Merck Sues Federal Government Over Medicare Drug Price Negotiation Program

On June 6, 2023, Merck & Co. filed a lawsuit against the U.S. government in federal court over the Inflation Reduction Act (IRA)’s Medicare drug price negotiation program, which allows Medicare to directly negotiate prices with drugmakers. The suit is the first attempt by a pharmaceutical company to challenge the IRA’s Medicare drug price negotiation program.

The Medicare negotiation program looks to save the government $25 billion annually by 2031 by empowering Medicare to negotiate drug prices with drugmakers. The first round of drug price negotiations is set to begin in September 2023, when the Centers for Medicare and Medicaid Services (CMS) will identify the 10 most costly drugs paid for by Medicare.  After a negotiation period with the pharmaceutical companies, reduced pricing will go into effect in 2026.  While the government has not yet announced the drugs that will be subject to the Medicare negotiations, Merck’s diabetes drug Januvia will likely be among the first 10 drugs that will be subject to the drug pricing negotiation program.[1]

In its filing with the U.S. District Court of the District of Washington D.C., Merck argues that the Medicare negotiation program “is not ‘negotiation’” but rather “is tantamount to extortion,” and that the price negotiation program violates Merck’s constitutional rights.[2] Merck alleges that the Medicare negotiation program amounts to an unconstitutional taking in violation of the Fifth Amendment, which prohibits the government from taking private property for public use without just compensation.[3] Merck argues that the severity of the penalties for non-agreement with the Medicare negotiation program will force drugmakers to sell their patented pharmaceutical products at a price set by the government.[4] Merck anticipates that under the IRA, refusal to negotiate for Januvia could incur penalties escalating from tens of millions of dollars per day to hundreds of millions of dollars per day.[5]

Merck also alleges that the Medicare negotiation program violates its First Amendment right to free speech by forcing it to enter into pricing agreements.[6] Merck argues that the IRA compels drug manufacturers to communicate that they agree to the price and that the price is fair.[7]

Drugmakers such as Merck have claimed that the Medicare pricing scheme will cause them to cut drug development research programs because of lost revenue under reduced prices.[8] Merck’s top-selling drug Keytruda, a cancer immunotherapy, will likely be subject to the Medicare drug pricing negotiations in subsequent rounds and could be subject to reduced pricing starting in 2028.[9] Keytruda represented a third of Merck’s total sales last year at over $20 billion, and Keytruda sales are expected top $30 billion in 2026.[10]