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From Health Law Daily, October 4, 2017

Challenge to Maryland’s drug-price-gouging law moving forward

By Rebecca Mayo, J.D.

The Association for Accessible Medicines’ (AAM) challenge to Maryland’s drug-price-gouging law will move forward. The District Court in Maryland found that AAM was able to present a plausible claim that the law may be void for vagueness and denied Maryland’s motion to dismiss (Association for Accessible Medicines v. Frosh, September 29, 2017, Garbis, M.).

In early 2017, Maryland passed House Bill 631, prohibiting drug manufacturers and wholesale distributors from engaging in price-gouging in the sale of essential off-patent or generic drugs that are made available for sale in the state. AAM, a nonprofit, voluntary association representing a number of manufacturers and distributors of generic and biosimilar medicines, brought an action for declaratory and injunctive relief under the dormant Commerce Clause claiming that the statute regulated commerce that occurred outside the state of Maryland and the Fourteenth Amendment Due Process Clause claiming that the statute was unconstitutionally vague.

Commerce Clause. AAM members are manufacturers and wholesalers of generic drugs who enter into contracts with distributors who in turn, make the drugs available within Maryland. Because AAM does not sell directly to actors in Maryland, AAM argued that the statute regulates business that occurs completely outside the state of Maryland. Additionally, AAM members do not currently track where drugs are first sold to distributors or intermediaries, or where they are ultimately offered for sale to patients. To comply with this statute, AAM members would be forced to change their business practices, which occur wholly outside the state of Maryland. Further, AAM argued that by regulating these transactions, there is an impact on how AAM members do business with distributors and on prices charged by out-of-state distributors and producers. The court disagreed with AAM’s assertion that the statute seeks to regulate business that occurs wholly outside the state of Maryland. The statute applies only to drugs that are offered for sale within the state of Maryland. The court pointed out that AAM members may freely raise prices in other states, just not for drugs made available for sale in Maryland. The court held that AAM failed to allege a plausible claim that HB 631 violated the dormant Commerce Clause.

Vagueness. AAM argued that certain key terms within HB 631 are vague and therefore the statute falls well short of any reasonable standard of clarity. Specifically, AAM asserted that many terms in the statute are vague. In evaluating a statute for vagueness, courts have agreed that allegedly vague phrases or words should be considered in the context of the statute as a whole.

HB 631 prohibits price gouging, which is defined as "an unconscionable increase in the price of a prescription drug," and defines "unconscionable increase" as "an increase in the price of a prescription drug that: (1) Is excessive and not justified by the cost of producing the drug or the cost of appropriate expansion of access to the drug to promote public health; and (2) Results in consumers for whom the drug has been prescribed having no meaningful choice about whether to purchase the drug at an excessive price because of: (i) The importance of the drug to their health; and (ii) Insufficient competition in the market for the drug."

AAM argued that the definition of "unconscionable increase" uses expansive adjectives such as "excessive," "justified," "appropriate," and "meaningful," which are also vague. The court then turned to those adjectives to determine if the adjectives clarified the definition or added to the vagueness of the statute. The court determined that the term "excessive" price was a comparative term to be viewed in relation to a benchmark price. However, the statute did not provide a solid benchmark price or way to determine what the benchmark price is and what would be deemed excessive in comparison. The term "excessive" is followed by "and not justified by the cost of producing the drug or the cost of appropriate expansion of access to the drug to promote public health…" Rather than clarifying the term excessive, AAM argued that "justified" and "appropriate" are also modifiers that cannot be readily defined, and that "meaningful" is unconstitutionally vague. The court disagreed and determined that in the context of the whole statute, "meaningful" is sufficiently defined. However, the court found that AAM alleged at least a plausible basis to challenge some provisions of HB 631 as unconstitutionally vague, and there was not enough for the court to make a final decision on the constitutionality of the statute.

The case is Civil Action No. MJG-17-1860.

Attorneys: Jonathan D. Janow (Kirkland & Ellis LLP) for Association for Accessible Medicines. Leah J. Tulin, Office of the Attorney General of Maryland, for Brian E. Frosh, Attorney General, State of Maryland.

Companies: Association for Accessible Medicines; State of Maryland

MainStory: TopStory CaseDecisions DrugBiologicNews GenericDrugNews MarylandNews

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