Maryland law against price-gouging by drug companies is unconstitutional, appeals court rules

A federal appeals court ruled Friday that a Maryland law passed last year to stop sharp increases in the price of generic medicines is unconstitutional, a setback to new efforts by states to keep down the cost of drugs.

In a 2-1 ruling, the 4th Circuit Court of Appeals found that the law regulates trade that happens beyond Maryland’s borders, and so is prohibited by the so-called dormant commerce clause. Judge Stephanie D. Thacker wrote an opinion ordering a lower-level federal judge to bar the law from going into effect.

“Maryland cannot, even in an effort to protect its consumers from skyrocketing prescription drug costs, impose its preferences in this manner,” Thacker wrote.

The ruling is a blow for Maryland Attorney General Brian Frosh, who championed the measure and helped get it through the General Assembly in 2017. Frosh, a Democrat, said in a statement that he was disappointed.

“We remain committed to pursuing efforts to eliminate price gouging and to safeguarding Marylanders’ access to prescription drugs,” he said.

Frosh’s office said it was still assessing how to respond to the ruling. The state’s lawyers could seek another review by all the judges in the 4th Circuit or take the case to the Supreme Court.

Maryland passed the legislation after reports of steep price increases for generic drugs — those no longer covered by a patent — especially those where a small number of companies controlled the market for medicines doctors deem essential. The law gave authorities new power to monitor price changes and seek fines or court orders reversing increases.

But the Association for Accessible Medicines, a drug industry trade group, sued the state over the law, saying it was unconstitutional. The organization has argued that the measure could hurt competition by scaring companies out of the business of making generic drugs and actually drive up prices.

Chip Davis Jr., the group’s president, said Friday’s ruling would be good for patients.

“As AAM has always maintained, this law, and any others modeled from it, would harm patients because the law would reduce generic drug competition and choice, thus resulting in an overall increase in drug costs due to increased reliance upon more-costly branded medications,” Davis said in a statement.

Republican Gov. Larry Hogan wrote last year that he shared the drug industry’s concerns about the law and let it go into effect without signing it.

The law required health officials to share with the attorney general’s office price information about generic drugs. If the state’s lawyers could show that prices were being raised too steeply, they could step in and seek to order prices down or have fines issued.

In ruling against Maryland’s law, Thacker wrote that the court was not saying the state was wrong to try to protect patients from price increases.

“To be clear, we in no way mean to suggest that Maryland and other states cannot enact legislation meant to secure lower prescription drug prices for their citizens,” she wrote. “Although we sympathize with the consumers affected by the prescription drug manufacturers’ conduct and with Maryland’s efforts to curtail prescription drug price gouging, we are constrained to apply the dormant commerce clause.”

The Maryland law was the first of its kind in the nation, but other states have been considering similar measures. The judges said that if several states did follow Maryland’s lead, drug makers could face a difficult time complying with a patchwork of rules.

Judge James A. Wynn dissented from the majority opinion, saying the other judges had interpreted the commerce clause too broadly. Wynn wrote that their ruling would stop “Maryland from protecting its citizens against unconscionable pricing practices by out-of-state generic drug manufacturers.”

Patient advocates in Maryland continued to seek new laws to bring down drug prices in the General Assembly this year. They proposed a commission to look at drugs still covered by patents. That idea didn’t succeed, but lawmakers passed a measure to allow pharmacists to advise patients if a drug is cheaper to buy with cash rather than using insurance. Hogan has not said whether he’ll sign the law.

Vincent DeMarco, president of the Maryland Citizens' Health Initiative, commended Frosh’s office for its support of the price gouging law.

“It’s a good law that helps the people of Maryland,” DeMarco said.

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