Merck sues U.S. government over Medicare drug pricing negotiation

Merck is suing the U.S. government over a law that lets Medicare negotiate drug prices. Yahoo Finance health care reporter Anjalee Khemlani explains why Merck is upset over the law.

Video Transcript

- Well, Merck taking legal action against the Biden administration over the Inflation Reduction Act. We've got Yahoo Finance's Anjalee Khemlani, following that story for us. What are the details, Anjalee?

ANJALEE KHEMLANI: That's right, Akiko. We know that the drug companies have been gearing up for a battle against the imposition that the Inflation Reduction Act has on drug pricing. That is what the government was able to pass in order to allow Medicare to, for the first time in history, negotiate drug prices with companies.

Merck fighting back, saying that this is, quote, "A sham and extortion" because the health, and the Health Secretary and the administration are allowed to select which drugs, and these companies are not voluntarily a part of this program. In addition, they're being forced to come up with prices that are 25 to 60% discounted from listing prices.

And in their defense, in this lawsuit, they're citing the Fifth Amendment. We know that as the right against self-incrimination, but here, it includes the part of which the government cannot seize private property without making a due compensation at the market value. This is the fight that they're pulling with the health department as well as the Health Secretary.

And they've said in a company letter that this is really looking at drug development over the years, and incentivizing drug companies. And that is the portion that they're focused on, which is if the government continues to push for these set prices, it is going to deincentivize companies who have invested trillions of dollars in drug development and have sold, of course, we know billions of dollars in these treatments.

But in that lawsuit, the context around this is really that Merck is just the first of what is expected to be a number of companies, especially big pharma, taking on similar action. The industry has largely been waiting for this to come through. As we know the deadline approaches for this negotiations to take place this year.

It's the first company, and Medicare accounts for 30% of drug spending compared to private payers, so that's why this is such a big battle. It's a huge portion of revenue that they're also looking at that could be impacted. So all told, this is where the battle really is starting.

Not unexpected at all, especially towards the end of the year. We expect to see more verbiage from the health department in looking at what the baseline will be for negotiations. They've got draft guidelines out right now. And so we're going to start seeing that firm up more on the agency side, and as you can see already the drug companies ready to battle back.

- Yeah, Merck shares down on the day about 3%. Anjalee Khemlani, thanks so much for that.