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Column: Merck says it’s being ‘coerced’ into negotiating its drug prices with Medicare. That’s nonsense
No one really expected the pharmaceutical industry to lie down and take it when Congress authorized Medicare to start negotiating prices of the prescription drugs it buys for enrollees.
By that standard, the federal lawsuit filed June 6 by the big drug manufacturer Merck falls into the “dog bites man” category of non-news.
So, too, does a nearly identical lawsuit filed June 9 by the U.S. Chamber of Commerce. And also the threats by other drug companies to file their own lawsuits.
Merck doesn’t have a constitutional right to sell its drugs to the government at the price that Merck would prefer.
— Nicholas Bagley, University of Michigan law school
That doesn’t mean the cases aren’t worth examining. They’re windows into the mind of Big Pharma, revealing the industry’s grotesque level of entitlement and its cynical exploitation of Americans’ desire for better healthcare in order to claim profits well beyond the level that any thinking person would consider moral.
The lawsuits are so similar they read like ChatGPT versions of each other. Both are compendiums of artful dodging and febrile rhetoric, which is what corporate lawyers produce for a living. (Merck calls the program a “dystopian parody of ‘negotiation,’” which is pretty fancy wordsmithing.)
In essence, the lawsuits assert that the Medicare negotiation program, which was established by the Inflation Reduction Act, or IRA, signed in August by President Biden, is so weighted in Medicare’s favor that it’s illegal and unconstitutional—”tantamount to extortion,” Merck says.
Big Pharma claims through these lawsuits that it’s being “coerced” into bowing to price cuts mandated by unelected bureaucrats at the Department of Health and Human Services for its most popular prescription drugs. Merck’s version of the argument is that by forcing it to negotiate with Medicare in order to sell its drugs, the government is engaging in an unconstitutional “taking” of Merck’s private property “without just compensation.”
The fundamental flaw in this argument, says Nicholas Bagley, an expert on administrative and healthcare law at the University of Michigan, is that “Merck doesn’t have a constitutional right to sell its drugs to the government at the price that Merck would prefer.” The government isn’t “taking” anything that Merck doesn’t choose to give it.
In explaining why it’s suing the government, Merck produces a parade of horribles it says will be the consequences of federal regulation of drug prices. “We believe this program will negatively impact biopharmaceutical innovation and the sector’s work to develop lifesaving and life-changing innovations. In turn, it will have devastating consequences for millions of patients in need.”
We’ve heard all this before. Every industry always claims that every regulatory initiative will hamper innovation and raise consumer costs and harm millions of innocent people. This is just PR persiflage, and you can safely ignore it.
Merck’s profit margin has averaged about 25% over the last two years. In fact, it collected more in profit over that time span ($27.5 billion) than it spent on research and development ($25.8 billion); in 2021 and 2022 the company also spent nearly $16 billion on stock buybacks and dividends. In other words, it has more than enough spare cash to “develop lifesaving and life-changing innovations.”
Let’s take a further look at the industry’s arguments. But first, here’s how the negotiation program works.
Starting in September, Health and Human Services will compile a list of 10 branded, non-generic drugs from the roster of those on which Medicare spends the most; 30 more drugs will be added to the list in 2025 and 2026, and more in subsequent years. The companies have 30 days after the selection to agree to negotiate a price with Medicare, which must be at least a 25% to 60% discount from a drug’s average price on the non-federal market (the figure varies by drug). For this first round, the negotiation process lasts through July 2024, with prices to take effect in 2026.
Companies that refuse to participate in this process or reject Medicare’s designation of a “fair” price will be subject to an excise tax starting at 65% of a drug’s U.S. sales and rising over time to 95%.
Merck appears to resent that the government didn’t take a more direct approach to setting drug prices for Medicare. “Congress could simply have allowed HHS to specify a maximum price it would pay for a covered drug, or to employ its natural leverage to obtain favorable pricing,” its lawsuit states. “But those options would have enabled manufacturers to walk away from the table.” Because walkaways would have created a political backlash, Merck says, the government chose a different route.
A couple of points about this.
First, do you really believe Merck and the rest of Big Pharma would have accepted price caps on Medicare drugs without filing lawsuits like this one? Me neither. Quite obviously, if the drug industry lobby hadn’t made it known in words and cash that it would oppose any such initiative, it would have happened long ago.
Second, manufacturers are indeed enabled under the new system to walk away, just as Merck wishes. The mandate for negotiations and the penalty of a steep excise tax for refusing applies only to drug companies that have a relationship with Medicare or Medicaid. Those that choose not to sell any of their drugs to the programs are exempt.
But that’s their choice. No one forces Merck to participate in Medicare and Medicaid, as Bagley points out: “To date, it has participated because selling drugs to Medicare and Medicaid is so lucrative. … Merck will no doubt continue to participate — it’s still so lucrative! — but it just wants to get paid more.”
To put it another way, Health and Human Services is employing its natural leverage to obtain favorable pricing” — just as Merck says it should.
It’s true that under the negotiation program drug companies can’t withdraw from Medicare right away. Bagley told me by email that even if that’s a genuine flaw, the remedy is either to let the drugmakers withdraw right away or give them a bit more time to keep charging full price. “But it’s not an argument for invalidating the IRA altogether,” he says.
Merck probably was the first drug company out of the gate with a lawsuit because it knows that two of its biggest-selling drugs are likely to be subjected to the negotiating program in its first rounds. They’re Keytruda, a cancer immunotherapy drug that is its top seller, and Januvia, a diabetes treatment that ranks fourth. Together, those two drugs have accounted for about 45% of Merck’s sales in the last two years, producing profits the company is desperate to protect.
That’s why the drug industry is taking aim at the first significant effort by the U.S. government to impose sanity on drug pricing. It’s worthwhile to examine how much drug companies get away with via the U.S. drug pricing system (which is no system at all). According to the most recent available figures, the list price of Keytruda treatment in Britain is $107,000 per year; in Canada, it’s $152,000; and in France, $78,000.
In the U.S., it’s $189,000.
Those other countries have robust systems for government-set price caps and, yes, negotiations with drugmakers. Outside the Department of Veterans Affairs, we don’t have anything like that in the U.S. Now that Congress has created one, the drug companies are squealing like pigs being led to the abattoir.
At the heart of the Merck and Chamber of Commerce lawsuits is a dispute over how to calculate the “fair” price of prescription drugs. Merck asserts that Health and Human Services wants to impose its own number and that the negotiations are a “sham.”
But that’s not so. The IRA requires Health and Human Services to consider a host of criteria, such as the drugmaker’s R&D costs, the costs of production, the remaining duration of patent rights, and the effectiveness of the drug compared with alternative therapies. Nothing stops a drug company from inundating Health and Human Services with evidence on all these points, many of which will weigh in favor of a higher price for Keytruda.
The law also requires Health and Human Services to consider the government’s financial contribution to a drug’s development. That might weigh in the opposite direction because direct and indirect government funding is a major contributor to the development of most drugs that have reached the market in recent decades. They include Keytruda, which was the subject of a 2014 deal in which Merck paid more than $625 million to settle allegations that the drug infringed existing patents that were themselves the product of government-funded research.
For all its hemming and hawing, Merck knows that selling drugs to Medicare, the largest healthcare customer in the nation, is too good a deal to refuse. Even if Health and Human Services drives hard bargains, it’s not a good bet that they will cut very deeply into the drug industry’s profits. For Merck and the chamber, these lawsuits appear to be just a way to fire a shot across Health and Human Services’ bow warning that it should approach the negotiation process judiciously. Whether the courts will even consider the lawsuits now is an open question, since the negotiation process hasn’t even started, so no one can yet claimed to have been burned.
Buried in Merck’s lawsuit is a curious self-inflicted wound — a reference to a recent poll that found that 79% of Americans support allowing the government to negotiate lower drug prices.
That’s the political tide that Merck is trying to hold back. Forget all the heavy breathing in its lawsuit about constitutional rights and the government’s “commandeering” of the valiant work of drug researchers. It’s all about money. Merck and the rest of Big Pharma just want to hold on to every cent they can, their patients be damned.
To get its citizens to have more children and stop its population from shrinking, China has tried it all, even declaring having babies an act of patriotism. And yet, for the third year in a row, its population got smaller.
Not even a surprise uptick in the number of babies born, a first in seven years, could reverse the course of an aging and declining population.
China is staring down a longer term baby bust that is rippling through the economy. Hospitals are shutting their obstetrics units, and companies that sold baby formula are idling factories. Thousands of kindergartens have closed and more than 170,000 preschool teachers lost their jobs in 2023.
The country’s birthrate, as one former kindergarten in the southern city of Chongqing put it, “is falling off a cliff.” Enrollments in China’s kindergartens plummeted by more than five million in 2023, according to the most recently available data.
On Friday, the National Bureau of Statistics reported that 9.54 million babies were born last year, up slightly from 9.02 million in 2023. Taken together with the number of people who died over 2024 — 10.93 million — China’s population shrank for a third straight year.
The small bump in newborns, in part because it was the auspicious Year of the Dragon in the Chinese zodiac, didn’t change the broader trajectory, experts said. China’s childbearing population is declining and young people are reluctant to have children.
“In the medium and long term, the annual number of births in my country will continue to decline,” said Ren Yuan, a professor at Fudan University’s Institute of Population Studies.
The lack of babies is adding to China’s economic challenges. A shrinking working-age population is straining an underfunded pension system, and an aging society is leaning on a creaking health care system. China also reported on Friday that the economy grew by 5 percent in 2024, a number that was in line with expectations but that many experts said did not fully reflect a crisis of confidence among households reeling from a multiyear property crisis.
To encourage people to have more babies, the authorities are offering tax benefits, cheaper housing and cash. Cities are promising to cover the cost of in vitro fertilization. In some parts of the country, they are even promising to get rid of restrictions that penalize single mothers.
The government has called on local officials to put in place early-warning systems to monitor big changes in population at the village and town levels around the country. Some officials are even knocking on doors and calling women to inquire about their menstrual cycles.
Companies are also getting involved. In 2023, the travel site Trip.com started paying employees nearly $1,400 a year for each newborn until the age of 5. Last week, the founder of electric vehicle maker XPeng said he would give employees nearly $4,100 if they had a third child.
“We want our employees to have more kids,” said He Xiaopeng, the founder, in a video posted on social media. “I think the company should take care of the money, so employees can have children.”
The problem is not unique to China, which in 2023 was passed by India as the world’s most populous nation. Falling birthrates are often a measure of a country’s move up the economic ladder because fertility rates tend to fall as incomes and education levels go up. But China’s sudden decline in population arrived much sooner than the government had expected. Many families are earning more money than they were a decade ago, but have lost income because of the housing crisis.
Officials have long feared the day when there will not be enough workers to support retirees. Now the government has less time to prepare. More than 400 million people will be 60 or older in the next decade.
China is facing two challenges on this front. Its public pension system is severely underfunded and many young people are reluctant — or are unable — to contribute. A low retirement age has made things worse. After years of deliberation, the government decided on a 15-year plan to gradually increase the official age to 63 for men, 58 for women in office jobs and 55 for women who work in factories. The changes took effect this month.
The party only loosened birth restrictions in 2015 to allow families to have two children, an easing that created a sudden boom. Hospitals had to add beds in the corridors because there weren’t enough.
But the moment was short-lived. By 2017, births started declining every year until last year.
In 2021, panicked officials loosened China’s birth policy again, allowing couples to have three children. It was too late. The next year, so few babies were born that the population began to shrink for the first time since the Great Leap Forward, Mao Zedong’s failed experiment that resulted in widespread famine and death in the 1960s.
China has one of the lowest fertility rates in the world, far below what demographers refer to as the replacement rate required for a population to grow. This threshold requires every couple, on average, to have two children.
Experts said the number of births would likely continue to fluctuate.
“For a country of 1.4 billion a half million more births is not much of a rebound at all,” Wang Feng, a professor of sociology at the University of California, Irvine. “This is in comparison to the lowest year, in 2023 when the pandemic certainly put a pause on childbearing.”
Many young Chinese people are quick to rattle off reasons not to have children: the rising cost of education, growing burdens of taking care of their aging parents and a desire to live a lifestyle known as “Double Income, No Kids.”
For women, the sentiment is especially strong. Daughters who were the only children in their families received education and employment opportunities their parents often did not. They have grown up to become empowered women who see Mr. Xi’s appeals to them to do their patriotic duty and bear children as one step too far. Many of these women have said that deep-seated inequality and insufficient legal protections have made them reluctant to get married.
The steep drop in babies is having a drastic effect on health care, education and even the consumer market. Companies that once minted money selling baby formula to feed a baby boom are now making shakes with calcium and selenium for older adults with brittle bones.
Nestlé, the world’s largest food company, is shutting a factory for the China market that employs more than 500 people halfway across the world in Europe. The company will focus on selling premium baby products and expanding its offering in adult nutrition in China, a spokesman said.
The pressure on China’s health care system is even more pronounced. Dozens of hospitals and maternal health clinic chains have reported closing over the past two years.
On social media forums, nurses specializing in obstetrics have talked about low pay and lost jobs. One doctor told state media that being in obstetrics, once considered an “iron rice bowl” position with guaranteed job security, had become a “rusty iron rice bowl.”
And some smaller hospitals have stopped paying their staff, Han Zhonghou, a former official at a hospital in northern China, told a Chinese magazine.
“Life for maternal and child hospitals,” Mr. Han said, “is getting harder and harder by the year.”
The Federal Trade Commission on Thursday announced it had referred a complaint against Snap Inc. to the Department of Justice, alleging the social media company’s AI-powered chatbot is harmful to young users.
The complaint isn’t public, but the commission made the unusual move of announcing its referral because it determined it’s in the public interest. Two of the commissioners released statements saying they were opposed to the commission’s decision, which was made behind closed doors. One of the commissioners, Andrew N. Ferguson, called the vote “farcical.”
“I did not participate in the farcical closed meeting at which this matter was approved, but I write to note my opposition to this complaint against Snap,” he said in a statement.
Ferguson said he couldn’t elaborate on his opposition because the complaint isn’t public.
The referral signals the federal government has child safety concerns surrounding AI chatbots that can generate text and images. The Santa Monica-based company released a chatbot called My AI that runs on OpenAI’s technology in 2023 that can recommend what to watch, suggest a dinner recipe, help plan a trip or do other tasks.
Ferguson, a Republican who President-elect Donald Trump tapped to lead the FTC, said in his statement the complaint against Snap had “many problems” and clashed with the 1st Amendment.
A Snap spokesperson said in a statement that the company has “rigorous safety and privacy processes” and the product “is also transparent and clear about its capabilities and limitations.”
“Unfortunately, on the last day of this Administration, a divided FTC decided to vote out a proposed complaint that does not consider any of these efforts, is based on inaccuracies, and lacks concrete evidence,” the statement said. “It also fails to identify any tangible harm and is subject to serious First Amendment concerns.”
The FTC declined to share the complaint, noting it’s not public at the moment.
Snap has faced concerns about child safety before, including over the use of its app by teens to purchase deadly fentanyl-laced pills.
About 443 million people on average use Snapchat every day and the service is popular among teens.
President-elect Donald J. Trump is considering an executive order to allow TikTok to continue operating despite a pending legal ban until new owners are found, according to a person with knowledge of the matter.
The possible executive order, reported earlier by The Washington Post, is under discussion as TikTok faces a deadline on Sunday to be banned in the United States unless it finds a new owner. The popular video-sharing app is owned by ByteDance, a Chinese company. Republicans have said for years that they see the app, which has been downloaded to millions of smartphones, as a national security risk. It has become a rare issue that has united both parties in Congress.
If the Supreme Court upholds the law, which will ban the app unless ByteDance sells it to a non-Chinese company, special treatment from Mr. Trump might be the only way for TikTok to continue operating in the United States in the near term. The law requires app store operators like Apple and Google and cloud computing providers to stop distributing TikTok in the United States.
An executive order could try to direct the government not to enforce the law or to delay enforcement to complete a deal, a move that past presidents have used to challenge laws. It is unclear if an executive order would survive legal challenges or persuade the app stores and cloud computing companies to take steps that could expose them to huge penalties.
Alan Z. Rozenshtein, a former national security adviser to the Justice Department and a professor at the University of Minnesota Law School, said an executive order should be “taken with a medium-sized boulder of salt.” Such an order is not a law, he said, and legally would not change the legislation passed by Congress and signed by President Biden.
While there is some speculation that the app will still work if it has already been downloaded, the law also affects internet hosting companies like Oracle and other cloud computing providers, and it is unclear how video load times and the functionality of the app may respond.
One person close to Mr. Trump’s team said some of his allies had loose discussions about buying TikTok but provided no details. Mr. Biden, whose term ends on Monday, a day after the ban is set to go into effect, is also under pressure to find a way to save the app.
The New York Times reported late Wednesday that TikTok’s chief executive, Shou Chew, is expected to attend Mr. Trump’s inauguration on Monday and was offered a seat on the dais. TikTok declined to comment.
Mr. Chew is expected to be joined by other tech executives on the dais: Mark Zuckerberg, the co-founder of Meta; Jeff Bezos, the Amazon founder; Elon Musk, Mr. Trump’s megadonor; and Tim Cook, the chief executive of Apple, who personally donated $1 million to the inaugural committee.
Mr. Trump had previously backed a TikTok ban but publicly changed his stance last year, soon after meeting with Jeff Yass, a Republican megadonor who owns a large share of ByteDance.
Mr. Trump has said they did not discuss the company. But Mr. Yass helped found the trading firm Susquehanna International Group and is one of the biggest supporters of the conservative lobbying group Club for Growth. The group has hired people with ties to Mr. Trump, such as Kellyanne Conway, his former top adviser, and the Republican adviser David Urban, to lobby for TikTok in Washington.
TikTok has also worked to make inroads with the Trump team through Tony Sayegh, who was a Treasury official during Mr. Trump’s first administration and now leads public affairs for Susquehanna.
Mr. Sayegh has relationships with the Trump family and was a core part of the campaign’s decision to join TikTok this summer. Several members of the family, including Ivanka Trump, Donald Trump Jr. and Kai Trump, the president-elect’s granddaughter, have also joined the app.
Mr. Trump’s interest in TikTok is not entirely because of his advisers. He came to see how well videos about him performed on the platform, and his advisers credited it with helping him to expand his reach to a new type of voter during the campaign.
Any actions Mr. Trump might be able to take on TikTok are complicated. The law gives the president the ability to extend the deadline for a sale only if there is “significant progress” toward a deal that would put the company in the hands of a non-Chinese owner.
It also requires that the deal be possible to complete within 90 days of an extension. It is unclear exactly how an extension will work if Mr. Trump tries to deploy it after the ban takes effect.
TikTok has maintained throughout its court challenge to the law that such a sale is unworkable in part because of the prescribed time frame. A group led by the billionaire Frank McCourt has mounted a bid to buy the app — though without its mighty algorithm — in recent months.
Mr. Trump could also try to work around the law by instructing the government not to enforce it.
But app store operators and cloud computing providers could require more than a soft assurance from Mr. Trump that he will not punish them if they fail to execute the ban, said Ryan Calo, a professor at the University of Washington School of Law. The potential legal liability for companies that violate the law is significant: Penalties are as high as $5,000 per person who is able to use TikTok once the ban is in effect.
“You could have a policy not to enforce this ban,” said Mr. Calo, who was part of a group of professors who urged the Supreme Court to overturn the TikTok law. “But I think that maybe conservative companies would just be like: ‘OK, you’re not going to enforce it. But it is on the books, and you could enforce at any time.’”
Mr. Trump’s pick for attorney general, Pam Bondi, has declined to say whether she would enforce the law.
“I can’t discuss pending litigation,” she said at her Senate confirmation hearing on Wednesday. “But I will talk to all the career prosecutors who are handling the case.”
Mr. Trump has a third option: appealing to Congress to reverse a policy it overwhelmingly approved with broad bipartisan support last year.
“Congress can undo this anytime,” Mr. Calo said.
On Thursday, Senator Chuck Schumer of New York, the Democratic leader, said on the Senate floor that he was worried about the possibility of a ban on TikTok.
“It’s clear that more time is needed to find an American buyer and not disrupt the lives and livelihoods of millions of Americans, of so many influencers who have built up a good network of followers,” he said. He added that he had also made those views clear to the Biden administration and accused Republicans of blocking a bill that would have extended the deadline for a ban by 270 days.
A White House official said on Thursday that the administration’s clear view was that TikTok should operate with an American owner. Because of the timing of the potential ban — taking place over a holiday weekend before the inauguration — it would fall to the next administration to carry out the law, the official said.
Catie Edmondson contributed reporting.
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