Drugmaker Merck is suing the U.S. government over its plan to allow Medicare to negotiate prices for a handful of drugs, calling it "extortion."

The plan, part of the 2022 Inflation Reduction Act, is expected to save taxpayers billions of dollars on common drugs the government pays for. The law directs the Center for Medicare and Medicaid Services to select 10 drugs with no generic or biosimilar equivalents to be subject to government price negotiation. (The list will eventually expand to 20 drugs.) 

In its lawsuit, filed on Tuesday in federal court in the District of Columbia, Merck called the program "a sham" that "involves neither genuine 'negotiations' nor real 'agreements.'" Instead, the pharmaceutical firm said the U.S. Department of Health and Human Services selects drugs to be included and then dictates a discount, threatening drugmakers with "a ruinous daily excise tax" if they refuse the conditions.

Merck added that it expects its diabetes treatment, Januvia, to be subject to negotiation in the first round, with diabetes drug Janumet and the cancer drug Keytruda affected in later years.

The Rahway, New Jersey-based drugmaker is seeking to end the program. "It is tantamount to extortion," it said in the complaint.

Health and Human Services Secretary Xavier Becerra, who is named as a defendant in the suit, said in a statement that the agency plans to "vigorously defend" the drug price negotiation plan.

"The law is on our side," he said.

The lawsuit also names HHS and Chiquita Brooks-LaSure, administrator of the Centers for Medicare and Medicaid Services, as defendants.

Merck said the program violates elements of the Constitution, including the Fifth Amendment's requirement that the government pays "'just compensation' if it takes 'property' for public use," according to the complaint.

The drugmaker noted that Congress could have simply allowed HHS to state a maximum price it would pay for a drug, but that would have enabled drugmakers to walk away from talks, leaving millions of Medicare beneficiaries without essential medications, the complaint said.

Instead, Merck said the government uses the threat of severe penalties to requisition drugs and refuses to pay fair value, forcing drugmakers "to smile, play along, and pretend it is all part of a 'fair' and voluntary exchange." This violates the First Amendment, the suit claims, calling the process "political Kabuki theater."

Patient advocate slams Merck

David Mitchell, founder of the advocacy group "Patients For Affordable Drugs Now," slammed Merck's suit as an attempt to "unilaterally set prices that are untethered to quality at the expense of patients."

"The reality is, drug corporations that are subject to Medicare's new authority – and who already negotiate with every other high income country in the world – will engage in a negotiation process after setting their own launch prices and enjoying nine years or more of monopoly profits," Mitchell said in a statement.

He added, "Medicare negotiation is a desperately needed, long-awaited rebalancing of our drug price system that will help millions of patients obtain the medications they need at prices they can afford while ensuring continued innovation." 

Medicare is the federally funded coverage program mainly for people who are age 65 and older. Currently, drug companies tell Medicare how much a prescription costs, leaving the federal government and Medicare beneficiaries to pay up.

The Inflation Reduction Act's drug negotiation provisions mark the first time that the federal government will bargain directly with drug companies over the price they charge for some of Medicare's costliest drugs. Government negotiation with drugmakers and price caps on drugs are common in other developed nations.

Republican lawmakers have also criticized President Joe Biden's administration over the drug pricing plan, saying it could deter drugmakers from developing new treatments.

The federal government is expected to soon release rules for negotiating drug prices. In September, it is scheduled to publish a list of 10 drugs that it will start price negotiations on next year. Negotiated prices won't take hold until 2026.

With reporting by the Associated Press.

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