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Merck’s core argument is that the drug price reform in the Inflation Reduction Act represents an unconstitutional “taking” under the Fifth Amendment.
As my colleague David Dayen has written, the Inflation Reduction Act included some exceedingly modest drug price reforms. A handful of drugs will be subject to negotiation starting this year, with the actual prices coming into force in 2026, and a few dozen more being added over time.
Yet the pharmaceutical company Merck is now suing the government over even this modest change, claiming that the reform is unconstitutional. Apparently, any restrictions on their ability to pillage Medicare would make James Madison cry.
Merck’s complaint is jarringly heated for a legal filing. “This is not ‘negotiation.’ It is tantamount to extortion,” it whines. That’s likely because Merck’s law firm is Jones Day. As Brad Miller wrote in a recent Prospect print issue, Jones Day pioneered the scorched-earth legal tactics that are now routine in the right-wing legal universe. It used every dirty trick it could think of, for instance, to defend R.J. Reynolds from the lawsuits of sickened smokers—from dragging out every procedural point as long as possible with tendentious filings, to claiming that smoking doesn’t cause lung cancer, to bringing up irrelevant embarrassing personal details about the plaintiffs. It worked closely with the Trump administration; one of its top lawyers, Don McGahn, served as White House counsel and heavily influenced Trump’s judicial nominations. The firm also represented Trump in his efforts to overturn the 2020 election through legal chicanery.
But when it comes to the law itself, Merck’s core argument is that the drug price reform represents an unconstitutional “taking” under the Fifth Amendment. The “singular purpose of this scheme is for Medicare to obtain prescription drugs without paying fair market value. The IRA wields the threat of crippling penalties to force manufacturers to transfer their patented pharmaceutical products to Medicare beneficiaries, for public use,” it claims. “By definition—and by design—that is not ‘just compensation.’ Requisitioning manufacturers’ medicines in this manner is instead a classic per se taking.”
In terms of the price reform system in the IRA, this is completely preposterous. The mechanism in the law is one of the weakest in the developed world. It will only apply to a handful of drugs, the negotiation process will take years, numerous types of drugs are excluded from negotiation, and there are several points at which drug companies can appeal. Indeed, as Dayen covered last month, by all accounts the government negotiation process is already shaping up to be quite favorable to drug company interests.
There is an even bigger logical flaw here, however. Arguing that any government-offered price is less than a drug’s “fair market value” runs headlong into the fact that the government is by far the largest drug purchaser in the country, mainly through Medicare—and thanks to heavy Big Pharma lobbying back in 2003, up to now Medicare has been forbidden from negotiating in the market. It follows that there is no fair market value, and it is a priori impossible to know what it would be without the government being allowed to negotiate.
The price reform system in the IRA is one of the weakest in the developed world.
Later in the complaint, Merck tacitly admits this … and argues it would be unconstitutional for the government to use its market leverage: “Regardless, leveraging all federal insurance benefits (amounting to over half of the prescription drug market) to coerce companies to abandon their First and Fifth Amendment rights is a quintessential unconstitutional condition.” Heads Merck wins, tails the government loses.
As Secretary of Health and Human Services Xavier Becerra said at a health conference in Washington on Wednesday: “I can only say so much about litigation. But negotiating for the best price is as American as apple pie. Since when is competition in this American system a bad thing? Why should we be the patsies around the world and pay the highest prices for medicines?”
It also bears mentioning that the only reason that Merck gets to sell its drugs in the first place is because the government grants it a 20-year monopoly on production through the patent system. Indeed, the actual motivation for this lawsuit likely has to do with patents. Merck’s cancer drug Keytruda is the second-best selling drug in the country (excluding the COVID-19 vaccines), with $20.9 billion in sales last year, which makes up about half of the company’s revenue. Its primary patent on Keytruda will expire in 2028, but as I reported for our latest print issue, drug companies commonly extend their period of monopoly profits with patent “evergreening.” By filing dozens or hundreds of patents to raise legal obstacles to generic competitors, making tiny changes to the formulation, or other legal chicanery, companies can extend their period of legal exclusivity for years. AbbVie made $100 billion on the arthritis drug Humira with such tricks. Sure enough, Merck has been planning to roll out a slightly modified version of Keytruda to do just that, but it is widely expected that this new formulation will be one of the targets for negotiation. Thus this preemptive legal attack.
In short, not only does Merck demand the government be forbidden from conducting even half-hearted negotiations over its wildly inflated prices, it also expects the government to allow it to abuse the patent system to its heart’s content.
This kind of thing has been a common legal tactic from big business going back to the 19th century: Get the government to give you a big handout by influencing markets or prices, and then if anyone tries to cut it back, claim that doing so would be an interference with “natural” market outcomes requiring compensation.
At any rate, the level of entitlement here beggars belief. The reason the IRA price reform is so wimpy is because of Big Pharma’s successful lobbying of key swing-vote senators, above all Kyrsten Sinema of Arizona. That accomplished, Merck is now acting with make-believe scalded outrage, trying to roll back even this small potential infringement of its mega-profits, which are dependent at every point on government guarantees and protections. It seems for drug companies, the primary purpose of the American state is to shovel taxpayer money to their shareholders as fast as possible.
