Drug makers Merck and Bristol Myers Squibb (BMS), and the U.S. Chamber of Commerce have filed separate lawsuits challenging Medicare’s new authority to negotiate drug prices.
In August 2022, President Joe Biden signed into law the Inflation Reduction Act (IRA), which established the Drug Price Negotiation Program. Starting in September 2023, the Centers for Medicare and Medicaid Services (CMS) will select 10 drugs for price cuts to go into effect in 2026. Drug companies can accept the price or face a tax on their revenue if they want Medicare to cover the full price of the drug.
Merck filed its suit in U.S. District Court for the District of Columbia on June 6, 2023. Bristol Myers Squibb(BMS) filed its suit in the U.S. District Court for the District of New Jersey on June 16 and the U.S. Chamber of Commerce filed its case on June 9 in federal court in the Southern District of Ohio.
Negotiation As ‘Extortion’
The lawsuits claim there is no real negotiation or agreement between the government and the drug companies, despite the program’s name.
“It is tantamount to extortion. And it violates the Constitution in at least two obvious respects,” the Merck complaint states.
Merck, and BMS in its suit, claim the program violates the First Amendment’s compelled-speech protection and is an infringement of the Fifth Amendment, for failing to provide “just compensation” if it takes property for public use.
The suits are based on some bold arguments, says Gregg Girvan, a scholar at the Foundation for Research on Equal Opportunity.
“It is easy to how many might view the IRA’s drug price negotiation program as coercive,” said Givan. “It forces drug companies to accept the government’s price in Medicare with very little recourse if they don’t agree with the price. On the other hand, participation in Medicare is voluntary; meaning, no one forces drug companies to sell their products to Medicare recipients. Therefore, I think it is likely the lawsuits will not succeed.”
Drug Market Unlike Any Other
The suits claim market infringement but the drug companies operate more like a public utility, says John Abramson, M.D., a health care policy lecturer at Harvard Medical School and author of Sickening: How Big Pharma Broke American Health Care and How We Can Repair It.
The federal government is one of the industry’s biggest customers and third-party drug payment programs detach consumers from having direct control over the price, says Abramson.
“The American people have been ripped off for all these years because there’s no price negotiation in the United States for new drugs,” said Abramson. “The drug companies are maximizing their revenues for their investors but what we have is a monopoly…on unregulated [what amount to] public utilities. The IRA is going to rein in their pricing to what would be a reasonable price in a fair market after patents wear off.”
Patent Power
Girvan says current laws and regulations help create monopoly pricing.
“We have a broken patent system that allows companies to exclude competitors far longer than what lawmakers intended,” said Girvan. “The FDA (Food and Drug Administration) grants a minimum 12-year exclusivity to biologic drugs while small molecule drugs get just 5 years.”
There are additional regulatory barriers to competing makers of drug products entering the marketplace, says Girvan.
“Competitors face numerous hurdles to getting generics and biosimilars approved,” said Girvan. “And even if a biosimilar is approved, the manufacturer must complete switching studies to obtain an interchangeability designation, and therefore be eligible for automatic substitution at the pharmacy level. These are all barriers to market entry that lawmakers have built through statute and regulation, to the benefit of incumbent drug companies.”
Stifling Innovation
Merck pointed out the high cost of drug research and development, in a statement on its lawsuit.
“On average, it takes a decade and more than $2.5 billion to develop a new drug,” the company stated. “Since 2000, companies like ours have invested more than $1.1 trillion in the search for new treatments and cures, including $102.3 billion in 2021 alone. This investment has led to incredible breakthroughs for patients.”
Merck said “this progress is now at risk due to unconstitutional provisions in the Inflation Reduction Act (IRA), necessitating the legal action.”
Alternative To Price Controls
The claim that the Drug Price Negotiation Program will “curtail innovation and produce a winter chill…this idea is a bluff,” said Abramson.
“Merck more specifically is trying to frame this question as if the market is working and the government is going to take overly aggressive action to curtail the market from working through those penalties,” said Abramson. “The market is not working…the IRA is designed to keep market forces [in check].”
As an alternative to price controls, there should be a system that could rate drugs based on value, says Abramson.
“There is no mechanism for informing coverage decisions and doctors about which new drugs are actually superior to older drugs and what their value is based on that superiority,” said Abramson. “In the United States, one out of three to one out of four are superior new drugs. The market is being constrained by the situation of Merck being able to charge whatever it wants for that new drug…even years after a patent should run out and generic competition [occur].”
Girvan says he is encouraged by the debate.
“Americans are fed up with the high price of branded prescription drugs and are hungry for solutions,” said Girvan. “The good news is both sides of the aisle are engaging on the issue and are advancing bipartisan bills to address these issues.”
Ashley Bateman (bateman.ae@googlemail.com) writes from Virginia.
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