J&J CFO: Medicare and Health Dept. are 'going after the wrong target' to reduce drug price inflation

Johnson & Johnson (JNJ) became the latest pharmaceutical giant to file a lawsuit against the US Health and Human Services Department (HHS) over anticipated Medicare drug pricing negotiations this year.

The company joins Merck (MRK), Bristol Myers Squibb (BMY), and the trade groups US Chamber of Commerce and PhRMA, which represent a number of other pharmaceutical and biotech companies.

The lawsuits call the drug pricing rule, which was part of the Inflation Reduction Act, unconstitutional, citing either the Fifth, Eighth, or First Amendments.

In citing the Fifth, the organizations say that Medicare is essentially looking to set prices rather than negotiate, constituting government seizing of property. The lawsuits citing the Eighth Amendment focus on the idea that the drug pricing would prompt excessive tax or excessive fines. The companies also contend that their free speech is being violated by being forced to accept the government's terms.

An HHS official recently told reporters there was nothing in the Constitution that prevents Medicare from negotiating lower drug prices.

"The lawsuit is really about ... the assault on innovation," said J&J CFO Joe Wolk in an interview with Yahoo Finance Thursday.

He repeated the industry refrain that drug manufacturers take on significant financial risk to get medicines to market.

"To reduce inflation, I think they've gone after the wrong target here," Wolk said.

He pointed instead to increased insurance premiums and copays as well as the impact of inflation on consumers' wallets.

The healthcare industry has been engaged in a finger-pointing exercise since the start of debates over the high cost of care in the US. The drug industry, pharmacy benefits managers, and insurers are pointing at each other over high costs.

"If you think about what the government is looking to do, it's set prices," Wolk said.

He cited recent studies that look at the wider availability of medicines to Americans compared to countries that set pricing.

"Eighty-five percent of Americans have access to new medicines in that first year when they become available. That number, quite frankly, in my opinion, should be 100%," Wolk said.

That means Americans fare better compared to countries like France and Canada, which set prices.

Wolk noted the company releases an annual transparency report that shows J&J decreased prices in 2022 by 3.5%.

When asked if J&J anticipates a financial impact from the negotiations, Wolk said, "We're well positioned to absorb any impact. It's less about that."

Follow Anjalee Khemlani on Twitter @AnjKhem.

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