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Merck Sues Biden Administration Over Medicare Drug Price Negotiations

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  • Merck has sued the Department of Health and Human Services over Medicare's new powers to reduce drug prices under the Inflation Reduction Act.
  • The suit in federal court in Washington, D.C., is the opening salvo in the pharmaceutical industry's efforts to weaken the program.
  • Merck has asked a judge to block HHS from forcing the company to enter into an agreement that slashes prices.
  • 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 expects is cancer treatment Keytruda and its other diabetes drug Janumet will be subject to the program later.

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

Merck called the law's drug price negotiation program a "sham" and "tantamount to extortion" in a scathing complaint in federal court in Washington D.C.

The company also accused 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.

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.

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. The drugmaker booked $21 billion in sales from Keytruda in 2022 and $1.7 billion in sales from Janumet.

Keytruda represented 35% of Merck's total revenue last year.

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."

"The law is on our side," said Becerra, whose department oversees Medicare, the federal health coverage program for older Americans and people with Social Security disability benefits.

Nearly 60 million Americans are enrolled in Medicare.

The Inflation Reduction Act, which became law last summer, was a major victory for President Joe Biden and Democrats in Congress, who long have pushed to empower Medicare to combat rising drug prices.

The pharmaceutical industry fiercely opposed the law, arguing it will stifle new drug development.

 Merck said in its suit that HHS wields the law to force companies to enter into negotiations and dictate drug prices that are 25% to 60% below the medication's market price.

If companies do not comply, they face daily excise taxes that are several times higher than the drug's daily revenues, according to the lawsuit.

"Under the IRA, the Government will requisition Merck's patented pharmaceutical products and transfer them to Medicare beneficiaries through forced sales," the complaint says.

"Those forced sales—coerced by the threat of draconian penalties that the Government has admitted no manufacturer could ever rationally afford to pay—will deprive Merck of possession and title to its personal property."

Merck also argued that Medicare's new powers to negotiate prices violate the company's free speech rights under the First Amendment.

The drugmaker claimed the IRA forces companies to participate in a "political deception" that presents the program as a negotiation for fair prices.

"Conscripting companies to legitimize government extortion is the sort of parroted orthodoxy that the First Amendment's compelled-speech doctrine forbids," the complaint says.

But 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.

"Seniors and taxpayers are tired of being the piggy bank for the profits of big drug companies," Sweeney said in a statement Tuesday. "Lawsuits like this are simply an attempt to keep high profits by gouging America's seniors."

Under the Inflation Reduction Act, HHS will select 10 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 Sept. 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 Feb. 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 Aug. 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 Jan. 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.

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