Do drugmakers have a constitutional right to set their own prices?
Drug company Merck is suing the United States government in an attempt to undercut drug price negotiations laid out by the Biden administration's Inflation Reduction Act (IRA). The crux of Merck's argument, as Sen. Elizabeth Warren (D-Mass.) noted, is that drug companies "have a constitutional right to charge Medicare whatever it wants — and taxpayers must pay up."
Merck claims that the proposed drug price negotiations are unconstitutional because its patented drugs are "protected from uncompensated takings" by the Takings Clause. Part of the Fifth Amendment, the Takings Clause states that "private property can't be taken for public use without proper compensation," Bloomberg Law reported. This argument goes against the provisions of the IRA, which would allow Medicare "to negotiate the prices of certain drugs that have been on the market for several years but don't have competition from generics" starting in 2026, Axios reported.
While Merck, a company with year-to-date profits of $13 billion, told The New York Times that the IRA negotiations "would stifle the ability of it and its peers to make risky investments in new cures," lawmakers and the Biden administration have disagreed. White House press secretary Karine Jean-Pierre said in a statement there was "nothing in the Constitution that prevents Medicare from negotiating lower drug prices."
But is Merck right? Do private drug companies have a constitutional right to set their own prices? Or is it a moot point from a company that continues to see skyrocketing profits?
The pharmaceutical industry could "bite the hand that feeds them"
Given that the FDA regulates drug companies, the pharmaceutical industry "risks biting the hand that feeds them" by suing the "U.S. government to pay just compensation," Cyrus Fan, a pharma research analyst at GlobalData, told the International Oncology Network (ION). It would be surprising, Fan added, if more companies do not join Merck in suing the government.
However, "success for Merck and other pharma companies attempting the block the Inflation Reduction Act through litigation is far from guaranteed," Fan said, noting that "governments in other countries around the world routinely engage in price negotiation for reimbursable medicines." This is especially true when it comes to the types of medications that fall under Medicare's purview.
Plus, while the IRA's drug negotiation program may have problems of its own, it's simply "a bad piece of legislation that's going to do a little bit of good and a great deal of harm. There's no constitutional remedy for that," Stephen L. Carter wrote for Bloomberg. The resulting drug prices "can hardly be considered fair … except for the part where the untruth is alleged to violate the Constitution," Carter added.
The IRA's negotiations are "political Kabuki theater"
The IRA gives the government too much hypothetical power, and agencies "could demand Merck sell its drugs at a 90% loss, and the drugmaker couldn't refuse," the editorial board of The Wall Street Journal stated.
The government is playing "political Kabuki theater," the Journal added, and "essentially makes drugmakers an offer they can't refuse." Drugmakers that don't participate in the price negotiations "incur a crippling daily excise tax that starts at 186% and eventually climbs to 1,900% of the drug's daily revenues. Companies can't walk away from the table as they would in a real negotiation."
Even in other countries that engage in price negotiations, the Journal noted, "Drugmakers can refuse to sell products to national health systems if the price is too low." The legal implications of this case go beyond the drug market, the Journal wrote. "If Congress can leverage the threat of ruinous penalties to reduce Medicare drug prices, what's to stop it from doing the same for health care provider payments or defense equipment?"
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