Challenged by generics industry, Maryland's drug pricing law found unconstitutional

maryland
Lawmakers in Maryland passed a drug pricing bill last year. (Bestbudbrian/CC BY-SA 4.0)

With federal lawmakers dallying on drug pricing, Maryland's legislature decided to take action itself. But an appeals court struck down the state's price-gouging law, and that means legislators have to go back to the drawing board.

In a 2-1 opinion, the U.S. Court of Appeals for the 4th Circuit ruled that Maryland's HB 631 is unconstitutional because it regulates transactions that occur outside of Maryland's borders. Rather than target gouging in transactions between retailers and consumers, the legislation zeroes in on manufacturer-to-wholesaler transactions—which mostly happen outside of Maryland.

Writing for the court, Judge Stephanie Thacker stated in the opinion (PDF) that the judges "in no way mean to suggest that Maryland and other states cannot enact legislation meant to secure lower prescription drug prices for their citizens." 

But, she added, "Maryland must address this concern via a statute that complies with the dormant commerce clause of the U.S. Constitution."

The legislation had banned "unconscionable" price hikes in the generic drug sector. After its passing, Gov. Larry Hogan didn't sign the bill but still allowed it to become law.

RELATED: Maryland lawmakers pass a bill aimed at stopping 'unconscionable' drug pricing 

The Association for Affordable Medicines, which represents generic drugmakers, quickly sued and said the legislation is "unconstitutional and invalid." The group failed its first attempt to get an injunction but succeeded with the appeals court ruling on Friday. 

AAM CEO Chip Davis said in a new statement that the "law, and any others modeled from it, would harm patients because the law would reduce generic drug competition and choice, thus resulting in an overall increase in drug costs due to increased reliance upon more-costly branded medications." 

RELATED: Generic drug industry lawsuit blasts Maryland pricing law as 'unconstitutional and invalid' 

For his part, Maryland attorney general Brian Frosh said in a statement he was "disappointed" with the decision and is reviewing his options. 

"We remain committed to pursuing efforts to eliminate price gouging and to safeguarding Marylanders’ access to prescription drugs," Frosh added. 

In a dissenting argument, Judge James Wynn said state lawmakers "legitimately targeted generic drug pricing practices specifically designed to prey on the special vulnerabilities of a defenseless group of Maryland’s citizens." He contended that the law is valid and doesn't violate the commerce clause.  

RELATED: Generic industry's initial effort to halt Maryland price law rebuffed by judge 

Since Maryland passed its drug pricing legislation, many other states have taken a serious look at tackling the issue. Nevada, California and Oregon have passed measures of their own, and states around the country are considering legislation on transparency, pharmacy benefit managers and more, according to the National Association for State Health Policy. 

The industry has largely resisted the state-level pricing regulations. Meanwhile, Axios reported on Monday that President Donald Trump has a drug pricing speech set for later this month.