When the Inflation Reduction Act passed last year, it included the Medicare Drug Price Negotiation Program, giving Medicare for the first time the ability to directly negotiate drug prices with manufacturers.
This provision is expected to lower drug costs. Negotiations are set to occur throughout 2023 and 2024, and the effects of these agreements are expected to be seen beginning in 2026.
“In reality, however, this ‘Drug Price Negotiation Program’ is a sham,” Merck said in the lawsuit filed on Tuesday in a federal court in Washington, DC. In the complaint, it calls the negotiations “extortion” because companies can face penalties if they refuse to negotiate with the Department of Health and Human Services (HHS), which manages Medicare.
“It involves neither genuine ‘negotiations’ nor real ‘agreements.’ Rather, once HHS unilaterally selects a drug for inclusion in the program, its manufacturer is compelled to sign an ‘agreement’ promising to sell the drug to Medicare beneficiaries at whatever ‘fair’ price the agency dictates, which must represent at least a 25% to 60% discount,” the company said.
They argue that the program violates the Fifth Amendment, which protects against the government seizure of private property “without just compensation,” because Medicare is seeking to obtain products for less than “fair market value.”
In a response posted to Twitter on Tuesday, HHS Secretary Xavier Becerra said the Biden administration would “vigorously defend the President’s drug price negotiation law, which is already lowering health care costs for seniors and people with disabilities. The law is on our side.”
The 2022 law was passed as the nation was gripped by its worst inflation in four decades, which helped drive the costs of numerous daily commodities skyward, from fuel to food and rent. However, the problem of high drug costs is much older, and several US presidents have each pledged to tackle the chronic problem, including former US President Barack Obama, who in 2009 secured passage of the Affordable Care Act (ACA), the massive health care overhaul better known as Obamacare. His predecessor, George W. Bush, created Medicare Part D to specifically manage the problem for elderly Americans.
Merck also has an insulin drug, Januvia, that is expected to be on the list of 10 drugs that HHS will start negotiations over the price of, which will be released in September. Another of its medications, the cancer treatment Keytruda, could also be on the list.
Merck reported in April that it had made $14.5 billion in sales in the first quarter of 2023, driven up by sales of Keytruda, on which Merck made $5.6 billion in sales, and Gardasil, a vaccine for human papillomavirus (HPV), on which it made $2 billion in sales.
Overall, Merck said it expects between $57.7 billion and $58.9 billion in sales this year, and $6.71 billion in earnings before interest, taxes, depreciation and amortization (EBITDA).