Federal court to consider Medicare drug price negotiations of the Inflation Reduction Act

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Pharmaceutical company Merck filed a lawsuit on Tuesday in US District Court for the District of Columbia against the US government with the goal of halting the Medicare drug price negotiation program included in the Inflation Reduction Act (IRA), claiming that it is in violation of the First and Fifth Amendments to the Constitution. The lawsuit was filed against the US Department of Health and Human Services (HHS), HHS Secretary Xavier Becerra, and Centers for Medicare and Medicaid Services (CMS) Administrator Chiquita Brooks-LaSure.

According to Reuters, this is the first attempt by a drugmaker to challenge the law, which the industry claims will “result in a loss of profits that will force them to pull back on developing groundbreaking new treatments.” The lawsuit argues that drugmakers would be forced to negotiate prices for drugs “at below market rates,” which Merck claims violates the Fifth Amendment requirement that the government pay just compensation for private property taken for public use.

In May, pharmaceutical companies began laying the groundwork to fight the pricing reform laid out in the IRA, according to an earlier report by Reuters. As part of this reform, HHS will select 10 drugs for a first round of price negotiations, a list that will include drugs that Medicare Part D has the highest spend for coverage, and that have no generic competition or alternative. After the drugs are announced, manufacturers must agree by October to participate in negotiations. Through this reform and the associated price negotiations, the Biden administration is aiming to save $25 billion by 2031, according to the earlier Reuters report.

Merck described these discussions with the CMS as coercive, indicating in the lawsuit that the negotiations are “tantamount to extortion,” according to a Reuters report. The suit also argues that the new law would force drugmakers to sign agreements that the negotiated prices are fair, which Merck claims is in violation of freedom of speech protections laid out in the First Amendment and alleges that the plan misclassifies the discussions as negotiations, describing the government’s role in the process as “[leaning] on drugmakers to provide steep discounts under tax threat,” according to reports by Reuters, the Associated Press and CNBC.

Although Merck is the only manufacturer so far to have filed a lawsuit, they are not the only manufacturer taking issue with the IRA. In November 2022, Bristol-Myers Squibb CEO Giovanni Caforio said that the company was reviewing its portfolio with the expectation that some drug development programs would be cancelled as a result of IRA reforms, according to the Financial Times, with cancer treatments hit the hardest, according to the Financial Times.

An Eli Lilly statement from December 2022 acknowledged the wins associated with the law – such as the $35 cap on insulin for Medicare patients, an initiative that the manufacturer “has been a strong and vocal supporter of” – while also highlighting the “highly detrimental impact” that other parts of the IRA would have on the discovery and development of small molecule therapies. “Small molecule medicines can be as difficult to discover and manufacture as biologics, if not more complex in many cases. The lack of parity between small molecules and biologics is likely to tip the drug development scales in a way that is bad for patient care and will likely have inadvertent health care spending consequences as well,” the statement noted, adding that small molecule treatments represent 40% of the company’s current portfolio—including a BCL2 inhibitor for certain blood cancers that was in early clinical stages before being discontinued “after careful assessment of the impact of this law on the program.”

White House spokeswoman Karine Jean-Pierre responded to the lawsuit on Tuesday. “Big Pharma regularly forces Americans to pay many times what they do customers in other countries for the exact same medicines. We are confident we will succeed in the courts. There is nothing in the Constitution that prevents Medicare from negotiating lower drug prices,” she said in the Reuters report.

Merck’s revenue from sitagliptin (Januvia)—a drug the company claims will be subject to Medicare price negotiations—reached $2.8 billion, while pembrolizumab (Keytruda) sales accounted for 35% of the company’s revenue in 2022.

The company is prepared to take the fight to the Supreme Court if needed, according to Merck spokesperson Robert Josephson, speaking to Politico.