Merck Sues Over Medicare Drug-Price Negotiation Law

The pharmaceutical company Merck sued the government on Tuesday over a federal law that empowers Medicare for the first time to negotiate prices directly with drugmakers.

Merck’s lawsuit, filed in federal court in Washington, is the drug industry’s most significant move so far to fight back against a substantial change to health policy, which will go into effect in 2026. Democrats pushed through the Medicare-negotiation program last summer as a provision of the Inflation Reduction Act, framing it as a way of lowering drug prices.

Only some drugs will be subject to negotiation with Medicare and only after they have been on the market without competition for years. But Merck, which generated $14.5 billion in profit last year, claimed in a statement on Tuesday that the law would stifle the ability of it and its peers to make risky investments in new cures.

Other drug companies have suggested that they will choose to cut certain drug development programs because of the projected dent to their revenue. Several have already said they were reassessing their research plans.

Merck said it was seeking a court order or another legal remedy that could exempt Merck from having to participate in the negotiation program.

Xavier Becerra, the secretary of health and human services, said in a statement that the Biden administration would “vigorously defend” the law. “The law is on our side,” he said.

In the complaint filed on Tuesday, Merck’s lawyers at the law firm Jones Day claim that the Medicare-negotiation program is unconstitutional. They say the program would coerce Merck to provide its products at government-set prices, violating a clause of the Fifth Amendment that prohibits the government from taking private property for public use without just compensation. They also claim that the program would violate Merck’s free-speech rights by coercing the company to sign an agreement it did not agree with upon the conclusion of the negotiation.

But several experts who study the industry said the constitutionality arguments were weak and would face an uphill battle in court.

“What Merck argues is ‘coercion’ is actually the establishment of a freer, more rational marketplace” that will address a crucial root cause of high drug prices, said Dr. Ameet Sarpatwari, an expert in pharmaceutical policy at Harvard Medical School.

Experts noted that the negotiation process gave drugmakers leeway to reject Medicare’s final offer and walk away without a deal if they were not happy, subject to a tax. But Merck’s lawsuit said that for one of the company’s drugs, the tax for refusing an offer could amount to tens of millions of dollars on the first day and rise to hundreds of millions daily after a few months.

In September, the government plans to announce the first 10 drugs that will be subject to negotiation in 2026. A widely used Merck drug for diabetes, Januvia, is likely to be on that list.

The program could also affect Merck’s long-term plans for its golden goose, the blockbuster cancer drug Keytruda. It could be among the first products targeted when negotiations begin in 2028 on drugs administered in a health care setting.

The current version of Keytruda, administered as an infusion, will face its first competition that same year, so its sales are expected to erode regardless of whether the program targets it. But Merck had been expecting to bring in significant revenue from a new formulation of Keytruda it is developing that can be more easily given under the skin. That could be subject to negotiation, too, under the government’s plans for the program.

Sheryl Gay Stolberg contributed reporting.