Trade group challenges Md. drug price gouging law

Maryland’s first-in-the-nation law seeking to eliminate price gouging by makers of generic pharmaceuticals has been challenged by the manufacturers, who claim the law is discriminatory and an unconstitutional overreach.

House Bill 631, which passed both chambers of the General Assembly with bipartisan support and veto-proof majorities, became law in June without the signature of Gov. Larry Hogan, who expressed concerns about the legal questions raised by the bill.

The Association for Accessible Medicines raised those questions in its federal lawsuit, filed Thursday in U.S. District Court against Maryland Attorney General Brian E. Frosh and Maryland Department of Health and Mental Hygiene Secretary Dennis R. Schrader, seeking an injunction to block the law from going into effect in October.

The lawsuit alleges the bill violates the Commerce Clause of the Constitution by giving a state the power to regulate interstate commerce as well as the Due Process Clause because it gives Frosh “extreme, arbitrary enforcement powers.”

“Rather than allow the vibrant competition in the generic drug marketplace to continue working for patients, Maryland would become the first state to reject generic competition in favor of more government regulation – of generic drugs, the only segment of health care costs that is actually declining,” AAM CEO Chip Davis said in a prepared statement.

The law prohibits a manufacturer or wholesale distributor from engaging in price gouging in the sale of an essential off-patent or generic drug and gives the Maryland attorney general the power to order the manufacturer to submit a statement explaining the reasons behind a significant price increase as well as request a court order restraining or enjoining a violation. A violation also carries a civil penalty of up to $10,000 per violation.

Vincent DeMarco, president of Maryland Citizens’ Health Initiative, which supported the legislation, said it allows the state to prevent bad actors within the prescription drug industry from engaging in misconduct.

“This entity should be spending its time trying to make prescription drugs affordable to people, not trying to undermine a lifesaving law,” he said of AAM.

DeMarco added the bill was thoroughly vetted by Frosh’s office and Maryland legislators were clearly convinced of the law’s constitutionality.

“I’m not surprised, sadly, that they (AAM) want to do this, because they really worked hard to get the bill vetoed and luckily the governor did not veto it, but I can tell you the attorney general in proposing this law… looked at the constitutional decisions on all these issues and concluded that it’s constitutional.”

The attorney general’s office did not immediately respond to a request for comment Thursday.

Nationwide problem

Proponents of the bill pointed to the recent, sharp price increases of Naloxone, used to treat opioid overdoses, and EpiPens.

“We’ve seen 5,000 percent increases in some critically needed generic drugs,” DeMarco said. “Over and over again, we heard stories from people who could not afford the escalating prices of their prescription drugs and were thrilled that the legislature enacted this.”

Other states are also considering similar legislation, and DeMarco said he does not believe the lawsuit will deter them from attempting to regulate drug pricing.

The law only applies to an “essential off-patent or generic drug,” meaning its patent rights have expired; it’s designated as essential by the World Health Organization or DHMH secretary; it’s actively manufactured or marketed in the United States by three or fewer companies; and it’s sold in Maryland.

Under the law, price gouging is considered an “unconscionable increase” in the price, meaning excessive, not justified by the cost of production or expansion of access, and resulting in consumers having no meaningful choice to about whether to purchase the drug at the excessive price.

Under the law, Medicaid may notify the attorney general of any increase in price defined in the law and then the attorney general may investigate.

AAM alleges the law’s “sweeping price control reaches into every corner of the United States, if not beyond,” even though presented as a local economic regulation. Because manufacturers do not make pricing decisions on a state-by-state basis and most large generic drug manufacturers and wholesalers are located outside of Maryland, the law targets commerce and pricing conduct occurring wholly outside the state, the complaint states.

The prohibition against price gouging also is so vague that it violates the Due Process Clause of the Fourteenth Amendment, according to the lawsuit, because it fails to describe the prohibited conduct and leaves the decision to launch an investigation to the interpretation of the attorney general.

DeMarco said the common law standard of unconscionability is well-established and the vagueness argument has no basis.

“The basic fact of the matter is you can’t come into our state and price gouge and the state not have the authority to stop it,” he said. “It’s absolutely constitutional.” 

Daily Record staff reporters Tim Curtis and Bryan P. Sears contributed to this report.