In a blow to the pharmaceutical industry, a federal court judge allowed a new Maryland law to go into effect on Sunday that permits state officials to punish generic drug makers for price gouging.
The Association for Accessible Medicines, a trade group, had argued the law — which was enacted last May and is the first of its kind in the U.S. — was unconstitutional, unnecessarily vague, and might prompt some companies to halt the sale of their medicines in the state. But U.S. District Court Judge Marvin Garbis was not persuaded.
State officials “provided ample support for their position that (the law) targets a narrow set of conduct that is intended to protect Maryland consumers from unconscionable price increases in the drugs that are essential to their health,” he wrote in a 40-page order. And he declined to issue an injunction to delay the law from taking effect.
Consumer activists praised the decision. “We are thrilled that Maryland is moving forward,” Vincent DeMarco, who heads the Maryland Citizens Health Initiative, told us. “For the first time in America, somebody can do something about price gouging.”
The trade group plans to file an immediate appeal.
“As AAM has stated from the outset, this law will hurt patient access to safe, affordable generic medicines in Maryland and the rest of the U.S., and will create untenable uncertainty for generic drug makers who may be left with no choice but to abandon markets altogether,” said Jeff Francer, AAM senior vice president and general counsel, in a statement.
The law was promoted in response to the growing clamor over prescription drug costs, a volatile issue that has dented American wallets and roiled the proverbial political waters. Although poll after poll show Americans want the federal government to act, Congress has failed to do so, and a growing number of states are scrambling to fill the void. The National Governors Association, for instance, is planning a strategy session.
Indeed, the ruling is now likely to spur other state legislatures to mimic Maryland, according to Bernie Horn, senior director of state policy and communications at the Public Leadership Institute, a think tank that focuses on state and local government issues.
“People at the state level are frustrated that, for a whole lot of years, there was not much they could do (about rising medicine costs) and all of a sudden Maryland opened up a new avenue, and they want to grab it. It’s a terrific political issue,” he said, adding that 35 legislators in 26 states have indicated they want to introduce similar legislation.
From the start, the generic trade group feared that other states will follow suit. A similar pattern, in fact, has already emerged around the country as more state lawmakers introduce bills to force drug makers to explain and justify price hikes. Vermont passed such a law and Nevada did as well, although it pertains only to diabetes treatments.
In Maryland, the focus turned to generic drugs after prices for some of these treatments rose considerably in recent years. The most notorious examples involved older, off-patent drugs purchased by Valeant Pharmaceuticals (VRX) and Martin Shkreli’s Turing Pharmaceuticals, which then quickly boosted prices to sky-high price levels.
Supporters also pointed to a U.S. Government Accountability Office report issued last year that examined Medicare Part D pricing and found 315 of 1,441 drugs experienced an extraordinary price increase between early 2010 and early 2015. This was defined as a price increase of at least 100 percent. However, the GAO also found “many other generic drugs continued to decline in price.”
The law allows the Maryland Medical Assistance Program to notify the state attorney general when an “essential” drug rises in price by 50 percent or more within the preceding two years. In the event of an “unconscionable” price hike, the attorney general could go to court to seek penalties and, under certain circumstances, require a company to make its drug available to the public program at the previous price.
In hoping to eradicate the law, the generic trade group argued the statute violates interstate commerce by giving Maryland officials the right to govern business outside the state, effectively providing “unprecedented powers to regulate the national pharmaceutical market.” But Garbis maintained the trade group failed to “present an argument that (the law) should be held unconstitutional.”
The organization also suggested its members would suffer so much uncertainty and risk that some would discontinue marketing their drugs in Maryland, and possibly other states, which would lower competition, reduce the number of medicines available and raise costs for patients and taxpayers. Garbis, however, took exception to this reasoning.
“AAM’s claim that its members may stop marketing their drugs, completely, in response to (the law) … is entirely speculative,” he wrote, swatting aside statements from generic executives. “Litigants may not, without adequate factual support, hold courts hostage by resorting to these kinds of hypothetical scenarios.” He also rejected the notion that generic drug makers would suffer irreparable harm.
One open question remains, though, and that is whether the law too vaguely defines “excessive” pricing, which would violate due process. Garbis wrote this issue must still be reviewed.
Even so, he wrote that “an erroneous grant of a preliminary injunction would cause substantial harm by permitting the sale of essential drugs to Maryland residents at unconscionable prices.”