A first-of-its-kind Maryland law permitting the state’s attorney general to sue pharmaceutical companies that substantially raise generic drug prices was ruled unconstitutional by a three-judge panel from the 4th U.S. Circuit Court of Appeals in Association for Accessible Medicines v. Frosh (887 F.3d 664).

The law was passed in April 2017 with bipartisan support as an effort to end price-gouging and curb rising prescription drug prices. It became law without the signature of Governor Larry Hogan, who had doubts about the constitutionality of the measure. The attorney general was given the authority to require companies to show records and provide justification if prices rose by 50% or more in a year. Companies faced fines up to $10,000 and could be forced to reverse price increases.

The plaintiffs, a trade group representing manufacturers of generic pharmaceuticals called the Association for Accessible Medicines (AAM), sought to block the measure and appealed a district court’s decision that upheld it.

In a 2-1 ruling, the majority held that the law was “unconstitutional under the dormant commerce clause because it directly regulates transactions that take place outside Maryland.” However, 4th Circuit Judge Stephanie Thacker, who wrote the opinion, added that the decision does not prevent states from passing legislation aimed at lowering prescription drug prices. She cited a Supreme Court decision from ten years ago that upheld a law permitting Maine to negotiate rebates with manufacturers to finance reduced-price drugs for low-income residents.

AAM’s general counsel, Jeff Francer, celebrated the 4th Circuit ruling. He argued that the law would not have resulted in lower prices because it did not apply to expensive brand-name drugs. Francer said: “generic drugs bring great savings to people and are not the cause of the great budget issues around health care that are impacting the states.”

Writing for the dissent, 4th Circuit Judge James Wynn said the “majority misunderstood the scope of the statute, which protects Maryland consumers against unconscionable increase in the price of certain essential medicine, and which does not regulate prices charged to consumers in other states.”

The state’s attorney general, Brian Frosh, echoed the dissent and said that the ruling, “substantially intrudes on the States’ reserved powers to legislate to protect the health, safety, and welfare of their citizens.” Two weeks after the decision, Frosh requested that a full federal appeals court rehear the case, otherwise known as “en banc.” Although such appeals are generally not granted, some experts think this case could be a strong candidate.

Little has been done at the federal level regarding rising drug prices, which has prompted states like Maryland to take the initiative. However, states only have the capability of regulating certain parts of the problem, such as a specific drug or practice, due to limited tools and resources. According to health law specialists, a comprehensive approach by Congress would be more beneficial in the long run than piecemeal legislation by various states.

This ruling could have significant aftershocks. Maryland’s law was seen a model for other states to follow in combatting drug price hikes. Thirteen other states have introduced similar legislation this year, including Illinois and Louisiana, but none of those measures have become law. Experts are concerned that the 4th Circuit’s decision could have a chilling effect on future efforts.

 

This post was written by Logan Mortenson, compliance attorney with the Finance & Risk business of Thomson Reuters.