RICHMOND, Va. (CN) – A nonprofit challenging a Maryland law intended to block dramatic price hikes on generic medications told the Fourth Circuit Wednesday that the law violates the Commerce Clause because it unlawfully regulates businesses and prices outside of the state’s jurisdiction.
The law, passed last year levies fines against pharmaceutical companies that engage in “unconscionable price increases” on certain generic drugs.
It is just one of several similar laws passed across the country in recent year driven by public revulsion over several highly-publicized examples of price gouging by some in the pharmaceutical industry.
Perhaps the most well-known of these was carried out by disgraced biotech executive Martin Shkreli, who as CEO of Turing Pharmaceuticals jacked up the price of life-saving AIDS drug Daraprim by 5,000 percent.
But the Association for Accessible Medicines, a group representing generic drug manufacturers and distributors, sued to block the Maryland law, arguing the law violates not only Commerce Clause, which gives Congress the power to regulate interstate commerce, but also the Fourteenth Amendment’s guarantee of due process because it is unconstitutionally vague.
In September, U.S. District Judge Marvin Garbis declined to issue an injunction against the law and dismissed the group’s Commerce Clause claim because he found nothing in the law favored in-state companies over out-of-state drug makers.
As to the vagueness claim, Garbis said he simply did not have enough information to rule on its merits.
On Wednesday, Jay Lefkowitz, who is representing the association, reiterated its claim that “fundamental problem with this law is it regulates prices between wholesalers even when they are entirely outside of Maryland.”
Lefkowitz said the law impacts the manufacturers who then sell their products to wholesalers, who then sell to retailers. This impact on out-of-state commerce creates the problem, he said.
But U.S. Circuit Judge James Wynn questioned why anyone would object to Maryland trying to reign in excessive drug price, . pointing specifically to the Shkreli example.
“They increased the price level 5000 percent,” he said. “Why can’t Maryland protect its citizens?”
Lefkowitz said other states have successfully tamped down on generic drug prices through legislation, but Maryland’s law goes further and steps outside constitutional bounds.
“Maryland wants to exempt retailers,” he said. “If they were to pass a constitutional law … the retailers, wholesalers and manufacturers would have to make concessions.”
Arguing on behalf of the state, attorney Joshua Auerbach, special assistant and senior litigation counsel for the Maryland attorney general’s office, said the association is off base in its claims the law impermissibly tramples congressional prerogative when it comes to out-of-state commerce.
“There must be a sale to a consumer in Maryland [for the law to be triggered],” he said in answer to a question from U.S. Circuit Judge G. Steven Agee.
“The statute is intended to protect Maryland consumer where the market competition has been insufficient,” Auerbach said.
A recent study out of Yale’s School of Public Health. The report found drug prices account for 17 percent of medical bills, about $457 billion annually.
According to the report, the high cost of medications has lead to dangerous cost-saving measures by consumers like skipping doses or cutting pills in half. Additionally, it found, two-thirds of Americans, regardless of political affiliation, believe “lowering the cost of prescription drugs should be a top policy priority.”
“Evidence has unequivocally shown that high drug prices are not linked to the actual costs of research, development and manufacturing,” the report said. “Instead, inflated drug prices are a result of drug manufacturers’ power to charge whatever price the market will bear. The need for legislative action is urgent.”