Merck sues law that allows Medicare to negotiate with drug makers

Pharmaceutical company Merck sued the government Tuesday over a federal law that allows Medicare to negotiate prices directly with drug makers for the first time.

The Merck lawsuit, filed in federal court in Washington, is the drug industry’s most significant move yet to thwart a major health care policy change, which takes effect in 2026. Democrats pushed through the Medicare negotiating program last summer as a provision of the Inflation Reduction Act, framing it as a way to lower drug prices.

Only certain drugs will be subject to negotiation with Medicare and only after they have been on the market without competition for years. But Merck, which generated $14.5 billion in profits last year, said in a statement Tuesday that the law will stifle the ability of it and its colleagues to make risky investments in new treatments.

Other pharmaceutical companies have suggested they will choose to cut some drug development programs due to the expected dent in their revenues. Several have already said they were reevaluating their research plans.

Merck said it was seeking a court order or other legal remedy that could exempt Merck from having to participate in the trading program.

Xavier Becerra, secretary of health and human services, said in a statement that the Biden administration will vigorously defend the law. The law is on our side, he said.

In the complaint filed Tuesday, Merck’s attorneys at the Jones Day Law Firm say the Medicare negotiation program is unconstitutional. They say the program would force Merck to supply its products at government-set prices, violating a Fifth Amendment clause that prohibits the government from taking private property for public use without just compensation. They also allege that the program would violate Merck’s free speech rights by forcing the company to sign a deal it didn’t agree with after the negotiations were done.

But several experts studying the field have said the constitutionality arguments are weak and will face an uphill battle in court.

What Merck argues is that coercion is actually creating a freer and more rational market that will address a crucial root cause of high drug prices, said Dr. Ameet Sarpatwari, a drug policy expert at Harvard Medical School.

Experts noted that the negotiation process gave drugmakers the leeway to reject the final Medicare offer and walk away without a deal if they weren’t happy, subject to a fee. But Merck’s lawsuit said that for one of the company’s drugs, the fee for refusing an offer could run into the tens of millions of dollars on the first day and rise to hundreds of millions every day after a few months.

In September, the government plans to announce the top 10 medicines that will be on the market in 2026. A widely used Merck drug for diabetes, Januvia, is likely to be on that list.

The program could also affect Merck’s long-term plans for its golden goose, the blockbuster cancer drug Keytruda. It could be among the first products targeted when negotiations on drugs administered in healthcare begin in 2028.

The current version of Keytruda, delivered by infusion, faces its first competition later that year, so its sales are expected to decline regardless of whether the program targets it. But Merck expected to get significant revenue from a new formulation of Keytruda it’s developing that can be more easily administered under the skin. This too could be subject to negotiation, depending on the government’s plans for the programme.

Sheryl Gay Stolberg contributed report.

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