With the beginning of Medicare’s drug price reduction process set for September of this year, Merck & Co. sues the U.S. government in an attempt to bring this program to a halt… Under the Inflation Reduction Act of 2022 (IRA), which went into effect last August, the Centers for Medicare & Medicaid Services (CMS) must negotiate maximum prices for brand-name drugs that do not have other generic equivalents in an effort to lower prescription drug costs and healthcare costs for Americans. The drugs chosen for negotiation are among Medicare’s top 50 drugs with the highest total spending over the most recent 12-month period and have had market approval for at least 7 years (for drug products) or 11 years (for biologics). Manufacturers who fail to comply with negotiation requirements are subject to civil penalties.

Merck & Co. argues that this drug price negotiation program violates the company’s Fifth and First Amendment rights under the U.S. Constitution. The Takings Clause of the fifth amendment states that private property cannot be taken for public use, without just compensation.

Merck expresses that the government will be taking their patented products by forcing them to provide third parties with access to these products at steeply discounted prices without the company receiving “just compensation” in the form of the drug’s market value. Merck also goes on to say that the IRA is coercing manufacturers into these negotiations and agreements that are actually one-sided, making the public view them as willing participants in the agreed upon price.

They assert that the government will offer a discounted price that is at least 25% to 60% from the market-based price and while counteroffers are permitted, manufacturers are only able to cite R&D costs for the chosen drug, and not the costs incurred from researching drugs that never resulted in marketable products, taking away from the manufacturer’s ability to offset the cost of failure with their few successes. There is no promise that the CMS will take into account the manufacturer’s counteroffer in the final offer that is given to companies, thus minimizing the manufacturer’s negotiating power.

Additionally, Merck states that there is no way for them to not partake in this “draconian and deceptive scheme” because they would have to pay staggering penalties or terminate its Medicare Part D agreement which would take 11-23 months. This would mean that in order to avoid being penalized for a drug in this cycle, they would have had to terminate their Part D contract months prior to the enactment of the IRA. Merck claims this is “antithetical” to the First Amendment because they are made a “vehicle for spreading a message with which it disagrees.”

On September 1, 2023, CMS will release the 10 drugs chosen for negotiation and manufacturers will have 30 days to enter into agreements with CMS. Final negotiations are expected to end August 1, 2024 and these new drug prices will then go into effect in 2026. Merck’s type-2 diabetes drug, Januvia, is expected to be among the 10 chosen this year. Its cancer-drug, Keytruda, and another diabetes drug, Janumet, are expected to be chosen in later cycles.

"H.R.5376 - 117th Congress (2021-2022): Inflation Reduction Act of 2022." Congress.gov, Library of Congress, 16 August 2022, https://www.congress.gov/bill/117th-congress/house-bill/5376.

Works Cited:

https://www.merck.com/wp-content/uploads/sites/5/2023/06/Merck-Complaint.pdf