Arguing that the measure is unconstitutional, Merck has become the first Big Pharma company to sue the Department of Health and Human Services (HHS) over the Medicare drug pricing negotiation provision included in the Inflation Reduction Act.
In its lawsuit, Merck asserted that the provision “is not negotiation” and is “tantamount to extortion.”
Passed one year ago, the Inflation Reduction Act gave Medicare the power to decide the cost of certain expensive drugs covered under Part D. Starting in September of this year, Medicare will choose the first 10 drugs for the program, with the lowered prices officially taking effect in 2026.
Now comes the time — the in-between period of the law being passed and the actual implementation of it — during which the pharma industry will aim to challenge some of the not-fully-decided details.
“The program’s name suggests a framework under which federal officials sit down with prescription drug manufacturers and negotiate voluntary price agreements,” the lawsuit states. “In reality, however, this ‘Drug Price Negotiation Program’ is a sham.”
Zachary Baron, associate director of the Health Policy and the Law Initiative at the O’Neill Institute, noted that Merck’s lawsuit was expected. With the Medicare pricing negotiation program expected to save the federal government billions of dollars, industry players are looking for ways to mitigate or cut into those savings.
“For months, the pharma industry has hinted that there would be litigation with respect to the Inflation Reduction Act’s program — so that shouldn’t be all that surprising,” Baron said. “After any major new piece of healthcare legislation, there are always lawsuits, particularly from industry.”
It’s just the beginning of what will likely be a wide range of industry legal attacks on Medicare’s new negotiating power. “My expectation is that there will continue to be additional lawsuits brought by other companies, trade associations, and other allied groups to pursue other legal theories and claims,” Baron said.
Merck clearly hopes to halt the price negotiation program from going into effect, according to Meena Datta, partner and global co-lead of the healthcare practice at law firm Sidley Austin.
“It appears the goal is to invalidate the program,” she said.
Merck’s legal argument centers around two points. The lawsuit references the Takings Clause of the Fifth Amendment, which requires that the government must pay “just compensation” if private property is taken for public use. Merck’s second claim is that the drug pricing provision “makes a mockery of the First Amendment,” suggesting that the use of the term “negotiation” is inaccurate and a form of “political deception.”
“Conscripting companies to legitimize government extortion is the sort of parroted orthodoxy that the First Amendment’s compelled-speech doctrine forbids,” the lawsuit states.
Merck’s lawsuit is the latest in a long line of industry attempts to fight drug pricing reform. Industry lobbying group Pharmaceutical Research and Manufacturers of America (PhRMA), for example, has invested in anti-pricing regulation campaigns and waged its own legal attacks.
A longtime industry argument has been that drug pricing regulation would hinder research and innovation by cutting into Big Pharma’s profits. In this instance, Merck is essentially arguing that lowered prices set by Medicare would be unfair to their business.
“From the industry perspective, companies do not believe the price as determined under the [Medicare negotiation] program is fair,” Datta explained. “Likewise, the fact that it’s labeled a ‘price negotiation program’ when one party has no say or leverage in determining what that final maximum price would be means that it’s not a negotiation. To require that the program is labeled as such is another part of [Merck’s] argument.”
But whether the Fifth Amendment argument will hold any weight is another question. Robin Feldman, a law professor at the UC College of the Law, San Francisco, noted by email that Merck will “have a heavy lift to convince the courts these words apply.”
“The state is acting as a purchaser for Medicare,” she continued. “If the state can decide what it is willing to spend on a pencil or a desk, why not for prescription drugs?”
Baron notes that, in general, courts have been skeptical of aggressive Taking Clause arguments in the healthcare and pharma contexts. “It’s hard to make predictions in terms of where this could go, but I would suspect that those arguments, [giving existing precedent], won’t find too welcome ears from the initial judges,” he said.
Feldman agrees, pointing out that companies like Merck could avoid Medicare penalties by choosing to not sell their drugs to the program. “Unlike a tax, the company can choose to take its business elsewhere.”
While it’s unclear whether Merck’s case will advance through the lower courts, it could still ultimately find its way to the Supreme Court, Feldman said. If that occurs, there could be some far-reaching legal implications. “Specifically, applying the Takings Clause [of the Fifth Amendment] to [drug] patents would be like the shot heard round the world,” Feldman wrote.
Baron has adopted a wait-and-see approach, warning that “it’s always hard to predict the twists and turns in litigation.” But it seems likely that industry players will file lawsuits in multiple jurisdictions throughout the nation over the course of the next year, taking aim at different angles of the Medicare provision.
Not all are convinced by Merck’s lawsuit, however. On Thursday, Merck shareholders who are part of the corporate responsibility lobbying group Interfaith Center on Corporate Responsibility released a statement against the lawsuit. They noted that, up until now, the pricing strategies of drugmakers have been “largely one-sided.”
“This common-sense legislation [the Inflation Reduction Act], with considerable bipartisan support, has long been needed to bring balance to the way drug prices are set in the U.S.,” said Christina Dorett, a shareholder advocate at the Seventh Generation Interfaith Coalition. “We find it rich that Merck’s lawsuit characterizes these provisions as ‘unconstitutional and extortionist’ – a great example of the pot calling the kettle black.”
