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4th Circuit hears arguments on Md.’s drug price-gouging law

Attorneys for an industry group opposed to Maryland’s generic drug price-gouging law told judges in the 4th U.S. Circuit Court of Appeals on Wednesday that a lower-court judge improperly dismissed a portion of their challenge alleging the law attempts to impermissibly regulate interstate commerce.

“The fundamental problem with (the law) is that it regulates the price to be paid in transactions between manufacturers and wholesalers of generic drugs even when both parties to the transaction are entirely outside the state of Maryland,” said Jay Lefkowitz, an attorney for the Association for Accessible Medicines.

The law, which went into effect on Oct. 1, prohibits a significant price increase of an essential off-patent or generic drug and gives the Maryland attorney general the power to order the manufacturer to explain the reasons behind a significant price increase as well as request a court order restraining or enjoining a violation.

Gov. Larry Hogan allowed the law to go into effect in June without his signature, citing his concerns about its constitutionality. AAM, a trade association, filed suit in July. Senior U.S. District Judge Marvin J. Garbis in Baltimore dismissed dormant Commerce Clause claims in September but allowed vagueness claims to go forward. AAM then appealed to the 4th Circuit.

On Wednesday in Richmond, Virginia, 4th Circuit Judge A. Steven Agee asked Lefkowitz why Maryland cannot protect its citizens from drug price increases, citing recent examples of costs increasing by as much as 5,000 percent.

Lefkowitz, a partner in Kirkland & Ellis LLP in New York, replied states cannot regulate transactions wholly outside their jurisdiction, which includes the vast majority of drug manufacturer sales. He also said there were constitutional options for Maryland to regulate the sale of generic drugs at a significant markup, including prohibiting sale in the state if the price is dramatically higher than the previous year.

“I’m not sure my clients would be very happy with these alternatives but they wouldn’t be unconstitutional, and that’s the critical thing,” he said.

Judge Stephanie D. Thacker pointed out that no enforcement actions have been initiated in the months since the law went into effect, but Lefkowitz said it could be because the state is holding off in light of the litigation.

“We are in a very unsettled place right now because they are threatening,” he said. “They are investigating. They are planning to bring enforcement actions. I think all of the concerns are the same.”

Joshua N. Auerbach, who argued the case for the Maryland Office of the Attorney General, stressed the statute applies to downstream sales in Maryland alone and courts have upheld laws that would have an “upstream impact” on commerce.

“The statute is triggered by an in-state consumer sale and it regulates in-state consumer sales,” he said.

The judges questioned where the law explicitly states that it only applies to in-state sales, and Auerbach conceded “it could have been better written,” suggesting the court adopt a limiting condition if necessary in lieu of finding the law unconstitutional.

Judge James A. Wynn Jr. also heard the case as part of the three-judge panel.

The case is Association for Accessible Medicines v. Brian E. Frosh et al., 17-2166.

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