Merck is suing the federal government over a plan to negotiate Medicare drug prices, calling the program a sham equivalent to extortion.
The drugmaker is seeking to halt the program, which was laid out in the Inflation Reduction Act and is expected to save taxpayers billions of dollars in the coming years.
Merck said in a complaint filed Tuesday that the program does not involve genuine negotiation. Instead, it said the U.S. Department of Health and Human Services selects drugs to be included and then dictates the price, threatening drugmakers with “a ruinous daily excise tax” if they decline to agree.
“It is tantamount to extortion,” the drugmaker said in the complaint, which was filed in U.S. District Court in Washington.
The Rahway, N.J., company said it expects its diabetes treatment Januvia to be part of “the IRA’s scheme” starting later this year.
Health and Human Services Secretary Xavier Becerra said in a statement that the department plans to “vigorously defend” the drug price negotiation program.
“The law is on our side,” he said.
The lawsuit names Becerra as a defendant as well as his department and Chiquita Brooks-LaSure, administrator of the Centers for Medicare and Medicaid Services.
Merck said in the complaint that the plan laid out in the Inflation Reduction Act suggests that federal officials will sit down with drugmakers and negotiate voluntary price agreements.
But the drugmaker said the program doesn’t involve actual negotiations or agreements. It said Health and Human Services picks the drugs to be included and then leans on manufactuerers to provide steep discounts under the tax threat.
Merck says the program violates the U.S. Constitution in a couple ways. They include the 5th Amendment’s requirement that the government pays “ ‘just compensation’ if it takes ‘property’ for public use,” according to the complaint.
The drugmaker said Congress could have simply allowed Health and Human Services to state a maximum price it would pay for a drug or use its leverage to negotiate, which would have allowed drugmakers to walk away from talks.
Instead, Merck said the government uses the threat of severe penalties to requisition drugs and refuses to pay fair value, forcing drugmakers “to smile, play along, and pretend it is all part of a ‘fair’ and voluntary exchange.”
“This is political Kabuki theater,” the complaint states, noting that allowing drugmakers to walk away from negotiations risks angering Medicare beneficiaries who might not be able to get their medications.
Medicare is the federally funded coverage program mainly for people who are 65 and older.
Republican lawmakers also have criticized President Biden’s administration over the plan, saying it could compel drugmakers to pull back on introducing new drugs that could be subjected to haggling.
The federal government is expected to soon release rules for negotiating drug prices and then will publish in September a list of 10 drugs that it will start price negotiations on next year.
The plan marks the first time that the federal government will bargain directly with drug companies over the prices of some of Medicare’s costliest drugs. Congress had previously forbidden such negotiations.
Negotiated prices won’t take hold until 2026.