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Generics group sues to stop state price-gouging law

July 14, 2017
  • The Association for Accessible Medicines, the primary U.S. trade group for generic drugmakers, on Thursday filed a lawsuit in federal court to block a recently passed Maryland law that would give the state Attorney General the authority to take action against “price gouging” by drug manufacturers.
  • Maryland Governor Larry Hogan allowed House Bill 631, as it is known, to become law at the end of May without his signature, choosing not to veto the legislation despite reservations about the bill’s scope and specific targeting of generic and off-patent pharmaceuticals.
  • H.B. 631 gives Maryland State Attorney General Brian Frosh the power to demand documentation from drugmakers about the rationale behind price increases that meet certain criteria. If price gouging, broadly defined, is determined to have taken place, the Attorney General could levy fines or restrictions on the manufacturer.

H.B. 631 is the most recent and prominent example of state legislation aimed at addressing rising drug prices. But AAM, which dropped its former branding as the Generic Pharmaceutical Association in February, argues the law is unconstitutional and misdirected.

“Rather than allow the vibrant competition in the generic drug marketplace to continue working for patients, Maryland would become the first state to reject generic competition in favor of more government regulation — of generic drugs, the only segment of health care costs that is actually declining,” said AAM CEO Chip Davis in a statement on the lawsuit filing.

AAM filed its complaint in U.S. District Court for the District of Maryland and seeks an injunction preventing Attorney General Frosh and Dennis Schrader, the secretary of the state Department of Health, from carrying out the law — slated to take effect in October.

Even though Governor Hogan allowed H.B. 631 to become law, he had serious reservations about the bill’s provisions. That he let it pass his desk speaks to the pressure on state lawmakers to show some effort in addressing an issue that continues to spark public anger and outrage.

“[T]his legislation only address the pricing of generic and off-patent pharmaceuticals, and does nothing to address the cost of patented products and medical devices which may be associated with drug delivery,” Hogan wrote in a letter explaining his decision to let H.B. 631 become law without his signature.

“This oversight, whether inadvertent or deliberate, is troubling since the patented or brand-name pharmaceuticals make up a significant amount of the market and are often times the most expensive and essential pharmaceuticals,” Hogan continued.

Last year, branded drugs accounted for 74.2% of total invoice spending in the U.S. but only 10.5% of dispensed prescriptions, according to data from the QuintilesIMS Institute. Those numbers have diverged over the past several years, with a lesser share of branded prescriptions accounting for a greater proportion of total spending. Newly approved branded treatments, along with higher spending on specialty medicines and pricey biologic drugs has helped fuel that trend.

In his letter, Hogan also laid out two specific concerns with the legislation that his Chief Counsel’s Office flagged as potentially unconstitutional — a clear indication of his misgivings around the measure.

AAM, incidentally, highlighted the same two constitutional concerns in its lawsuit seeking to block the law from taking effect. According to the association’s complaint, H.B. 631 would illegally give Maryland the power to regulate interstate commerce by penalizing pricing actions that also take place outside of the state’s borders. Additionally, the law’s language is “unconstitutionally vague” in the eyes of AAM.

The trade organization argues the law would hurt competition and destabilized generic drug markets, while doing nothing to address the higher cost of branded therapeutics.

That being said, some of the examples which have drawn the most criticism have been companies hiking the price of generic drugs and taking advantage of de facto monopolies or regulatory provisions. Think Martin Shrkeli’s Turing Pharmaceuticals with Daraprim (pyrimethamine). Or Marathon Pharmaceuticals taking long-used steroid deflazacort through U.S. regulatory review only to raise the price to $89,000 a year.

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