The pharmaceutical giant Merck on Tuesday filed a lawsuit against the Biden administration over a federal law that will allow Medicare to negotiate prices directly with drugmakers in order to lower drug costs for millions of American seniors.
Merck’s lawsuit, filed in federal court in Washington, D.C., comes less than a year after Democrats passed the Medicare drug negotiation program as part of the Inflation Reduction Act. Under the law, beginning in 2026, a handful of drugs will be subject to negotiation with Medicare, but only after they have been on the market for years without any generic competition.
Januvia, a common Merck drug used to treat type 2 diabetes, is expected to be on that list. The drug can cost consumers over $6,000 a year and Merck made $2.8 billion in revenue from Januvia in 2022.
Despite the modest nature of the reform, Merck—which made $59.3 billion in revenue and $14.5 billion in profits in 2022—argued Tuesday that the law would somehow restrict its ability to invest in new cures and treatments.
The company said it was asking a judge to block the U.S. Department of Health and Human Services (HHS) from requiring Merck to participate in the program.
Merck’s lawyers at the law firm Jones Day claim the program violates the company’s free speech rights and is unconstitutional because it would compel the company to provide its products at prices set by the government, which they argue violates a clause of the Fifth Amendment.
In reality, the price is set as the result of a negotiation and the law gives drugmakers a chance to reject Medicare’s final offer and walk away without a deal by paying a tax. The company argues that tax is “draconian” and would thus “deprive Merck of possession and title to its personal property,” even though the negotiation measure would only apply to the cost of the drug for seniors on Medicare and not the entire population.
“The reality is, drug corporations that are subject to Medicare’s new authority – and who already negotiate with every other high income country in the world – will engage in a negotiation process after setting their own launch prices and enjoying nine years or more of monopoly profits,” David Mitchell, a cancer patient and founder of Patients For Affordable Drugs Now, said in a statement.
“Contrary to the lawsuit’s claims, the framework laid out by Medicare for negotiation will actually incentivize innovation because the government will pay more for more innovative products by centering the clinical value of a drug in the negotiation process,” Mitchell added.
The measure is just one of several components of the Inflation Reduction Act that seeks to lower the cost of drugs for Americans, who pay more for medication than residents of any other country.
The lawsuit comes as the federal government plans to announce the first 10 drugs that will be subject to negotiation in 2026 this September. These drugs will be among the ones that Medicare spends the most on and that have no generic version.
In addition to Januvia, the company also expects its cancer drug Keytruda—which can cost patients over $150,000 a year in the U.S.—and another diabetes drug Janumet to be subject to the program in future years. As CNBC reported, Merck booked $21 billion in sales from Keytruda in 2022 and $1.7 billion in sales from Janumet.
In response to the lawsuit, the Biden administration made clear it planned to defend itself and the law.
“We’ll vigorously defend the President’s drug price negotiation law, which is already lowering health care costs for seniors and people with disabilities,” HHS Secretary Xavier Becerra said in a statement. “The law is on our side.”
Healthcare and prescription drug advocates were less measured in their response, taking Merck to task over the lawsuit.
“While Americans are cutting pills and skipping doses, Merck is suing the federal government to protect their ability to overcharge seniors and taxpayers to pad their sky-high profits,” Brad Woodhouse, executive director of Protect Our Care, said in a statement. “Big Pharma’s greed knows no bounds.”
Mitchell was similarly scathing and predicted the lawsuit would fail.
“We believe that courts will see Merck’s lawsuit for what it is: a meritless attempt to maintain its ability to unilaterally set prices that are untethered to quality at the expense of patients,” he said. “The truth is, implementation of Medicare negotiation is a desperately needed, long-awaited rebalancing of our drug price system that will help millions of patients obtain the medications they need at prices they can afford while ensuring continued innovation.”