[The Inflation Reduction Act took minor steps against Big Pharma
price-gouging. Merck is outraged. ]
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MERCK SAYS NEGOTIATING DRUG PRICES IS UNCONSTITUTIONAL  
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Ryan Cooper
June 8, 2023
American Prospect
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_ The Inflation Reduction Act took minor steps against Big Pharma
price-gouging. Merck is outraged. _

Merck’s core argument is that the drug price reform in the
Inflation Reduction Act represents an unconstitutional “taking”
under the Fifth Amendment., Mel Evans/AP

 

As my colleague David Dayen has written
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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
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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
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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
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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.

_MORE FROM RYAN COOPER_ [[link removed]]

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
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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
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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.

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
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in sales last year, which makes up about half
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of the company’s revenue. Its primary patent on Keytruda will expire
in 2028, but as I reported
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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
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on the arthritis drug Humira with such tricks. Sure enough, Merck has
been planning to roll out a slightly modified version
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of Keytruda to do just that, but it is widely expected
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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
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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.

Ryan Cooper is the Prospect’s managing editor, and author of ‘How
Are You Going to Pay for That?: Smart Answers to the Dumbest Question
in Politics.’ He was previously a national correspondent for The
Week.

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