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Pharma Industry Take Note: Maryland Passed Price-Gouging Prohibition

Alleged price gouging by drug manufacturers and distributors has been in the news the past several years, causing many lawmakers to threaten to take action. Maryland has become the first state to do so – on May 26, 2017, Governor Larry Hogan of Maryland informed the Maryland Speaker of the House that he would permit H.B. 631, also known as the “Prohibition Against Price Gouging for Essential Off-Patent or Generic Drugs”(437th Gen. Assemb., Reg. Sess. (Md. 2017)) to become law. The Act takes effect October 1, 2017, and makes Maryland the first state in the nation to prohibit “price gouging” by manufacturers or wholesale distributors of generic prescription drugs. Of note, Governor Hogan did not sign the bill into law, rather he decided not to veto it, rendering the bill law after 30 days.

Generic Pharmaceutical Manufacturers And Distributors Should Take Note

Under the Act, an “essential off-patent or generic drug” is any prescription drug, or drug-device combination product, used to deliver a generic drug:

  1. For which all of its exclusive marketing rights under the Food, Drug, and Cosmetic Act have expired;
  2. That appears on the World Health Organization’s most recent list of essential medicines, or has been designated as an essential medicine by the Maryland Secretary;
  3. That is actively manufactured and marketed by a maximum of three manufacturers in the United States; and
  4. That is sold in Maryland.

The Act defines price gouging as an “unconscionable increase” in the price of any prescription drug that is “excessive and not justified,” in comparison to the cost of producing or expanding access to the drug to promote public health. Such price increases are prohibited where they provide consumers “no meaningful choice” about whether to purchase a drug due to its importance to their health and absence of sufficient market competition. However, the Act’s prohibition does not apply to wholesale distributors whose price increase is “directly attributable” to the increased costs imposed by the manufacturer of the drug.

The Attorney General Will Investigate Violations and Can Enforce the Act

The Act authorizes the Maryland Medical Assistance Program (the Maryland Medicaid Program) to alert the Maryland Attorney General of any price increase that results in: (i) the Wholesale Acquisition Cost of the drug to be 50% or more of the WAC within the previous one-year period; or (ii) the price the Maryland Medicaid Program paid for the drug to be at least 50% more than the price paid within the previous one-year period; and, the WAC for a 30-day prescription or a full course treatment to exceed $80. If these criteria are met, the Act authorizes the AG to send a “request” to the manufacturer that it is potentially in violation of the Act, requiring the manufacturer to submit a statement that provides a justification for the price increase within 45 days of the AG’s “request”. Although the Act technically uses the word “request” with respect to the statement of justification and related information that the manufacturer will provide to the AG, it will be interesting to see how the AG’s office actually goes about “requesting” or “demanding” such information. The AG can also require a manufacturer or wholesale distributor to produce relevant records and documents to help determine whether a violation of the Act has occurred, and can seek a court order compelling a statement providing justification and document disclosure.

If after receiving the information, the AG believes price gouging occurred, the AG may bring a lawsuit against a manufacturer and seek various remedies, such as:

  1. Restraining or enjoining violations of the Act;
  2. Acquiring refunds for consumers due to price gouging;
  3. Requiring a manufacturer or distributor to sell a generic drug to Maryland’s health plans or programs at the price it was available in the year before the violation occurred; and
  4. Imposing a maximum of $10,000 civil penalty for each violation.

Uncertainty Abounds

Of note, the Act does not define when a price increase is “excessive,” nor is it clear when a price increase is justified and when it is not. Various stakeholders have articulated concerns that the Act might result in some generic manufacturers ceasing to sell certain generic drug products, potentially exacerbating shortages of essential generic drugs, such as sterile injectibles and antibiotics. There also have been rumblings of potential legal challenges to the Act under Constitutional grounds in the event the AG seeks to bring a lawsuit. While a handful of other states have adopted transparency and accountability measures, there is no doubt that state legislatures around the country will be watching to see how the Maryland law plays out.

Arent Fox’s Health Care group regularly monitors and analyzes laws affecting drug pricing. For more information regarding the Act, or other issues related to the regulation of how generic pharmaceuticals are priced, contact Stephanie Trunk, Erin Atkins, or the Arent Fox professional who usually handles your matters.