Court Rejects Merck's Challenge to Medicare Drug Price Negotiation Program, Upholds Inflation Reduction Act

A federal court fully denied Merck's motion for summary judgment and granted the federal government's cross-motion for summary judgment, upholding the drug price negotiation program under the Inflation Reduction Act.

Merck challenged the federal drug pricing framework on constitutional grounds, alleging an uncompensated taking under the Fifth Amendment, compelled speech under the First Amendment, and unconstitutional conditions on program participation.

Medicare Part D Pricing Exception

Congress originally established Medicare Part D in 2003 as a voluntary prescription drug benefit program administered by the Centers for Medicare and Medicaid Services through public-private partnerships.

The original legislation prohibited federal officials from setting price structures or interfering with private price negotiations.

However, the Inflation Reduction Act created a statutory exception, directing federal administrators to negotiate maximum fair prices for designated high-expenditure drugs that lack generic competitors and have maintained regulatory approval for at least seven years.

Negotiation Rules and Price Caps

Under program guidelines, federal administrators seek the lowest maximum fair price for each selected drug, capping negotiated prices at 75% of private market value.

Participating manufacturers must execute official agreements and appendices, guaranteeing Medicare beneficiaries access to agreed-upon prices until generics enter the commercial market.

Escalating Excise Tax Penalties

Pharmaceutical companies that refuse to participate or fail to reach pricing agreements face severe daily excise taxes on all product sales.

Penalties begin at 185.71% of the drug's sales price on the first day of noncompliance, rising to 1,900% after 270 days.

Noncompliant manufacturers can only avoid these escalating penalties by divesting the drug or withdrawing all corporate products from Medicare Part D and the Medicaid rebate program entirely.

MRK Stock Activity: In Tuesday premarket trading, Merck shares fell 0.20% to $150.36.