Spiked Maryland Rx Pricing Law Could Kill Similar Efforts

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By Dana A. Elfin

An appeals court’s recent spiking of a Maryland law that sought to regulate prescription drug price hikes could doom similar price transparency laws and legislation pending in other states.

The U.S. Court of Appeals for the Fourth Circuit ruled that a Maryland law prohibiting price gouging by generic pharmaceutical manufacturers ( HB 631) violates the constitution because it directly regulates transactions occurring outside of Maryland.

The Fourth Circuit’s ruling could cloud the outlook for other states considering drug pricing transparency bills, and that could have a big impact on the increasing number of states with drug pricing issues on their agendas. At least 13 states, including Colorado, Illinois, Louisiana, Massachusetts, Minnesota, New York, Rhode Island, Tennessee, Vermont, and Virginia, are considering laws that could block or restrict generic drug price gouging, according to data compiled by the National Conference of State Legislatures.

Other states around the country are considering drug pricing laws that also address branded pharmaceutical pricing practices that they say raise drug prices and decrease transparency. California and Nevada have already adopted laws related to drug pricing.

In its ruling, the Fourth Circuit panel said the Maryland law “violates the dormant commerce clause because it directly regulates the price of transactions that occur outside Maryland.”

Effect On Pending State Proposals

“The Fourth Circuit’s ruling should affect similar proposals whereby states seek to regulate commercial transactions that occur wholly outside of their borders,” Jeffrey Francer, general counsel of the Association for Accessible Medicines, the group that challenged the Maryland law, told Bloomberg Law April 16.

Members of AAM, which represents the generic pharmaceutical industry, include Mylan, Sandoz (part of Novartis), Teva Pharmaceuticals, and Impax Laboratories.

No Role for States?

Some industry watchers tell Bloomberg Law the Fourth Circuit’s decision could tie states’ hands in addressing spiraling drug costs. The ruling could also leave pending state drug pricing transparency legislation vulnerable to industry attack on the same constitutional grounds, they said.

“The ruling says there is no state role in trying to control the [drug] prices their residents pay,” Gerard Anderson, a professor at Johns Hopkins University’s Bloomberg School of Public Health in Baltimore, told Bloomberg Law in a telephone interview April 16. Anderson researches drug pricing.

“It leaves the states in a very difficult place when they can’t deal with the prices their residents pay,” Anderson said.

“If the decision is correct, which is in significant doubt, it would limit the means states have to combat price gouging,” Scott Nelson, an attorney with Public Citizen’s litigation group, told Bloomberg Law in a telephone interview April 16. Public Citizen signed on to a brief in the case submitted by AARP in support of Maryland."It would prevent them from using the most effective means [of attack], which is doing it at the wholesale level regardless of where the transaction took place,” he said.

The pharmaceutical industry is likely to use the decision to attack similar state laws, Nelson said.

“I think industry is going to try to use the case in other circuits” to challenge similar laws addressing prescription drug pricing, he said.

The Pharmaceutical Research and Manufacturers of America, or PhRMA, the lobbying arm of the brand-name drug industry, declined to comment on the Fourth Circuit’s decision and its possible impact on other state’s drug pricing transparency laws and legislative efforts. PhRMA is currently litigating against California and Nevada laws containing drug-price transparency requirements, claiming the laws violate the Constitution’s commerce clause.

But, according to Nelson, the story’s far from over.

“I don’t think we’ve seen the end of this [drug pricing transparency issue] in this case or nationwide,” he said. “There’s a long way to go insofar as how things shake out in terms of how states can deal with this problem,” he said.

Maryland May Appeal

Maryland’s Democratic attorney general, Brian Frosh, the defendant in the Fourth Circuit appeal, has the option of asking the full Fourth Circuit to rehear the case or asking the U.S. Supreme Court to hear the case, Nelson said.

The fact that other appeals courts, including the U.S. Court of Appeals for the First Circuit, have reached different conclusions on similar laws, is one of the bases litigants can request an appeals court rehearing, he said.

“Whether the [appeal court’s] decision would be followed outside of the Fourth Circuit is very questionable,” Nelson said.

Meanwhile, Frosh said April 13 his office was “evaluating all options with regard to next steps.”

“I fully expect the State of Maryland to appeal,” Stephanie Trunk, a health care attorney with Arent Fox LLP in Washington, told Bloomberg Law April 16, noting that it was a split decision. Trunk is a member of the Bloomberg Law advisory board.

Judge James Andrew Wynn Jr. filed a dissenting opinion, disagreeing with the majority opinion in the case.

Governor Didn’t Sign

The Maryland legislation became law without Gov. Larry Hogan (R)'s signature. The law gave the state attorney general’s office authority to take legal action against corporations that hike prices, making Maryland the first state in the nation to empower its attorney general to fight alleged pharmaceutical price gouging.

The Maryland law defined price gouging as “an unconscionable increase in the price of a prescription drug.”

The case is Ass’n for Accessible Meds. v. Frosh , 2018 BL 130930, 4th Cir., No. 17-2166, 4/13/18 .

To contact the reporter on this story: Dana A. Elfin in Washington at delfin@bloomberglaw.com

To contact the editor responsible for this story: Randy Kubetin at rkubetin@bloomberglaw.com

For More Information

The ruling is at http://src.bna.com/xZc.

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