December 3, 2023

Jakub Poldsky | NurPhoto | Getty Images

global drug maker Merck Suing the Biden administration on Tuesday to demand that Medicare give seniors new powers under the Reduce Inflation Act to slash drug prices is the opening line for the pharmaceutical industry to undercut the program.

In a scathing complaint filed in federal court in Washington, Merck denounced the negotiation process as “sham” and “amounts to racketeering.”

The drugmaker has accused the federal government of violating the Fifth Amendment with what it calls an unconstitutional program to use private property for public use without just compensation.

The Lower Inflation Act, which became law last summer, was a major victory for President Joe Biden and congressional Democrats, who have long pushed to give Medicare powers to combat rising drug prices.

The pharmaceutical industry strongly opposed the law, arguing it would stifle new drug development.

Merck said HHS forced the company to enter into an agreement that effectively mandated discounts of 25% to 60% on drug prices under the threat of a daily excise tax that was several times higher than the drug’s daily revenue.

Merck has asked a judge to block HHS from forcing the drugmaker to participate in the program.

“Under the IRA, the government would expropriate Merck’s patented drugs and transfer them to Medicare beneficiaries through forced sales,” the company’s legal team wrote in the complaint.

“Those forced sales, compelled by the threat of severe penalties that the government recognizes no manufacturer can rationally afford, would deprive Merck of possession and title to its personal property,” Merck’s lawyers wrote.

Merck also argues in its lawsuit that Medicare’s new price-negotiating powers violate the company’s First Amendment right to free speech. The drugmaker claimed the Lower Inflation Act forced companies to engage in “political deception,” describing the plan as a fair price negotiation.

“Conscripting companies to legitimize government racketeering is a parrot orthodoxy forbidden by the First Amendment doctrine of coercive speech,” Merck’s lawyers wrote.

AARP, an influential lobby group representing people over 50, said Medicare negotiations would save billions of dollars for seniors, many of whom cannot afford prescription drugs.

AARP’s top lobbyist, Bill Sweeney, accused the pharmaceutical industry of fighting to “pad the margins” as Americans face some of the highest drug prices in the world.

“Seniors and taxpayers are tired of being a piggy bank for Big Pharma’s profits,” Sweeney said in a statement Wednesday. “A lawsuit like this is just an attempt to keep profits high by defrauding older Americans.”

Under the Lower Inflation Act, HHS will select 10 drugs for the first round of price negotiations. These drugs will be the most expensive Medicare Part D drugs without generic competition.

Medicare Part D is the plan that covers the cost of drugs that seniors usually buy at the pharmacy.

The Centers for Medicare and Medicaid Services will release the list of drugs selected in the first round of negotiations on Sept. 1. Companies that make the drugs have an October deadline to sign up to participate in those talks.

Merck & Co said its type 2 diabetes drug Januvia would reach a negotiated deal this year. The drugmaker earned $2.8 billion in revenue from the drug last year, according to financial filings.

Merck also expects its blockbuster cancer immunotherapy drug Keytruda and its fellow diabetes drug Janumet to be subject to the plan in subsequent negotiation cycles. The drugmaker gets $21 billion in sales from Keytruda in 2022 and $1.7 billion from Janumet.

Keytruda accounted for 35% of Merck’s total revenue last year.

According to the schedule published by HHS, CMS will send the initial offer for the first round of price negotiations on February 1, 2024. The drugmaker has 30 days to accept the price or submit a counteroffer, according to the department.

According to the schedule, the negotiations will end on August 1, 2024, and China Medical System will announce a price reduction list in September of that year. Those prices will go into effect on January 1, 2026, according to HHS.

The program will be expanded in subsequent years to include Medicare Part B, which typically covers medications and treatments older adults cannot use at home on their own.

CNBC has reached out to HHS and the White House for comment.

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