Appeals Court Struck Down a Price Gouging Law – What About Other Approaches

On April 13, 2018 the 4th U.S. Circuit Court of Appeals struck down a Maryland law that allowed the state attorney general to sue drugmakers who raised prices on generic or off-patent drugs by more than 50% in a year. Manufacturers would have faced a fine of up to $10,000 and potentially have to reverse the price hike. The generics industry was highly critical of the law.

The federal appeals court sided 2-1 with the main trade group for generic manufacturers (Association for Accessible Medicines (AAM)) in finding that the law violated the U.S. Constitution by regulating the price of transactions that occur outside of Maryland. Judge Stephanie Thacker wrote for the majority that the law violated the Constitution’s bar against states interfering with interstate commerce, by targeting wholesale rather than retail pricing in transactions that occur largely outside of Maryland.

The fight is not necessarily over. Maryland's Attorney General said he was considering his options to fight the ruling.

The ruling may be the death knell for similar legislation in other states. However some states are trying different approaches to controlling generic drug prices and price increases.

One example is NY A 2939. The bill requires manufactures to file an onerous report for all drugs that have a wholesale acquisition cost of $1000 for a thirty day supply, or any drug that has a cumulative price increase of more than three times the consumer price index in a three month period.

Though the stated purpose of the bill is to make information available to the public about the cost and  utilization of  pharmaceutical  drugs, it is hard to believe that the reporting requirements (see below) aren't at least, in part, intended to make manufacturers think twice before setting prices or increasing prices at levels that trigger the requirements. It will remain to be seen if the courts will also strike down this approach.

The NY A 2939 reporting requirement includes:

(a) the total costs for the production of the drug including all of the following:

(1) the total research and development costs including but not limited to:

(i) the total costs of any study drug manufactured during this reporting period in support of the U.S. food and drug administration approved use of the drug;

(ii) the total costs of any preclinical studies conducted during this reporting period;

(iii) the total costs of any clinical trials conducted during this reporting period;

(iv) the total costs associated with the preparation and submission of any regulatory documents submitted to the U.S. food and drug administration during this reporting period;

(v) the total costs of post approval clinical studies mandated by the U.S. food and drug administration during this reporting period; and

(vi) the total costs of post approval studies earmarked for publication using external providers of data during this reporting period;

(2) the total costs for materials, manufacturing and administration attributable to the drug for this reporting period;

(3) the total costs paid by any entity other than the manufacturer or predecessor for research and development, including an itemized list of any amount from federal, state, or other governmental programs or any form of subsidies, grants, or other support for this reporting period; and

(4) any other costs to acquire the drug, including costs for the purchase of patents, licensing or acquisition of any corporate entity owning any rights to the drug while in development.

(b) The total administrative costs for the promotion of the drug, including but not limited to:

(i) marketing and advertising costs;

(ii) direct to consumer advertising costs;

(iii) prescriber education costs;

(iv) professional education costs;

(v) lobbying costs; and

(vi) financial assistance to patient groups, disease associations, or other consumer organizations.

(c) The total profit as represented in total dollars and a percentage of total company profit derived from the sale of the drug.

(d) The total amount of financial assistance the manufacturer has provided through patient prescription assistance programs if such programs are available, including but not limited to:

(i) costs associated with direct to consumer coupons and amount redeemed;

(ii) costs associated with copayment assistance programs; and

(iii) costs associated with sample doses, trial doses, or where the drug product is provided but not sold.

(e) The wholesale acquisition cost of the drug as publicly reported for each drug, including a five-year history of wholesale acquisition cost price increases, expressed as a percentage, and the month or months each increase took effect and any explanation for the price increase.