Merck has sued the US over a law that gives the federal government the power to negotiate prices for some of the most expensive drugs, arguing that key parts of the legislation are unconstitutional and “amount to extortion”.
The U.S. drugmaker said Tuesday that reforms in the Inflation Reduction Act, a key part of President Joe Biden’s agenda to lower prescription drug costs, violate the First and Fifth Amendments to the U.S. Constitution.
“This is not a ‘negotiation’. It is tantamount to extortion. And it violates the Constitution in at least two obvious ways,” Merck said in a lawsuit.
The reforms have met fierce opposition from the pharmaceutical industry, which has warned they would hinder innovation and hinder the development of life-saving drugs.
Merck’s lawsuit is the first by a major pharmaceutical company, but analysts predict others will likely follow suit and sue the government ahead of full implementation of the law’s negotiating elements later this year.
Under the proposed reforms, Medicare, the US taxpayer-funded health care system for retirees, would be allowed to negotiate prices for a limited number of brand-name drugs. The process will begin in earnest in September, when the Centers for Medicare & Medicaid Services will identify 10 expensive drugs that will be the subject of negotiations.
More drugs will be added to this list in the coming years, a move that the Congressional Budget Office estimates will save billions over a decade.
Merck said in his lawsuit that the so-called “drug price negotiation program” was really a sham, because it involved no real “negotiation” or real agreements. The sole purpose of this arrangement was to allow Medicare to get prescription drugs without paying a fair market value, it said.
Once the government unilaterally selects a drug for inclusion in the program, the manufacturer is required to sign an agreement promising to sell the drug to Medicare beneficiaries at the “fair” price the agency prescribes. This must represent a discount of at least 25 percent to 60 percent and if a manufacturer refused to participate in this “negotiation” or refused to “agree” to sell at the imposed price, he was charged with a disastrous daily excise tax of a multiple of the drug’s daily revenues, Merck said.
Chris Meekins, an analyst at Raymond James & Associates, said Merck was the first but probably not the last major drugmaker to challenge the government.
“Obviously, if you’re talking about a policy that, based on Congressional Budget Bureau estimates, is likely to take $150 billion out of the pharmaceutical industry over the course of a decade, it was pretty clear that (the) industry would try to get that to stop.”
