The pharmaceutical company Merck on Tuesday sued the federal government over legislation 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 starting 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 in public remarks, pharmaceutical executives have cast the Medicare-negotiation program as a dire threat to new cures. Several said they were reassessing their drug development plans.
In the Merck lawsuit, the company’s lawyers claim that the Medicare-negotiation program is unconstitutional. They claim that 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 First Amendment rights by coercing the company to sign an agreement it did not agree with upon the conclusion of the negotiation.
According to the federal government’s guidance about its plans for enacting the program, the process will allow drugmakers to first make a counteroffer on pricing and then later reject Medicare’s final offer and walk away without a deal if they are not happy, subject to a tax.
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 known as 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 it is targeted by the program. 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.
Merck said in a statement on Tuesday that the law “unlawfully impairs our core purpose of engaging in innovative research that saves and improves lives.” The company generated $14.5 billion in profit last year.