In a significant escalation of the pharmaceutical industry's resistance to drug pricing reform, Merck & Co has initiated legal proceedings against the Biden administration, challenging the constitutionality of the Medicare drug price negotiation provisions within the Inflation Reduction Act (IRA).
The lawsuit, filed in the US District Court for the District of Columbia, marks the first major pharmaceutical company to mount a legal challenge against the legislation's pricing provisions. Merck argues that the so-called "Drug Price Negotiation Programme" violates both the First and Fifth Amendments of the Constitution.
Constitutional Grounds for Challenge
At the heart of the dispute is the IRA's mandate requiring Medicare to negotiate prices for select high-impact medications. Merck contends this process is far from a genuine negotiation, instead describing it as a coercive price-setting mechanism that violates constitutional protections.
The Fifth Amendment challenge centers on the government's requirement to provide fair compensation when acquiring private assets for public use. Merck argues that forcing companies to sell drugs below market rates directly violates this constitutional protection.
The First Amendment complaint focuses on the requirement for pharmaceutical companies to sign agreements stating the government-mandated prices are "fair" - which Merck argues constitutes compelled speech.
Program Implementation and Impact
Under the IRA's provisions, set to begin in 2026, the Secretary of Health and Human Services will gain authority to negotiate prices for selected medications with significant budget impact in Medicare Parts B and D. Government projections suggest this could reduce pharmaceutical spending by approximately $150 billion over ten years.
The program mandates pharmaceutical companies to offer discounts ranging from 25% to 60% off their products. Companies refusing to participate face severe penalties, including what Merck describes as a "ruinous daily excise tax amounting to multiples of the drug's daily revenues."
Industry Implications and Legal Outlook
Merck has expressed its commitment to pursuing this case to the Supreme Court if necessary, viewing the legislation as a fundamental threat to pharmaceutical innovation. The company argues that the IRA's provisions will severely impact their ability to recover research and development investments.
Legal experts and market analysts, including GlobalData's Jay Patel, suggest that while previous First Amendment challenges in similar cases have failed, the Fifth Amendment argument presents a novel approach that "appears to have a chance of yielding results."
The success of Merck's case may hinge on establishing that drug patents constitute protected private property and that the IRA's negotiation requirements qualify as "taking" under the Fifth Amendment's Taking Clause - a legal argument that remains untested in federal appellate courts.
Industry-Wide Response
The pharmaceutical industry has universally opposed the IRA's pricing provisions, and market observers anticipate other companies may follow Merck's lead in mounting legal challenges. This case could set a crucial precedent for how the government's role in drug pricing is defined and implemented in the future.
