Merck Sues Biden Administration Over ‘Sham’ Drug Price Negotiation Program

Merck & Co. filed a lawsuit against the U.S. government on June 6, saying that Medicare’s new program, established under the Inflation Reduction Act (IRA), is a “sham” that violates the First and Fifth Amendments of the U.S. Constitution. President Joe Biden signed the IRA into law in August of last year, allowing Medicare to directly negotiate pricing for certain expensive drugs. The lawsuit, filed in the U.S. District Court for the District of Columbia, however, argues that the new program is a “sham” as it grants the Department of Health and Human Services (HHS) too much power to impose its preferred price. “It involves neither genuine ‘negotiations’ nor real ‘agreements.’ Rather, once HHS unilaterally selects a drug for inclusion in the program, its manufacturer is compelled to sign an ‘agreement’ promising to sell the drug to Medicare beneficiaries at whatever ‘fair’ price the agency dictates,” according to the court filing. The IRA mandates the U.S. government to negotiate prices for specific prescription drugs beginning in 2026 as part of the “Drug Price Negotiation Program” for Medicare. Any drugmaker that fails to comply with negotiation requirements is subject to excise taxes and civil penalties. Through these negotiations, the Biden administration has promised to save $25 billion annually by 2031. Using these severe penalties, drug companies are being forced into “political Kabuki theater,” Merck argued. The drug company said that requiring companies to sign voluntary agreements to concede that the prices are fair violates the First Amendment’s protections for free speech. Merck also argued that the Fifth Amendment obliges the federal government to provide “just compensation” when taking property. Merck contended that Medicare is seeking to obtain prescription drugs without paying fair market value. This is the first time a drugmaker is trying to challenge the law, and more are anticipated to follow suit. Merck filed the lawsuit against the HHS and the Centers for Medicare and Medicaid Services (CMS), as well as HHS Secretary Xavier Becerra and CMS Administrator Chiquita Brooks-LaSure. Becerra reacted to the lawsuit on Twitter. “We’ll vigorously defend the President’s drug price negotiation law, which is already lowering health care costs for seniors and people with disabilities,” he wrote on June 6. “The law is on our side.” Secretary of the Department of Health and Human Services Xavier Becerra speaks in Orange, Calif., on March 9, 2022. ‘Drugs Are Not Sodas or Jeans’ The lawsuit was expected, given previous signals from the pharmaceutical industry that it intended to sue the federal government for not complying with the Constitution. According to Kirsten Axelson, a nonresident fellow at the American Enterprise Institute, the IRA significantly increased the government’s power over drug and insurance companies. “The IRA requires biopharmaceutical companies to submit a long list of information so CMS can set a ‘fair price,'” she argued in a report in April. “However, much of the information they are required to submit has no reason to be considered in establishing a price for a drug, but rather, it was included for popular support, such as the information about the cost to make the drug. Drugs are not sodas or jeans, they are not priced based on cost of goods.” While the Biden administration’s approach is a “politically appealing crowd pleaser,” Axelson argued that setting prices in this manner is a losing strategy for drug development and health. White House press secretary Karine Jean-Pierre criticized “Big Pharma” for trying to stop the president’s “historic action.” “For decades, the pharma lobby has blocked efforts to let Medicare negotiate lower drug costs,” she said during a press briefing on June 6. “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,” she said.

Merck Sues Biden Administration Over ‘Sham’ Drug Price Negotiation Program

Merck & Co. filed a lawsuit against the U.S. government on June 6, saying that Medicare’s new program, established under the Inflation Reduction Act (IRA), is a “sham” that violates the First and Fifth Amendments of the U.S. Constitution.

President Joe Biden signed the IRA into law in August of last year, allowing Medicare to directly negotiate pricing for certain expensive drugs.

The lawsuit, filed in the U.S. District Court for the District of Columbia, however, argues that the new program is a “sham” as it grants the Department of Health and Human Services (HHS) too much power to impose its preferred price.

“It involves neither genuine ‘negotiations’ nor real ‘agreements.’ Rather, once HHS unilaterally selects a drug for inclusion in the program, its manufacturer is compelled to sign an ‘agreement’ promising to sell the drug to Medicare beneficiaries at whatever ‘fair’ price the agency dictates,” according to the court filing.

The IRA mandates the U.S. government to negotiate prices for specific prescription drugs beginning in 2026 as part of the “Drug Price Negotiation Program” for Medicare. Any drugmaker that fails to comply with negotiation requirements is subject to excise taxes and civil penalties.

Through these negotiations, the Biden administration has promised to save $25 billion annually by 2031.

Using these severe penalties, drug companies are being forced into “political Kabuki theater,” Merck argued.

The drug company said that requiring companies to sign voluntary agreements to concede that the prices are fair violates the First Amendment’s protections for free speech.

Merck also argued that the Fifth Amendment obliges the federal government to provide “just compensation” when taking property. Merck contended that Medicare is seeking to obtain prescription drugs without paying fair market value.

This is the first time a drugmaker is trying to challenge the law, and more are anticipated to follow suit.

Merck filed the lawsuit against the HHS and the Centers for Medicare and Medicaid Services (CMS), as well as HHS Secretary Xavier Becerra and CMS Administrator Chiquita Brooks-LaSure.

Becerra reacted to the lawsuit on Twitter.

“We’ll vigorously defend the President’s drug price negotiation law, which is already lowering health care costs for seniors and people with disabilities,” he wrote on June 6. “The law is on our side.”

Secretary of the Department of Health and Human Services Xavier Becerra speaks in Orange, Calif., on March 9, 2022. 

‘Drugs Are Not Sodas or Jeans’

The lawsuit was expected, given previous signals from the pharmaceutical industry that it intended to sue the federal government for not complying with the Constitution.

According to Kirsten Axelson, a nonresident fellow at the American Enterprise Institute, the IRA significantly increased the government’s power over drug and insurance companies.

“The IRA requires biopharmaceutical companies to submit a long list of information so CMS can set a ‘fair price,'” she argued in a report in April. “However, much of the information they are required to submit has no reason to be considered in establishing a price for a drug, but rather, it was included for popular support, such as the information about the cost to make the drug. Drugs are not sodas or jeans, they are not priced based on cost of goods.”

While the Biden administration’s approach is a “politically appealing crowd pleaser,” Axelson argued that setting prices in this manner is a losing strategy for drug development and health.

White House press secretary Karine Jean-Pierre criticized “Big Pharma” for trying to stop the president’s “historic action.”

“For decades, the pharma lobby has blocked efforts to let Medicare negotiate lower drug costs,” she said during a press briefing on June 6.

“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,” she said.