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Maryland's Controversial Drug Price Gouging Law Takes Effect

Maryland’s landmark price gouging law is now in effect. A trade association that represents generic drug manufacturers had sought to halt its implementation, but was rebuffed by a federal judge.

Measure to Address Drug Price Increases

The new law, House Bill 631, bans manufacturers of essential off-patent or generic drugs from engaging in “price gouging,” which is defined under the law as “an unconscionable increase in the price of a prescription drug.” An “unconscionable increase” is further defined as “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 one that “results in consumers for whom the drug has been prescribed having no meaningful choice about whether to purchase the drug at an excessive process because of the importance of the drug to their health and insufficient competition in the market for the drug.”

Maryland’s anti-price gouging measure provides that the attorney general may only enforce the law when an off-patent pharmaceutical market has become noncompetitive, meaning that three or fewer manufacturers are actively manufacturing and marketing the drug. In addition, prior to bringing an enforcement action, the attorney general must provide the manufacturer or distributor with an opportunity to explain the basis of a price increase. Increases driven by external factors, such as price fluctuations for raw materials or active ingredients, logistic difficulties with manufacturing or distribution, or changes in international trade or tariffs, would not be deemed unconscionable.

In addition to a financial penalty of up to $10,000 per violation, drug companies may be required to reimburse consumers and third-party payers for the illegal price increase and/or make the drug available to participants in any state health plan or health program for up to one year at the price it was immediately prior to the violation.

Drug Trade Association Files Lawsuit

The Association for Accessible Medicines (AAM), which represents generic drug manufacturers, filed a lawsuit seeking declaratory and injunctive relief to prevent the implementation and enforcement of HB 631. The suit alleges that the Maryland law is unconstitutional under the Commerce Clause because it regulates commercial activity that occurs wholly outside the boundaries of the State of Maryland. It further maintains that HB 631 violates the Due Process Clause of the Fourteenth Amendment because the statute’s vague prohibition on “price gouging” provides no meaningful description of what its terms prohibit.

A U.S. District Court judge recently denied AAM’s request for a preliminary injunction. Judge Marvin J. Garbis concluded that the law did not violate the Commerce Clause, finding it would not favor in-state over out-of-state drug manufacturers. Judge Garbis further held that the law would not prevent companies from making profits, but would only hinder their ability to “extract excessive profits by price-gouging Maryland consumers on essential drugs for which there is limited competition.”

Judge Garbis did allow the void for vagueness claim to proceed, stating "it is at the very least plausible." The Association for Accessible Medicines has already announced that it plans to appeal the decision to the U.S. Court of Appeals for the Fourth Circuit. In the meantime, Attorney General Brian E. Frosh invited the public to begin reporting excessive drug price increases. "We think it's a big victory for Maryland consumers," Frosh said. "It really will help protect the health of people across our state."

Maryland is not the only state seeking a legislative solution to escalating drug prices. At least 176 bills on pharmaceutical pricing and payment have been introduced this year in 36 states, according to the National Conference of State Legislatures.

If you or someone you love has suffered serious harm due to a defective drug, don’t hesitate to contact a San Diego product liability lawyer at the Law Offices of Robert Vaage for a free consultation.