prices in September, according to the timeline. Those prices go into effect January 1, 2026, according to HHS.
The program will expand to Medicare Part B in subsequent years, which generally includes medications and treatments that seniors cannot self-administer at home.
CNBC has reached out to HHS and the White House for comment.