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Generic Price Gouging Decision Upheld

May 17, 2019

The U.S. Supreme Court rejected Maryland’s 2017 law that allowed the attorney general to review and regulate price increases of generic or off-patent drugs.

Maryland’s legislature passed the so-called price gouging bill in the wake of reports of isolated, high-profile drug price increases.

Under the Maryland law, the Maryland Medical Assistance Program was to notify the state’s attorney general of price increases of 50 percent or more. The attorney general (AG) could then petition a court to demand documentation from a generic drug maker of the price increase and then restrain the maker from selling the drug for a particular price, using the state’s definition of price-gouging, and impose a civil penalty of up to $10,000 for each violation.

Violated ‘Dormant Commerce Clause’

The Association for Accessible Medicines (AAM), a trade group for the generic and biosimilar drug industries, challenged the law as violating the U.S. Constitution’s Dormant Commerce Clause, which essentially restricts states from interfering with interstate commerce. In 2018, the U.S. Court of Appeals for the Fourth Circuit sided with AAM, stating the law does regulate prices outside the state.

Maryland petitioned the U.S. Supreme Court to hear the case in October 2018. In a news release April 2018, Maryland Attorney General Brian Frosh stated the appeals court panel had misunderstood the scope of the law, and he denied the law regulated prices in other states and said the appellate panel relied on an interpretation of the Dormant Commerce Clause “more expansive” than was used by other appellate courts.

Targeting Cases, or Industry

Chip Davis, president and CEO of AAM, says he understands the public’s frustration regarding high drug prices but sweeping laws are not the answer.

“I’m not aware of anybody who supports price gouging of prescription drugs, whole full stop. There have been instances of it, and it should not be tolerated. I understand the public’s and policymakers’ anger about it,” Davis said.

“We have to craft solutions that deal with those cases individually, because they are, relatively speaking, isolated incidents, and I don’t say that to minimize the impact on people affected, but you need targeted solutions as opposed to what Maryland tried to do, which was to say, “We’re going to go after the entire generic drug industry.'”

In the case of Turing Pharmaceuticals, the company managed to gain a relative monopoly on the non-generic but off-patent drug Daraprim when it purchased an exclusive license for the drug.

Other States Affected

Illinois Rep. Will Guzzardi (D-Chicago) told Health Care Newshe is shelving his bill that mirrors the Maryland law, in light of the Supreme Court decision. The Illinois House passed the Generic Drug Pricing Fairness Act last year, but the bill stalled in the state Senate. Guzzardi says he is pursuing other ideas for legislation targeting medical costs.

Similar bills also failed to gain traction in Indiana, Mississippi, and Virginia. Price control bills are active in Massachusetts, Minnesota, New Jersey, and New York.

“Just like the federal government, state governments will continue to pursue untenable legal arguments even after being handed a loss,” said Pete Sepp, president of National Taxpayers Union. “Or, they will simply tweak their proposals in the hope that they can squeak past another court’s scrutiny,” said Sepp. 

“It is difficult to think of a workaround that will satisfy the Dormant Commerce Clause as the framers intended it to apply. Unfortunately, the Supreme Court’s narrow and, in our opinion, wrongly decided Wayfair ruling has provided very limited barriers against the states’ continuing to try,” Sepp said.

Sepp sent an open letter to Minnesota lawmakers in response to House File No. 4, which targets prescription drug prices.

In 2018, the U.S. Supreme Court upheld a South Dakota law challenged by online retailer Wayfair. The law compelled out-of-state sellers such as Wayfair to collect and remit sales tax for customers in the state under certain conditions. The high court decided the law did not interfere with interstate commerce as Wayfair had argued. AAM’s Davis says states’ attempts to control generic drug prices through any legal argument are misguided.

“Only in the political environment would you go after the ecosystem delivering 90 percent of the market for 23 percent of the cost and think we are the problem,” said Davis.

AnneMarie Schieber(amschieber@heartland.org)is managing editor ofHealth Care News.

Author
AnneMarie Schieber is a research fellow at The Heartland Institute and managing editor of Health Care News, Heartland's monthly newspaper for health care reform.
amschieber@heartland.org @HCPolicy