Merck Stock Fell After It Sued the US Government To Stop Medicare Medication Price Negotiation

Merck Stock

Merck Stock (NYSE:MRK)

On Tuesday, Merck & Co Inc (NYSE:MRK) filed a lawsuit against the United States government to stop the Medicare medication price negotiating program included in the Inflation Reduction Act (IRA), claiming that the program violates the Fifth and First Amendments.

This is the first time a pharmaceutical company has tried to overturn legislation that they claim would reduce their earnings and prevent them from researching and producing innovative new medicines.

The medication cost for Americans is much higher than that in other countries. The goal of the Biden administration’s drug pricing reform, which involves price negotiations for pharmaceuticals paid for by Medicare, is to save $25 billion annually by 2031.

The case filed in the US District Court for the District of Columbia claims that the bill will compel pharmaceutical companies to bargain medicine costs below market rates.

Merck Stock claims the government needs to comply with the Fifth Amendment’s requirement to compensate property owners fairly when taking their land for public use.

Lawyers and lobbyists for the pharmaceutical sector told Reuters in March when the government revealed its roadmap for pricing discussions, that drug companies would likely bring lawsuits claiming the government was not following the US Constitution.

Merck has criticized the discussions with the Centers for Medicare and Medicaid Services (CMS), calling them “coercive” and requiring pharmaceutical companies to engage in “political Kabuki theater.”

“This is not a ‘negotiation.’” Merck said in its lawsuit that the action was akin to blackmail.

The pharmaceutical company also alleges that the law’s requirement that businesses acknowledge that the pricing is reasonable violates their right to free expression under the First Amendment.

In this case, Merck is suing the Centers for Medicare & Medicaid Services (CMS), the Department of Health and Human Services (HHS), HHS Secretary Xavier Becerra, and CMS Administrator Chiquita Brooks-LaSure.

On Tuesday, White House spokeswoman Karine Jean-Pierre said that “Big Pharma regularly forces Americans to pay many times what they do customers in other countries for the exact same medicines.” We are certain of a positive outcome in court. Medicare’s ability to bargain for cheaper drugs is not limited by the Constitution in any way.

Harvard Medical School professor and lawyer Ameet Sarpatwari said in an email that the assertions made by Merck in their complaint are unconvincing.

Merck is not being pressured by the government. He said that by doing so, the government is “exercising its rights and responsibilities to negotiate the prices of a small number of drugs that have already been on the market for several years on behalf of seniors and taxpayers.”

Professor Robin Feldman of the University of California School of Law in San Francisco agrees that persuading the courts will be difficult for Merck. However, she adds that the law in this field is still developing and that the Supreme Court will likely hear the case.

In a research note, Mohit Bansal of Wells Fargo (NYSE:WFC) speculated that the lawsuit might be the first of several filed by drugmakers, who may also challenge the statute on procedural grounds.

Merck Stock intends to take the case to the United States Supreme Court.

When CMS picks its 10 most expensive pharmaceuticals in September, the first-ever Medicare prescription price reduction procedure will begin. When the first round of medication pricing talks concludes in 2026, the resulting price changes may reduce industry sales by as much as $4.8 billion in that year alone.

Keytruda, an immunotherapy for cancer developed by Merck, may be up for negotiation as early as 2028. Over a third of Merck’s revenues, last year came from Keytruda, and by 2026, sales are projected to exceed $30 billion.

Featured Image: Megapixl

Please See Disclaimer

About the author: I'm a financial journalist with more than 1.5 years of experience. I have worked for different financial companies and covered stocks listed on ASX, NYSE, NASDAQ, etc. I have a degree in marketing from Bahria University Islamabad Campus (BUIC), Pakistan.