‘Tantamount To Extortion’: Merck Sues U.S. Government Over Medicare Negotiation Program

Merck on Tuesday sued to stop the federal government from implementing a new Medicare drug price negotiation program.

Merck called the negotiation process that Democrats designed in a law last August “a sham,” arguing that the federal government “dictates” prices.

The company argues in the lawsuit that the Inflation Reduction Act is unconstitutional for two reasons. The first is because the law allows the government to force drugmakers to sell their property without “just compensation,” which the company argues violates the Fifth Amendment.

Merck says the government would effectively be “taking” its drugs because of the sheer size of the penalties the company could incur if it decides not to participate in negotiations. It estimates that the fines for its first day of resistance for one drug alone could amount to “tens of millions of dollars.”

The drugs themselves are property that the government would be taking, Merck contends, but they are also patented, which makes them “doubly protected.” However, the law does not allow generic and biosimilar manufacturers to begin making a drug, which would be the case if a patent were actually invalidated.

That argument related to intellectual property is untested. The Supreme Court has avoided directly ruling on whether a patent like the one drugmakers hold qualifies as protected private property, and it would be a big deal if the justices actually decided the issue.

“Applying the Takings Clause to patents would be like the shot heard ’round the world,” said Robin Feldman, a law professor at the University of California, Hastings, shortly after the law passed. Feldman said on Tuesday that she views the case as a likely candidate to head to the Supreme Court.

But even if the government isn’t “taking” a patent itself, it could potentially cause it to decrease in value significantly, which could be considered the government taking a company’s property, the Congressional Research Service analysts wrote in a 2019 report on an earlier draft of the drug price negotiation law.

A government program demanding discounts from drugmakers isn’t unprecedented, as the Department of Veterans Affairs bargains with drugmakers and pays much lower drug prices than Medicare.

The second reason the law is unconstitutional, according to Merck, centers on the government’s pitch that the program is essentially a voluntary agreement between Medicare and a drug company, to a fair price. That idea, Merck argues, violates the compelled speech doctrine of the First Amendment. By agreeing that a negotiated price with the government is “fair,” a company would implicitly be saying that market prices charged to every other population are unfair, Merck writes.

“This is not ‘negotiation.’ It is tantamount to extortion,” the company writes.

The only way for companies to avoid the negotiation program is by withdrawing all of its medicines from the Medicare and Medicaid programs.

“No rational manufacturer could simply withdraw from half of the U.S. prescription drug market, leaving tens of millions of patients without their medicines,” Merck writes.

Merck asked for the court to stop the federal government from forcing the company to sign a contract to agree to prices through the Medicare negotiation program. The lawsuit is expected to be filed in the U.S. District Court for the District of Columbia.

“We are confident we will succeed in the courts: there is nothing in the Constitution that prevents Medicare from negotiating lower drug prices,” said White House Press Secretary Karine Jean-Pierre.

Medicare is supposed to choose the first drugs to be selected for the program by Sept. 1. Merck’s diabetes drug Januvia is a potential candidate for the negotiation program’s first cycle, and its diabetes treatment Janumet and cancer blockbuster Keytruda could be eligible in the near future.

Rick Weissenstein, an analyst with TD Cowen, told investors that he believes the Merck lawsuit is only the beginning of a “barrage” of litigation by drugmakers, and that it’s likely the process could delay the start date for the negotiation timeline.

However, Erik Gordon, a clinical professor at the University of Michigan’s business school and a former law professor, said that there are “better odds that Elizabeth Holmes wins Medtech Innovator of the Year than that Merck wins its lawsuit.”


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