Health Law Daily Wrap Up, PRESCRIPTION DRUGS—D.D.C.: IRA’s Drug Price Negotiation Program not unconstitutional, federal trial court holds, (Aug 28, 2026)

By Rebecca E. Hoffman, J.D.

The Medicare Part D program violated neither the takings clause nor the First Amendment, the court said, granting summary judgment in favor of the government.

The government was entitled to summary judgment in a pharmaceutical company’s action challenging the constitutionality of the Inflation Reduction Act’s Drug Price Negotiation Program, the District of Columbia District Court held. The negotiation program is an exception to the Medicare Part D prohibition against government interference with drug price negotiations among manufacturers, pharmacies, and private insurance companies. It permits the Centers for Medicare and Medicaid Services (CMS) to negotiate the “lowest maximum fair price” for drugs meeting certain criteria (Merck & Co., Inc. v. Kennedy, No. 23-1615 (CKK) (D.D.C. Aug. 24, 2026)).

CMS was prevented from negotiating drug prices until 2022, when Congress enacted the Inflation Reduction Act, with its Drug Price Negotiation Program, the court explained. CMS must select a limited number of eligible drugs and negotiate maximum fair prices for those drugs subject to price ceilings derived from the price on the private market. The pool of drugs must have had FDA approval for at least seven years, must not have a generic competitor, and must correspond to the largest expenditures under Medicare Part B or D. Once CMS selects and publishes the list of negotiation eligible drugs, the manufacturers of those drugs must choose whether to participate in the program. If they do choose to participate, the drug maker executes a Medicare Drug Price Negotiation Program Agreement, then CMS and the drug companies attempt to agree on the maximum fair price for each drug, and, when they get there, they execute a Negotiated Maximum Fair Price Addendum. If they cannot agree on the price, however, the manufacturer will be subject to lofty excise taxes, unless it pulls out of the “Opt-Out Programs”—referring to Medicare Part D’s Manufacturer Discount Program and the Medicaid Drug Rebate Program—or divests its interest in the drug entirely.

Januvia is chosen. The instant matter arose when Merck & Co, Inc. and Merck Sharp & Dohme LLC’s diabetes treatment Januvia was chosen for negotiation under the program. Merck argued that the program effected an impermissible taking and compelled speech. The parties cross-moved for summary judgment, and the court granted the government’s motion.

The program violated the Fifth Amendment, Merck averred, because it was “taking” Januvia. If Merck did not participate in the program and provide Medicare patients with the drug at the lower negotiated price, the company argued, the government would impose taxes or exclude it from government benefits. Moreover, the payments Merck would receive would be so much lower than market that they would not constitute “just compensation” for the taking.

No ‘taking.’ The court agreed with the government that there was no taking here. “Merck is subject to the Program only because it is a voluntary participant in the Opt-Out Programs,” the court said, meaning that if Merck wished not to sell drugs at the negotiation program price, it could withdraw from the Opt-Out Programs.

The court distinguished decisions to which Merck cited, noting that the government was not forcing Merck to leave the market. Furthermore, “Merck’s ‘choice to participate in a voluntary government program does not become involuntary simply because the alternatives to participation appear to entail worse, even substantially worse, economic outcomes,’” the court reasoned, quoting Boehringer Ingelheim Pharmaceuticals, Inc. v. HHS, 150 F.4th 79, 90 (2d Cir. 2025) (see Drug manufacturers constitutional challenges of Medicare Drug Price Negotiation Program fail, Aug. 12, 2025).

No free speech violation. The court also determined that the negotiation program did not compel speech in violation of the First Amendment. Merck argued that the program forced it to agree that the government’s price was the maximum fair price, thereby “compel[ling] Merck to ‘peddle the counternarrative’ that, absent the Program, Merck would charge more than the ‘maximum fair price.’”

Reiterating that participation in the program was voluntary, the court observed that any related speech was not coerced. Also, the speech in the agreements was incidental to government regulation of conduct. “The terms that Merck complains of ‘are meant to effectuate the Program, not to force [Merck] to endorse a government-mandated message,’” the court said (citations omitted). The agreements also did not impose an impermissible condition on federal funding, the court found, noting that Merck could have criticized the program anywhere but in the program contracts.

The case is No. 23-1615 (CKK).

Judge: Kollar-Kotelly, C.

Attorneys: Gerald Brinton Lucas (Jones Day) for Merck & Co., Inc. Stephen M. Pezzi, U.S. Department of Justice, for Xavier Becerra.

Companies: Merck & Co., Inc.

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