By Zack Buck
In a 2-1 decision, a three-judge panel of the Fourth Circuit Court of Appeals has struck down Maryland’s pharmaceutical price-gouging law.
The law, which went into effect on October 1 of last year, prohibited drug manufacturers from imposing “unconscionable” price increases, empowering the state attorney general to assess civil penalties against drug manufacturers and to enjoin the sale of such drugs in Maryland. The law applied only to essential off-patent or generic drugs, and specifically allowed the attorney general “to intervene if a generic or off-patent drug’s price increased by 50 percent or more in a single year,” in addition to acting on other “unjustified” increases.
The court, writing through Judge Stephanie Thacker, found that the law ran afoul of the “dormant” commerce clause, in that it empowered Maryland to regulate transactions that occurred completely outside of the state.
By not limiting its “application to sales that actually occur[ed] within Maryland,” the court found that Maryland’s law reached “upstream from consumer retail sales,” violating the extraterritoriality doctrine of the dormant commerce clause. Further, by targeting a drug “manufacturer or wholesale distributor”—and noting that transactions and sales of pharmaceutical drugs in the stream of commerce include those that are sold through drug wholesalers—the court found that the “Act effectively seeks to compel manufacturers and wholesalers to act in accordance with Maryland law outside Maryland.” Should other states impose additional pricing requirements, the court argued that prescription drug companies would be subject to conflicting legal requirements regarding pricing. While the court noted that it “sympathize[d] with the consumers,” it concluded that it was “constrained to apply the dormant commerce clause to the Act.”
The dissent, authored by Judge James Wynn, argued strongly that the dormant commerce clause did not prevent application of Maryland’s law, particularly because the law did not apply to sales to ultimate customers outside Maryland. To make the point that the Maryland law “[did] not purport to regulate the price of essential generic drugs that do not enter Maryland’s borders,” Judge Wynn noted that “there would seem to be no obstacle to a generic drug manufacturer entering into a single contract with a distributor for an essential generic drug, under which the manufacturer imposes a conscience-shocking price increase for those pills the distributor resells outside of Maryland and a non-conscience-shocking price increase for the pills that the distributor resells in Maryland.” He also noted that the court’s “expansive” conception of the dormant commerce clause would likely render “numerous state consumer protection statutes unconstitutional.”
Notwithstanding the opinion, which could be appealed, states across the country will continue to seek to address pharmaceutical price costs, furthering a narrative of burgeoning state-level health policy development in the Trump era. Nonetheless, the Fourth Circuit’s opinion will likely cause some states considering legislation similar to Maryland’s to rethink the approach—adding an additional hazard to the legal thicket facing states attempting to bring down the runaway cost of prescription drugs.