Merck, a global pharmaceutical company, has filed a lawsuit against the Biden administration over Medicare’s new powers to substantially reduce drug prices for seniors under the Inflation Reduction Act. Merck has called the law’s drug price negotiation program a “sham” and “tantamount to extortion” in a scathing complaint filed in federal court in Washington D.C.
Merck’s complaint asks a judge to block the U.S. Health and Human Services Department from compelling the drugmaker to participate in the program. The company argues that the law violates their free speech rights under the First Amendment and accuses the federal government of employing what the suit describes as an unconstitutional scheme to take private property for public use without just compensation in violation of the Fifth Amendment.
The Inflation Reduction Act and Merck’s Stake
The Inflation Reduction Act, which became law last summer, was a major victory for President Joe Biden and Democrats in Congress, who have long pushed to empower Medicare to combat rising drug prices. However, the pharmaceutical industry fiercely opposed the law, arguing it will stifle new drug development.
Merck last year booked $2.8 billion in revenue from its Type 2 diabetes drug Januvia, a medication that it said will be subject to Medicare price negotiations in 2023. The company also anticipates its blockbuster cancer immunotherapy treatment Keytruda and its other diabetes drug Janumet will be subject to the program in subsequent negotiation cycles. Keytruda represented 35% of Merck’s total revenue last year.
Government’s Response and AARP’s Support for Medicare’s Price Negotiations
HHS Secretary Xavier Becerra, in response to Merck’s suit, said, “We’ll vigorously defend the President’s drug price negotiation law, which is already lowering health care costs for seniors and people with disabilities.”
AARP, the influential lobby group that represents people older than 50, said Medicare’s price negotiations will save billions of dollars for seniors, many of whom cannot afford their prescription drugs. Bill Sweeney, the AARP’s chief lobbyist, accused the pharmaceutical industry of fighting to “pad their profits” while Americans face the highest drug prices in the world.
Timeline of the Inflation Reduction Act
Under the Inflation Reduction Act, HHS will select ten drugs to be drawn into a first round of price negotiations. Those drugs will be some that Medicare Part D spends the most money on and that have no generic competition. Medicare Part D is the program that covers the cost of drugs that seniors typically pick up in pharmacies.
The Centers for Medicare and Medicaid Services will publish a list of which drugs were selected for the first cycle of negotiations on September 1. The companies that make those drugs face an October deadline to sign agreements to participate in those negotiations.
CMS will send its initial price offer for the first round of price negotiations on February 1, according to a timeline published by HHS. The drugmakers will have 30 days to accept that price or submit a counteroffer, according to the department.
The negotiations end on August 1, 2024, and CMS will publish a list of the reduced prices the following month, according to the timeline. Those prices go into effect on January 1, 2026, according to HHS. The program will expand in subsequent years to Medicare Part B, which generally covers drugs and treatments that seniors cannot administer at home on their own.
Merck’s lawsuit against the Biden administration is the opening salvo in the pharmaceutical industry’s efforts to weaken the program. Merck argues that the law violates their free speech rights under the First Amendment and accuses the federal government of employing an unconstitutional scheme in violation of the Fifth Amendment. The government and AARP, on the other hand, defend the drug price negotiations as a means to save billions of dollars for seniors who cannot afford their prescription drugs. The timeline of the Inflation Reduction Act shows that the negotiations are set to continue until August 2024, and the reduced prices will go into effect on January 1, 2026.