Merck sues Biden HHS for drug price-fixing 'sham' it says would cripple pharmaceutical industry

A major American multinational pharmaceutical company is suing the Biden administration over a provision in the Inflation Reduction Act (IRA) that it says is a price-fixing "sham" that violates the Constitution.

Rahway, New Jersey-based Merck & Co. filed a lawsuit Tuesday against the Health and Human Services Agency (HHS) and Medicare and Medicaid Services for the administration's "Drug Price Negotiation Program" that was established by the IRA when Congress passed the measure last year. 

Merck says that the program in actuality does not involve real price negotiations, but rather manufacturers are forced to the table ostensibly to negotiate prices for certain drugs selected by the government, otherwise they are subject to a staggering tax. 

The tax, which escalates daily, starts at 186% of a drug’s daily revenues, or tens of millions of dollars in many cases.

Merck argues that the program is not just crippling to the pharmaceutical industry, but that it is also unconstitutional. 

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The lawsuit claims that the program's name "suggests a framework under which federal officials sit down with prescription drug manufacturers and negotiate voluntary price agreements that will save money for American taxpayers while ensuring that the companies remain able to continue investing billions of dollars into research and development of new life-saving medicines." 

"That is certainly how the Government— Congress, the President, and agency officials—have described and sold the Program to the American people. After all, who could oppose letting Medicare benefit from negotiated contracts, the basic building blocks of our market economy?" the complaint asks.

"In reality, however, this 'Drug Price Negotiation Program' is a sham," the lawsuit alleges.

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Merck says the program involves neither genuine "negotiations" nor real "agreements." Rather, it says 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. 

If a manufacturer refuses to participate in the "negotiation" or declines to "agree" to sell at the mandated price, "it incurs a ruinous daily excise tax amounting to multiples of the drug’s daily revenues," Merck says. 

"And once the Government successfully coerces entry into such an 'agreement,' that manufacturer becomes legally compelled to sell its most valuable products for a fraction of their value, on pain of yet more draconian penalties," the lawsuit says.

"This is not 'negotiation.' It is tantamount to extortion," it states. 

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White House Press Secretary Karine Jean-Pierre reacted to the lawsuit Tuesday in a statement:  "This proves Joe Biden’s point. Year after year, pharmaceutical giants make record profits as they charge middle class families astronomical prices – often for drugs invented generations ago. Big Pharma regularly forces Americans to pay many times what they do customers in other countries for the exact same medicines. For decades, the pharma lobby has blocked efforts to let Medicare negotiate lower drug costs."

"President Biden is proud to be the first President who beat them. He took on Big Pharma in the legislative process, and won, and we will keep fighting to lower Americans’ health care costs and ensure that access to life-saving treatments does not drive hardworking people into bankruptcy. We are confident we will succeed in the courts: there is nothing in the Constitution that prevents Medicare from negotiating lower drug prices," she continued.

Merck says one of their most popular drugs, Januvia, that treats type-2 diabetes is slated to be subject to the program this year. 

The lawsuit says Merck could incur tens of millions of dollars in excise-tax penalties on the very first day of refusal to enter an "agreement" relating to Januvia, escalating to hundreds of millions of dollars per day after a few months of such resistance.

The lawsuit alleges the program violates both the First Amendment because Merck does not "agree" that forced sales at innovation-stifling discounts are "fair" to anyone—including patients.

However, to avoid massive liability, the lawsuit says, "Merck must peddle the Government’s counternarrative."

"That is antithetical to the First Amendment, under which Merck cannot be made a "vehicle for spreading a message with which it disagrees."

The lawsuit also claims the program violates the Takings Clause of the Fifth Amendment, because it enables the government to extract value from Merck without providing "just compensation."

"The Fifth Amendment requires the Government to pay ‘just compensation’ if it takes ‘property’ for public use," the lawsuit says. 

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"Yet the singular purpose of this scheme is for Medicare to obtain prescription drugs without paying fair market value." 

The lawsuit says the IRA "wields the threat of crippling penalties to force manufacturers to transfer their patented pharmaceutical products to Medicare beneficiaries, for public use. And the Act costumes these seizures as 'sales' by forcing manufacturers to accept Government-dictated payments that represent a fraction of the drugs’ fair value."

"By definition—and by design—that is not just compensation. 'Requisitioning manufacturers’ medicines in this manner is instead a classic per se taking," it says.

"This is political Kabuki theater," Merck claims.

In a statement to Fox News, HHS Secretary Xavier Becerra said, "We’ll 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 lawsuit was filed in the District Court for Washington, D.C. 

Fox News White House producer Kaitlin Sprague contributed to this article.