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4th Circuit lets generic drug price-gouging ruling stand

Frosh weighs appeal to U.S. Supreme Court

The full 4th U.S. Circuit Court of Appeals on Tuesday refused to disturb a three-judge panel’s decision striking down as unconstitutional Maryland’s law aimed at preventing unwarranted price increases of generic drugs, leaving the state with few options other than to seek review by the U.S. Supreme Court.

But Maryland Attorney General Brian E. Frosh, who advocated for the law’s enactment last year, said no decision has been made on whether to take the case to the justices.

Seeking high court review “certainly warrants considering … and that’s what we’ll decide in the next week or two,” Frosh said within hours of the 4th Circuit’s refusal.

“It’s an important policy initiative,” the attorney general added. “We want to stop price gouging.”

The full 4th Circuit’s refusal to hear the case leaves intact the court’s 2-1 decision in April that the 2017 law directly regulates the price of generic drug transactions that occur outside the state, authority the constitution’s Commerce Clause leaves to Congress and not to state legislatures.

The law, which went into effect 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 boost as well as request a court order restraining or enjoining a violation.

Gov. Larry Hogan in June 2017 allowed the law to go into effect without his signature, citing his concerns about its constitutionality.

The Association for Accessible Medicines, a generic drug industry group, filed suit last July, challenging the law as unconstitutional and issued a statement Tuesday hailing the full 4th Circuit’s decision.

“Today’s decision by the 4th Circuit to deny the (state’s) en banc petition is a victory for patients in Maryland and across the nation who depend on access to affordable generic medicines to contain health care costs,” the association stated.

Judge James A. Wynn Jr., who dissented in the panel’s decision, also dissented from the full 4th Circuit’s refusal to review the panel’s decision.

“The right of a state to protect the health, safety, and welfare of its citizens should not be denied by the judicial expansion of a judge-made doctrine with a name that aptly describes what it should be, the dormant Commerce Clause’s ‘extraterritoriality doctrine,’” Wynne wrote. “More significantly the majority opinion’s expansive interpretation of the extraterritoriality doctrine significantly incurs on the states’ reserved powers to enact legislation to protect the health, safety, and welfare of their citizens. The division between this court and our sister circuits and the significant federalism concerns posed by the majority opinion’s expansion of the long-dormant extraterritoriality doctrine make this a case ripe for rehearing en banc as a matter of exceptional importance.”

Other 4th Circuit judges seeking review of the panel’s decision were Chief Judge Roger L. Gregory and Pamela A. Harris.

Judges Stephanie D. Thacker and G. Steven Agee, the majority on the panel decision, voted to deny a full-court hearing. Joining them were Judges J. Harvie Wilkinson III, Paul V. Niemeyer, William B. Traxler Jr., Robert B. King, Allyson K. Duncan, Albert Diaz and Henry F. Floyd.

Judges Diana Gribbon Motz and Barbara Milano Keenan did not participate in the vote.

The case is Association for Accessible Medicines v. Brian E. Frosh et al., No. 17-2166.

3 factors

The divided 4th Circuit panel found three factors pointing to the law’s violation of the Constitution’s clause.

In earlier court proceedings, U.S. District Judge Marvin J. Garbis, who sits in Baltimore, dismissed the Commerce Clause challenge, prompting AAM to appeal.

“First, the act is not triggered by any conduct that takes place within Maryland,” Thacker wrote for the majority. “Second, even if it were, the act controls the prices of transactions that occur outside the state. Finally, the act, if similarly enacted by other states, would impose a significant burden on interstate commerce involving prescription drugs.”

For example, “if multiple states enacted this type of legislation, then a manufacturer may consummate a transaction in a state where the transaction is fully permissible, yet still be subject to an enforcement action in another state (such as Maryland) wholly unrelated to the transaction,” added Thacker.

Wynn, in dissent, said the Maryland statute falls within the state’s “general police powers to regulate matters of legitimate local concern” without violating the Commerce Clause.

“Here, Maryland legitimately targeted generic drug pricing practices specifically designed to prey on the special vulnerabilities of a defenseless group of Maryland citizens,” Wynn wrote. “Simply put, the Maryland statute – which applies equally to in-state and out-of-state manufacturers and distributors – does not implicate the concerns that lie at the heart of the Supreme Court’s dormant (state-law generated) Commerce Clause jurisprudence: economic protectionism, discrimination against interstate commerce, and state regulation of streams of transactions that never cross through the state’s borders.”

 


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