ANNAPOLIS, Md. — A federal appeals court on Friday struck down Maryland's first-in-the-nation law against pharmaceutical price gouging.
In a 2-1 ruling, the 4th U.S. Circuit Court of Appeals ruled the law is unconstitutional because it forces manufacturers and wholesalers to act in accordance with Maryland law outside of Maryland, burdening interstate commerce.
"Maryland cannot, even in an effort to protect its consumers from skyrocketing prescription drug costs, impose its preferences in this manner," Judge Stephanie Thacker wrote.
The Maryland law was approved last year. It enabled Maryland's attorney general to sue makers of off-patent or generic drugs that make an "unconscionable" price increase. That was described as an excessive increase, unjustified by the cost of producing or distributing the drug.
Thacker wrote that the Commerce Clause protects against inconsistent legislation arising from the projection of one state's regulations into the jurisdiction of another state. She also noted that the Maryland law's "relatively subjective decision" about what constitutes an unlawful price increase worsens the problem.
"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," Thacker wrote.
Judge James Wynn dissented. He wrote Maryland is authorized to regulate matters of legitimate local concern. In this case, the state "legitimately targeted generic drug pricing practices specifically designed to prey on the special vulnerabilities of a defenseless group of Maryland's 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 Commerce Clause jurisprudence: economic protectionism, discrimination against interstate commerce, and State regulation of streams of transactions that never cross through the State's borders."
The Maryland law was one of the strongest moves yet by a state to address rising drug prices, an issue Congress has been unable to confront. Unlike most countries, the U.S. doesn't regulate pricing for drugs, leaving their markets free to set prices as high as the market will bear.
The law was challenged by the Association for Accessible Medicines, an organization with a membership of prescription drug manufacturers and wholesale distributers and other entities in the pharmaceutical industry.
Under the law, manufacturers faced fines of up to $10,000 per violation. The attorney general also was able to seek information from the corporations that instituted price increases to help determine if price gouging occurred.
Maryland Attorney General Brian Frosh said the state is evaluating all options with regard to next steps.
"We are disappointed with the court's decision," Frosh said. "As Judge Wynn's dissent explains, the panel majority misunderstood the scope of the statute, which protects Maryland consumers against unconscionable increases in the price of certain essential medicine, and which does not regulate prices charged to consumers in other states."