Pharmaceutical giant Merck sued the US government on Tuesday over federal law enacted last year that allows Medicare to negotiate certain prescription drug prices with manufacturers.

In the lawsuit, filed in federal district court, Merck argues that drug price talks, instituted as part of the Inflation Reduction Act, will curtail innovation and violate the Constitution. The company cites the Fifth Amendment requirement that the government pay fair compensation if it takes property for public use and says the Inflation Reduction Act would allow the government to take Mercks’ patented innovations without paying fair value for the drugs.

The company also argues that the new law violates the company’s First Amendment right to free speech by creating the misleading impression that the company is willingly agreeing to deals that Merck calls a farce and amount to extortion.

Merck argues that the government could have simply imposed price caps or structured negotiations in a way that allowed drug companies to refuse to contract with Medicare if they were unable to agree on a price. He argues that lawmakers have instead chosen a convoluted structure for political purposes. The purpose of the plan is to deceive the American public, accuses the lawsuit. His forced messaging promotes the (false) impression that manufacturers are acquiescing, indeed agreeing, with the prices mandated by the HHS decree.

The White House dismissed the lawsuit. Big Pharma routinely forces Americans to pay many times what customers in other countries pay for the exact same drugs,” White House spokeswoman Karine Jean-Pierre said in a statement quoted by Reuters. “We are confident we will be successful in law courts. There is nothing in the Constitution that prevents Medicare from negotiating lower drug prices.

Because matter: After a vigorous public relations and lobbying effort, this is the pharmaceutical industry’s first attempt to challenge a law it despises and which President Biden has repeatedly highlighted as a victory in a longstanding battle to bring down drug prices from prescription.

In his speech in the Oval Office last Friday night, Biden mentioned the drug price talks as a key legislative outcome he preserved in his deal with House Speaker Kevin McCarthy to raise the debt limit. Biden repeated an oft-used line that last year’s law finally beat Big Pharma, something the president says he’s been trying to do for more than 30 years.

New law allows Secretary of Health and Human Services to negotiate prices on a very limited number of drugs to select from the 50 highest-spending drugs in the Medicares Part D program for prescription drugs and the 50 physician-administered drugs with the highest spending on Medicare Part B. The program will start with 10 Part D drugs for 2026 and scale up from there, adding up to 15 more Part D drugs for 2027, up to 15 Part B or Part D drugs for 2028 and up to 20 additional Part B or Part D Drugs each year thereafter. The law also includes an excise tax to be levied on companies that walk away from the negotiation process.

The Congressional Budget Office has estimated that negotiations that began last year will save Medicare nearly $100 billion over 10 years. He also said the drug pricing measures in the Inflation Reduction Act, which go beyond Medicare negotiations, would modestly reduce the number of new drugs coming to market over time.

The government says it will announce the top 10 drugs chosen for price negotiations by Sept. 1, 2023. Biden said he hopes to expand the price negotiations to cover more drugs.

Merck said in its statement that its diabetes drug Januvia should be the subject of the first round of negotiations, while another diabetes drug, Janumet, and the company’s best-selling drug, the cancer treatment Keytruda, should be subject to negotiations in subsequent rounds. Keytruda generated nearly $21 billion in revenue for Merck last year, accounting for more than a third of the company’s $59.3 billion in worldwide sales. Merck reported profits of $14.5 billion last year, up from $12.3 billion in 2021.

The bottom line: Legal experts told Reuters that Merck’s constitutional arguments are weak, but the case could go to the Supreme Court, and more challenges from the pharmaceutical industry are likely to follow.

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