Pharmaceutical powerhouse Merck has lobbed a major lawsuit against the federal government over its plan to force manufacturers of the most expensive drugs to slash prices.
The negotiation provision was part of last year’s major legislation, the Inflation Reduction Act, and compels companies to negotiate price cuts on some of the most costly medications with Medicare, the government-run healthcare program for seniors 65 and older.
Merck, which expects its diabetes drug Januvia to be among the first tranche of 10 drugs whose prices will be debated, has equated the law with ‘extortion,’ adding that it violates the company’s First and Fifth Amendment rights.
President Biden’s secretary for the Department of Health and Human Services, Xavier Becerra, said that he and the government’s team of lawyers will fight ‘vigorously’ to defend the drug pricing provision, which will levy financial penalties against companies that refuse to meet at the negotiating table.
This is the first legal challenge to be foisted against the government over the rule. It is expected to be one of many, signaling that the industry is poised to fight tooth and nail against price cuts that it argues will hamper innovation.
Merck’s diabetes drug Januvia is expected to be among the 10 costly drugs subject to price negotiations with the federal government, a move that pharmaceutical companies have fought against for years as it would impact their bottom lines
The graph shows that Merck’s blockbuster drug Keytruda has been a major cash cow and is consistently earning the company more money, accruing billions in sales in a single quarter
Merck argued in the lawsuit: ‘This ‘Drug Price Negotiation Program’ is a sham… If a manufacturer refuses to participate in this ‘negotiation’ or declines to ‘agree’ to sell at the mandated price, it incurs a ruinous daily excise tax amounting to multiples of the drug’s daily revenues.
‘This is not ‘negotiation.’ It is tantamount to extortion. And it violates the Constitution in at least two obvious respects.’
The company accused the federal government of infringing upon its First Amendment rights by compelling it to participate in a ‘facade of negotiations and agreements’ that are not agreements at all because Merck would never sign those contracts voluntarily.
The complaint goes on to read: ‘Conscripting companies to legitimize government extortion is the sort of parroted orthodoxy that the First Amendment’s compelled-speech doctrine forbids.’
Merck also alleges that the government has stepped on its Fifth Amendment protection against the government from taking and selling their private property – the formulations for their drugs – without ‘just compensation’.
The company adds: ‘The Act costumes these seizures as ‘sales’ by forcing manufacturers to accept Government-dictated payments that represent a fraction of the drugs’ fair value.
‘By definition—and by design—that is not ‘just compensation.’ Requisitioning manufacturers’ medicines in this manner is instead a classic per se taking.’
Legal experts have cast doubt on the strength of Merck’s case.
Ameet Sarpatwari, a lawyer and professor at Harvard Medical School, told Reuters: ‘The government is not coercing Merck. It is exercising its rights and responsibility to negotiate on behalf of seniors and taxpayers the prices of a small number of drugs that have already been on the market for several years.’
In September, the government will announce the first 10 drugs to be subject to negotiation starting in 2026. The negotiation provision gives Medicare the authority to select the drugs that cost the government the most to cover.
Merck’s diabetes drug Januvia is a top contender for the first round of picks with a cost to Medicare of about $4 billion in 2020 alone, alongside the blood thinners Eliquis and Xarelto, which cost the federal government nearly $10 billion and $5 billion to cover, respectively.
Merck’s other top earners Janumet and the cancer blockbuster Keytruda – which has a list price of about $175,000 per patient per year – are expected to be eligible for negotiations as soon as 2028.
Advocates for the price negotiations mechanism, including the progressive Vermont Sen Bernie Sanders, an independent who caucuses with Democrats, blasted Merck for price gouging.
Sen Sanders said: ‘Merck wants to end Medicare’s ability to negotiate some drug prices. Here’s why. Its diabetes drug, Januvia, costs $6,600 a year in the US, but just $192 in France. Its cancer drug, Keytruda, costs $187,000 in the US, but just $87,000 in Germany.’
Meanwhile, Democratic Representative Frank Pallone, who heads up the House Energy and Commerce Committee, called the lawsuit ‘outrageous’.
Rep Pallone, whose committee has jurisdiction over health matters, said: ‘Empowering Medicare to negotiate fair prescription drug prices for seniors is not only plainly constitutional, but it’s also necessary if life-saving drugs are to continue to be available to all Americans.
‘The only rights that are being violated here are those of the American people who have been getting ripped off by Big Pharma companies like Merck for years.’
The problem of sky-high prescription drug prices is uniquely American similar to gun violence and medical debt. Americans pay roughly two to six times what the rest of the industrialized world pays for the same prescription medications despite having similar personal incomes.
Unlike most peer nations, the US government leaves pricing up to market competition. Certain brand-name drugs have exclusivity, meaning the manufacturer can keep them on the market for a set number of years without its bottom line being threatened by comparable generic medications entering the scene.
Without competing generics and biosimilars on the market, drugmakers can hike up the prices to astronomical levels, translating to higher out-of-pocket costs for the patient.
In the end, Americans spend an average of about $164 out of pocket on prescription drugs. Meanwhile, Germans pay about $55, the Japanese pay about $94, and people in the UK pay $12.
The pharmaceutical industry and many Republicans maintain that allowing Medicare to put downward pressure on prices could be a death knell for innovation, as the financial incentive for developing the next game-changing drug would disappear.
The Biden administration is gearing up for a fight. White House press secretary Karine Jean-Pierre told reporters that officials are ‘confident we will succeed.’
Ms Jean-Pierre added: ‘Anytime profits of the pharmaceutical industry are challenged, they make claims about it hindering their ability to innovate. Not only are these arguments untrue, but the American people do not buy them.’