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Major Pharmaceutical Industry Players Sue the U.S. Government Over Medicare Drug Price Negotiation

Pharmaceutical giant Merck recently sued the U.S. government in an attempt to block the drug price negotiation provision of the Inflation Reduction Act, which would essentially allow the government to set prices for certain Medicare-covered drugs. Bristol Myers Squibb, another pharmaceutical company, and The Pharmaceutical Research and Manufacturers of America (PhRMA), the leading lobbying group for the pharmaceutical industry, followed suit.

Image created by using resources from A Mokhtari, Merck, Wikipedia, and Wikipedia Commons

Healthcare policy is undoubtedly a contentious issue in the United States, with citizens often maintaining that they pay too much for drug products produced by the pharmaceutical industry. The government consistently grapples with ways to address the conflicting interests of consumers and private industry when it comes to the price of drugs. Most recently, the Biden Administration passed the Inflation Reduction Act, which aims to address a wide range of issues, from fighting inflation and lowering the nation’s deficit to mitigating carbon emissions and reducing healthcare costs.

As part of its numerous healthcare provisions, the Inflation Reduction Act gives the federal government the ability to negotiate prices of prescription drugs covered by Medicare, the federal health insurance program for Americans ages 65 and up. This program  would lower drug prices for individuals enrolled in Medicare and save the government billions of dollars on drug spending annually, while pharmaceutical companies would face significant financial burdens when negotiations result in prices below market rates. It is against this policy backdrop that Merck filed suit against the U.S. government on June 6, specifically naming the Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) in its complaint. 

Merck headquarters in Rahway, NJ

The drug price negotiation provision allows CMS to select a limited number of Medicare Part D (outpatient) and Part B (physician-administered) drugs and negotiate their prices, beginning with 10 Part D drugs for which the negotiated prices will take effect 2026. A list of these first 10 drugs is set to be released on September 1, and Merck expects its diabetes drug Januvia to be among them. Merck also expects its groundbreaking cancer treatment Keytruda to be subject to the program in a subsequent cycle. Keytruda sales made up 35% of Merck’s $59.3 billion total sales in 2022, putting Merck at risk for a significant financial hit if it were to become subject to price controls in the future.

Januvia, Merck’s top-selling diabetes drug

In its suit filed in the U.S. District Court for the District of Columbia, Merck claims the drug price negotiation provision is unconstitutional, calling it “tantamount to extortion”. The company cites the First Amendment, claiming that its freedom of speech is being violated because the drug price negotiation program doesn’t allow for any actual negotiation – instead, the government is going to take the company’s price for a given Medicare-covered drug and reduce it, and Merck has to convey agreement. Merck also cites the Fifth Amendment, and claims that the government is in violation of the takings clause, which prevents the government from taking private property for public use without just compensation. By coercing the company to offer certain drugs at government-set prices, Merck argues that the government is taking its private property for public consumption without offering fair compensation.

In a statement published on its website, Merck argues that in addition to its unconstitutionality, “this program will negatively impact biopharmaceutical innovation and the sector’s work to develop lifesaving and life-changing innovations.” A change in the incentives for pharmaceutical research and development would have potentially devastating effects on the millions of Americans who rely on the pharmaceutical industry’s development of a wide range of treatment options to combat pertinent health issues.

Merck scientists engaged in research and discovery efforts

Merck has signaled its commitment to take the lawsuit all the way to the Supreme Court if necessary. While its suit marked the first significant legal action against the drug price negotiation program on behalf of the pharmaceutical industry, Bristol Myers Squibb and PhRMA have since followed in Merck’s footsteps with lawsuits of their own.

On June 16, Bristol Myers Squibb filed a suit in the U.S District Court for the District of New Jersey that mirror’s Merck’s arguments, citing both the First and Fifth Amendments. The pharmaceutical company believes that its blood thinner Eliquis will be among the 10 drugs subject to negotiations this year. Eliquis contributed to 25% of the company’s $46.2 billion total revenue in 2022, and being subject to government-set prices would evidently pose a significant financial threat, similarly to Merck’s situation with Keytruda.

Bristol Myers Squibb’s logo

On June 21, PhRMA, a lobbying group that represents numerous leading pharmaceutical companies including Merck and Bristol Myers Squibb, filed its own suit against the U.S. government in a federal court in Texas. The group argues that the drug price negotiation program violates the separation of powers and due process clauses of the constitution because it does not allow for checks and balances through public feedback and prevents administrative and judicial review. PhRMA also cites a violation of the Eighth Amendment in their suit, since pharmaceutical companies will be required to pay an excessive fine if they don’t accept the price set through drug price negotiation.

Taken together, the lawsuits filed by Merck, Bristol Myers Squibb, and PhRMA highlight the degree to which the pharmaceutical industry anticipates to be hurt financially by the drug price negotiation of Medicare drugs. It is likely to be an uphill battle, however, to prove the program’s unconstitutionality. In reacting to the numerous suits, the Biden Administration has maintained that Medicare negotiation of drug prices is not prevented by the Constitution, with White House press secretary Karine Jean-Pierre slamming the pharmaceutical industry for “amassing ‘record profits’” while charging “‘middle-class families astronomical prices.’” The Secretary of the Department of Health and Human Services, Xavier Becerra, spoke on behalf of those named in the suit, holding that “the law is on our side”. Robin Feldman, a professor of law at UCSF, acknowledged that while those who have filed suits will face a challenge, issues in this realm are largely undecided thus far.

Xavier Becerra, Secretary of the Department of Health and Human Services

David Mitchell, founder of the advocacy group Patients for Affordable Drugs Now, offered his own input on the situation, arguing that drug price negotiation is necessary for the benefit of Americans who pay too much for life-saving treatments. He claims that contrary to Merck’s view that drug price negotiation extorts its business, “Big Pharma companies like Merck are the ones who have been extorting patients for years, forcing them to pay unjustified prices or sacrifice their health,” and argues that “the framework laid out by Medicare for negotiation will actually incentivize innovation because the government will pay more for more innovative products by centering the clinical value of a drug in the negotiation process.” It remains to be seen how these various suits will play out, with Merck, Bristol Myers Squibb, and PhRMA vehemently defending their position that progress is at risk against critics like Mitchell.

Tensions are evidently running high between the need for innovation in the pharmaceutical industry and the need for cheaper drugs for Americans. In the months to come, the development of the Merck, Bristol Myers Squibb, and PhRMA lawsuits will be followed by major stakeholders in the realm of healthcare policy. Whatever the outcome may be will undoubtedly have major implications for the pharmaceutical industry, those who are enrolled in Medicare, as well as the state of healthcare policy in the U.S., specifically regarding the pricing of drugs.

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