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Merck sues over Medicare price-fixing law

The pharmaceutical company Merck sued the government on Tuesday over a federal law that gives Medicare, for the first time, the ability to negotiate prices directly with drug manufacturers.

Merck’s lawsuit, filed in federal court in Washington, is the drug industry’s most important move so far to fight back against a major overhaul of health policy, which takes effect starting in 2026. Democrats pushed through the Medicare negotiation program last summer as a provision of the inflation-reduction law , designed as a way to lower drug prices.

Only some drugs will be subject to Medicare negotiations and only after they have been on the market without competition for years. But Merck, which generated $14.5 billion in profits last year, argued in a statement Tuesday that the law would stifle its and its peers’ ability to make risky investments in new cures.

Other drug companies have suggested they will choose to cut certain drug development programs because of the expected bump in their revenue. Several have already said they are reconsidering their research plans.

Merck said it was seeking an injunction or other remedy that would exempt Merck from having to participate in the bargaining program.

Xavier Becerra, the US secretary of health and human services, said in a statement that the Biden administration would “vigorously defend” the law. “The law is on our side,” he said.

In the complaint filed Tuesday, the company’s attorneys at the law firm Jones Day claim that the Medicare bargaining program is unconstitutional. They argue that the program would force Merck to offer its products at government prices, violating a clause in 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 free speech rights by forcing the company to sign an agreement it did not agree to at the end of negotiations.

But several experts who study the industry said the constitutional arguments were weak and would face an uphill battle in court. “What Merck claims is ‘coercion’ is actually the creation of a freer, more rational marketplace” that would address a crucial cause of high drug prices, said Dr. Ameet Sarpatwari, an expert on pharmaceutical policy at Harvard Medical School.

Experts noted that the negotiation process gives drugmakers leeway to reject Medicare’s final offer and walk away without a deal if they are not satisfied, subject to a tax.

In September, the government plans to announce the first 10 drugs that will be subject to negotiations in 2026. A widely used Merck diabetes drug 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 may be among the first products to be targeted when negotiations start in 2028 on medicines administered in the healthcare system.

The current version of Keytruda, administered as an infusion, will face its first competition that same year, so sales are expected to erode regardless of whether the program targets it. But Merck had expected to bring in significant revenue from a new formulation of Keytruda it is developing that can be given more easily under the skin. It may also be the subject of negotiations under the government’s plans for the programme.

Sheryl Gay Stolberg contributed reporting.

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