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Merck Sues in Longshot Bid to Derail Medicare Drug Price Negotiation

This week, the pharmaceutical giant Merck sued the U.S. Department of Health and Human Services (HHS), challenging Medicare’s authority to negotiate drug prices under the Inflation Reduction Act (IRA).

Merck claims the IRA’s Negotiation Program violates their Fifth Amendment rights because it allows the government to “take” their private property without providing “just compensation.” Merck also alleges it runs afoul of the First Amendment’s free speech guarantees by compelling them to sign an agreement at the end of the negotiation process.

While legal experts have expressed doubts about the Merck claims, it is likely the first of many lawsuits that attempt to interfere with an effective and timely IRA implementation.

Set to take effect in 2026 for Part D drugs, preparation for the IRA’s Negotiation Program is already underway. The Centers for Medicare & Medicaid Services (CMS) released preliminary guidance this spring and will announce the first ten Part D drugs subject to negotiation by September 1. This list will be based on specific IRA requirements, including cost. Preliminary analysis suggests it may include treatments for diabetes, cancer, respiratory illness, and cardiovascular conditions. The Negotiation Program for Part B drugs will begin in 2028.

The IRA’s negotiation provisions are expected to help rein in drug prices, lower costs, and improve access to care. The nonpartisan Congressional Budget Office (CBO) estimates the program will save billions of dollars for beneficiaries, taxpayers, and Medicare in the coming years. Critically, it will do so while improving beneficiary health outcomes and program solvency. CBO notes the IRA’s lower drug costs will increase medication access and adherence, improving beneficiary health and reducing the need for—and Medicare spending on—more costly care.

Such changes are vital. People with Medicare are uniquely impacted by high and rising drug prices. This is partly due to utilization: Over two-thirds have multiple chronic conditions and Part D enrollees take four to five prescriptions per month, on average. Many also have fixed or limited incomes that make it difficult to keep pace with ever-increasing prescription drug costs. Half of all beneficiaries, nearly 30 million people, live on $29,650 or less per year and one quarter have less than $8,500 in savings. Health care expenses comprise a large and disproportionate share of their limited budgets. Nearly 30% of Medicare households spend 20% or more of their household spending on health care, compared to 6% of non-Medicare households. Out-of-pocket costs for prescription drugs represent a significant share of this amount, accounting for nearly one out of every five beneficiary health care dollars. In 2021, nearly 20% of older adults said they had not filled a prescription in the past two years; unaffordability was the main reason why.

Yet, drug costs continue to climb. Price hikes on brand name medications have exceeded the rate of inflation every year since at least 2006. In 2020, prices rose faster than inflation for half of all Medicare-covered drugs, including for 23 of the 25 Part D drugs with the highest total program spending.

High drug prices usually translate into higher out-of-pocket costs, especially for consumers who pay coinsurance, as most Medicare Part D enrollees do. They are also passed along to Medicare and to the taxpayers who help fund the program, and to all beneficiaries in the form of higher deductibles and premiums.

The need is great, and Medicare Rights supports a timely, thoughtful IRA implementation process. We are disappointed by the Merck lawsuit, which appears designed to protect the company’s profits—reported to be $14.5 billion in 2022—at the expense of older adults and people with disabilities. However, we are not surprised. New laws with sweeping changes often spark legal challenges from those hoping to weaken the forthcoming reforms. This has long been the case with the Affordable Care Act (ACA), where attempts to prevent passage shifted to the courts post-enactment. As with the ACA, we encourage HHS to defend the IRA fully. These landmark and lifesaving laws must keep their promises to current and future Medicare beneficiaries.

Policy Issues: Prescription Drugs
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