The pharmaceutical company Merck sued the US government Tuesday over a law passed last year that empowers Medicare to negotiate prices of certain medications.
Merck claims that the provision, included in the Inflation Reduction Act, is unconstitutional and threatens to stifle the industry’s future investments in cancer treatments and other drugs.
For the first time, Medicare has the ability to negotiate lower prescription drug prices administered in doctors’ offices or purchased at the pharmacy thanks to the law. The new drug price negotiation program aims to lower prices for seniors, promote competition in the market and strengthen Medicare.
But Merck argues that the drug price negotiation program is not the right approach.
“By coercing Merck to provide its drug products at government-set prices, the program takes property for public use without just compensation in violation of the Fifth Amendment,” the company said in a statement sent to CNN.
Merck’s complaint also argues the law violates the First Amendment by requiring “manufacturers to convey that they ‘agree’ to HHS’s ‘fair’ prices.”
“Conscripting companies to legitimize government extortion is the sort of parroted orthodoxy that the First Amendment’s compelled-speech doctrine forbids,” the complaint says.
In response to the lawsuit, Xavier Becerra, secretary of the Department of Health and Human Services, said “the law is on our side.”
“We’ll vigorously defend the President’s drug price negotiation law, which is already lowering health care costs for seniors and people with disabilities,” Becerra said in an emailed statement.
Under the law, Medicare is allowed to negotiate prices for a limited number of high-cost drugs. The government is expected to publish a list of the first 10 Medicare Part D drugs selected for negotiation in September, according to the Centers for Medicare and Medicaid Services. The new prices will be effective in 2026.
In future years, the government will select up to 15 more Part D drugs for 2027, up to 15 more Part B or Part D drugs for 2028, and up to 20 more Part B or Part D drugs for each year after that.
There are several steps in the negotiating process, according to the government’s guidance. Drug manufacturers will be allowed to counteroffer the price offered by Medicare, according to the nonprofit KFF.
Among the factors CMS will consider when developing its initial offer are the clinical benefits of the selected drugs – including whether it fills an unmet medical need in a specific population – and the price of therapeutic alternatives, such as other drugs in the same class.
The Congressional Budget Office has estimated that the negotiation program, along with other drug provisions included in the Inflation Reduction Act, will reduce the federal deficit by $237 billion over 10 years.
The law also imposes penalties on drug companies if they increase their prices faster than inflation, puts limits on Medicare out-of-pocket costs and caps the price of insulin for Medicare beneficiaries at no more than $35 a month.
This story has been updated with additional information.
CNN’s Meg Tirrell and Tami Luhby contributed to this report.