Merck Suit Poised to Send Biden Drug Price Law to Supreme Court

Merck is facing an uphill battle arguing that it’s being forced into negotiations with the federal government, drug pricing analysts say following the company’s challenge to President Joe Biden’s landmark drug pricing law.

Merck, whose diabetes medication and cancer immunotherapy take up a large chunk of Medicare spending, filed a lawsuit Tuesday arguing the drug price negotiation process outlined in the Inflation Reduction Act is a “sham” that allows the government to unilaterally impose its preferred price.

But Medicare is a voluntary program, and the law provides options for brand-name drugs to avoid government negotiations, including by allowing generic or biosimilar competition, researchers and analysts say.

Yet observers also predict that challenges to the law will continue to mount as the Biden administration’s Centers for Medicare & Medicaid Services readies to negotiate the prices of some of the drugs it spends the most on for the first time, likely forcing the dispute all the way to the US Supreme Court.

That has implications for the federal government’s ability to negotiate, and for Biden’s desire to expand the number of drugs eligible for negotiation.

The administration has touted the law, which the Congressional Budget Office has estimated will save Medicare roughly $100 billion over 10 years, as a groundbreaking measure to lower health-care costs. But industry has argued since the law’s passage last year that it will hinder future drug development and will have minimal impact on what patients pay for prescriptions.

“It is almost impossible to overstate how important the outcome will be for the future of Medicare’s ability to regulate drug prices,” said Benedic Ippolito, senior fellow in economic policy studies at the American Enterprise Institute.

“The possible outcomes could range from Medicare retaining the ability to set prices with little recourse for drug makers, to Medicare having nearly no leverage to affect prices,” he said.

Constitutional Contest

Filed in the US District Court for the District of Columbia, Merck’s lawsuit alleges that the government’s forcing the company to sell its products at government-determined prices amounts to coercion, violating the Fifth Amendment of the US Constitution.

The company also claims the government “compels speech” into “becoming mouthpieces for the Government’s public-relations campaign,” thus violating the First Amendment as well.

These constitutional claims are already drawing fire from critics. In a statement, Robert Weissman, president of the consumer advocacy group Public Citizen, frames Merck’s argument as “claiming the U.S. constitution requires the U.S. government and people to be suckers.”

“There’s no Sucker Clause in the 1st Amendment, 5th Amendment, or anywhere else in the Constitution,” Weissman said.

That doesn’t mean the lawsuit doesn’t have legs.

“Key issues” in the Fifth Amendment’s Takings Clause—under which Merck’s suit was filed—"are undecided and the case is likely headed to the Supreme Court,” said Robin Feldman, a law professor at the University of California College of Law, San Francisco.

Merck argues in its lawsuit that its patented drugs are “protected from uncompensated takings” under the Takings Clause. This part of the Fifth Amendment states that private property can’t be taken for public use without proper compensation.

“Patented pharmaceuticals are undoubtedly ‘private property’ under the Takings Clause,” Merck said.

But in Feldman’s view, “the notion that patents might be property” for the Takings Clause “is deeply problematic.”

Merck’s argument “centers on this notion that negotiation is a mandate, which is really not the case,” said Anna Kaltenboeck, head of the prescription drug reimbursement practice at ATI Advisory.

The IRA, she said, “is designed to give manufacturers choices,” as drugmakers have numerous options to dodge negotiation, such as allowing a generic or biosimilar to get in the market.

“This all boils down to a condition of participation, which we have throughout Medicare and other federal health-care programs,” Kaltenboeck said.

More Lawsuits

Merck’s lawsuit is the first to challenge the IRA’s drug pricing provisions. Analysts and industry members alike say it’s unlikely to be the last.

“I’m not surprised by their lawsuit, and I wouldn’t be surprised if there were more,” Biogen CEO Christopher A. Viehbacher said Tuesday at the Biotechnology Innovation Organization’s International Convention in Boston.

He also hinted that Biogen will “look at” whether to file its own challenge to the law. He called Merck’s lawsuit “a tiny bombshell” compared with the bombshell he said industry received when the IRA passed.

The Pharmaceutical Research and Manufacturers of America, of which Merck is a member, backed the lawsuit Tuesday,as it considers its own approach for challenging the IRA.

“We will continue to consider every tool available to protect patients and future innovation, which includes potential litigation,” PhRMA spokesperson Nicole Longo said in an emailed statement.

The CMS must publish by Sept. 1 the first 10 Part D drugs that will face government negotiated prices starting in 2026. Ahead of that, the agency plans to finalize March guidance on the negotiation process this summer.

Christina Ritter, a longtime CMS staff member, is serving as the acting director of the agency’s new Medicare Drug Rebate and Negotiations Group, the CMS confirmed in an email Tuesday. The agency said it continues to hire for additional roles to help implement the IRA, including the price negotiations.

Under the law, small-molecule drugs—which have traditionally made up most of the market—are exempt from government price negotiations until nine years after their approval date. More complex biologics are exempt until 13 years after approval.

But Biden wants to take the law even further, proposing in his budget plan in March to expand the number of drugs eligible for negotiation.

Health and Human Services Secretary Xavier Becerra said in a statement Tuesday that the agency plans to “ vigorously defend the President’s drug price negotiation law,” in the face of Merck’s lawsuit.

But the legal challenges will likely hinder efforts to expand the IRA further, said Antonio Ciaccia, CEO of Ohio-based drug pricing data firm 46brooklyn Research and president of 3 Axis Advisors.

“I’d imagine that the rush to broaden the policy without the first negotiation occurring or now without legal challenges being finalized may meet some speed bumps,” Ciaccia said.

The case is Merck v. Becerra, D.D.C., No. 1:23-cv-01615, Complaint 6/6/23

—With assistance from Jeannie Baumann