Gavin Howe
In 2017, Maryland passed a law to prevent price gouging by pharmaceutical companies, which was later struck down by a federal appeals court. This law was aimed at protecting consumers from the harmful effects of abusive prescription drug prices. The law allowed the state's attorney general to sue generic drug manufacturers who engaged in price gouging and return the money to consumers. However, the law was met with opposition from the pharmaceutical industry, which argued that it was unconstitutional and would create uncertainty for generic drug makers. The potential consequences of the law included restricted access to essential prescription drugs for citizens.
| Characteristics | Values |
|---|---|
| Date of implementation | 1st of October 2017 |
| Aim | Prevent price gouging by pharmaceutical companies |
| Applicability | Generic pharmaceutical manufacturers of essential drugs |
| Definition of price gouging | An unconscionable increase in the price of a prescription drug |
| Definition of unconscionable increase | 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 |
| Powers granted to the Maryland Attorney General | Sue generic drug manufacturers, return money to consumers, make the drug available at its previous price, enforce the law, restrain and enjoin certain violations, impose civil penalties of up to $10,000 per violation |
| Arguments against the law | Unconstitutional, vague definition of price gouging, may harm citizens by restricting access to drugs, may hurt patient access to safe and affordable generic medicines, may create uncertainty for generic drug makers |
| Support for the law | Bipartisan support, supported by Families USA, supported by state legislators and attorneys general across the United States |
| Impact | First state to enact such a law, may deter future steep price increases, may embolden other states to follow suit |
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What You'll Learn
Maryland's price-gouging law and its potential impact on drug access
In 2017, Maryland passed a law to prevent price gouging by pharmaceutical companies, making it the first state in the US to do so. The law was enacted in response to a series of high-profile price hikes by drugmakers, including a 2015 increase by Turing Pharmaceuticals, which raised the price of its anti-parasitic drug Daraprim from $13.50 to $750 per pill. Maryland's law allows the state to levy fines and order a reversal of price increases, with the Attorney General enforcing the law against manufacturers of essential generic drugs engaged in "price gouging" business behavior.
However, the law was met with opposition from the pharmaceutical industry, which argued that it was unconstitutional and vague in its definition of "price gouging." The Association for Accessible Medicines (AAM), a generic industry trade group, filed a legal challenge, claiming that the law amounted to intervention by an individual state in interstate commerce. Despite this, a US District Court judge cleared the way for Maryland to implement the law, dismissing the argument that it was unconstitutional.
The potential impact of Maryland's price-gouging law on drug access is a matter of debate. Proponents of the law argue that it will protect consumers from abusive prescription drug prices and put pressure on federal lawmakers to take action. They believe that it will deter future steep increases in drug prices and improve access to essential prescription drugs for Marylanders. However, opponents argue that the law could hurt patient access to safe and affordable generic medicines in Maryland and create uncertainty for generic drug makers, potentially leading them to abandon the market.
While the law was initially blocked by a federal appeals court ruling in 2018, Maryland appealed to the US Supreme Court to revive it. Unfortunately, the Supreme Court rejected Maryland's bid, dealing a setback to state efforts to rein in prescription drug costs. Despite this, Maryland's law has set an example for other states seeking to protect their citizens from high drug prices and has sparked a broader discussion about the role of states in regulating drug pricing.
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The role of the Attorney General in enforcing the law
In the United States, the Attorney General is the head of the Department of Justice and the federal government's chief law enforcement officer. The Attorney General is responsible for enforcing federal laws and representing the federal government in legal matters. They also advise the President and the Cabinet on legal matters and appointments to federal judicial positions. The Attorney General oversees federal law enforcement agencies such as the FBI, DEA, and ATF and is seventh in the presidential line of succession.
In the context of Maryland's drug price-gouging law, the state's Attorney General played a crucial role in leading the campaign to pass the legislation. The law allowed the Attorney General to sue generic drug manufacturers for price gouging and return the money to consumers. This role in enforcing the law and protecting consumers from abusive prescription drug prices is a typical function of Attorneys General, who act as public advocates in areas such as consumer protection and antitrust regulation.
The Maryland Attorney General's office sued six generic drug manufacturers for a price-fixing conspiracy, demonstrating their power to address price gouging and protect citizens from high drug prices. However, the law was later struck down by a federal appeals court, which held that Maryland had violated the U.S. Constitution by regulating interstate commerce. This ruling highlights the complex interplay between state and federal laws and the role of the Attorney General in navigating these legal complexities.
Attorneys General, whether at the state or federal level, play a vital role in enforcing laws and protecting the public interest. They have the power to initiate lawsuits, provide legal advice to the government, and ensure compliance with federal laws. Their role can vary depending on the jurisdiction and the specific statutory and constitutional mandates, but their overall function is to uphold the law and protect the rights of citizens.
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The definition of price gouging and its interpretation
The term "price gouging" refers to the practice of increasing prices sharply, especially to take advantage of high demand. This often occurs during a national emergency or when an external crisis creates a temporary monopoly for certain goods. Price gouging typically involves selling basic necessities or scarce supplies at significantly higher prices than usual, often far above the average price of the previous 30 days. This can create an incentive for companies to increase production and supply the needed materials to areas in demand. However, it can also lead to inefficient displacement activity, where individuals buy goods to resell them at higher prices without increasing the overall supply.
Price gouging laws aim to protect consumers from unfair price increases and prevent companies from taking advantage of crises to maximize profits. Maryland enacted a law in 2017 to curb price gouging by pharmaceutical companies, which was later struck down by a federal appeals court. The law allowed the state's attorney general to sue generic drug manufacturers for price gouging and return money to consumers. Maryland's legislation was a response to reports of prescription drug companies increasing the prices of life-saving medicines by up to 10,000%, causing affordability issues for consumers.
While Maryland's law aimed to protect consumers, critics argued that it was vague and could hurt patient access to safe and affordable generic medicines. The law was challenged by the Association for Accessible Medicines (AAM), a generic drug industry trade group, which claimed that it interfered with interstate commerce and did not clearly define price gouging. The U.S. Supreme Court ultimately rejected Maryland's bid to revive the law, citing the constitutional bar on state-level regulation of interstate commerce.
The interpretation of price gouging can vary, and not all economists believe it should be illegal. Some argue that price gouging can serve a useful purpose during emergencies by encouraging stockpiling and allocating resources to those who need them most. However, others view it as an unfair business practice that exploits consumers, particularly during crises or when dealing with essential goods.
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The success of Maryland's law in deterring price hikes
Maryland's anti-price gouging law was enacted in 2017 after a series of high-profile price hikes by drugmakers, including Turing Pharmaceuticals' 2015 increase of its anti-parasitic drug Daraprim from $13.50 to $750 per pill. This legislation aimed to protect consumers from unfair price increases by allowing the state's attorney general to take legal action against generic drug manufacturers engaging in price gouging. The law defined "price gouging" as "an unconscionable increase in the price of a prescription drug," with an "unconscionable increase" being excessive and not justified by the cost of producing or expanding access to the drug to promote public health."
Broad Support and Bipartisanship
The anti-price gouging law received overwhelming bipartisan support, passing with a vote of 137-2-2 in the Maryland House of Delegates and 38-7-2 in the Maryland Senate. This broad support indicated a consensus among legislators that drug prices had become too high and required intervention.
Empowerment of the Attorney General
The law empowered the Maryland Attorney General's office to enforce the legislation and take action against manufacturers of essential generic drugs engaged in price gouging. The Attorney General's office played an active role in investigating "unconscionable increases" and working with health economists to identify price spikes, even before the law officially took effect.
Deterrence and Consumer Protection
Maryland's law served as a deterrence against steep price increases by allowing the state to levy fines and order the reversal of price hikes. It provided a legal framework to hold generic drug manufacturers accountable and potentially return excessive profits to consumers. This deterrence factor was a crucial aspect of the law's success in protecting Marylanders from unjustified price spikes.
Setting a Precedent for Other States
Maryland's legislation set a precedent and inspired similar efforts in other states struggling with rising healthcare costs. It demonstrated that states could play a significant role in regulating "unconscionable" business activities, particularly when consumers had limited recourse against powerful pharmaceutical corporations. The law's passage encouraged advocates in other states to pursue similar measures to protect their citizens from high drug prices.
Federal Pressure and Industry Accountability
The success of Maryland's law extended beyond state boundaries. It put public pressure on federal lawmakers to address the issue of skyrocketing drug prices. Additionally, the law forced the generic drug industry to defend its pricing practices and face scrutiny for excessive price increases. This increased accountability and shifted the focus onto justifying price hikes, potentially influencing future pricing decisions.
While the law faced legal challenges and concerns about its constitutionality, its enactment sent a strong message and empowered consumers in Maryland and beyond. The law's success in deterring price hikes was evident in its broad support, the empowerment of the Attorney General, the deterrence factor, its influence on other states, and the increased pressure for federal action and industry accountability.
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The legal challenges to the law and their outcomes
In 2017, Maryland passed a law to prevent price gouging by pharmaceutical companies, which was the first of its kind in the nation. The law allows the state's attorney general to sue generic drug manufacturers who engage in price gouging and return that money to consumers. However, this law faced legal challenges from the Association for Accessible Medicines (AAM), a generic drug industry trade group that argued that the law was unconstitutional because it did not define price gouging and amounted to intervention by an individual state in interstate commerce.
U.S. District Judge Marvin Garbis dismissed most of the AAM's arguments but allowed litigation to continue based on the claim that the law is too vague. Despite this legal challenge, the state Attorney General's office in Maryland said it would field complaints and investigate "unconscionable increases" in essential generic medicines when the law took effect in October 2017.
In 2018, a federal appeals court ruled against Maryland's law, striking it down on the grounds that the state had regulated wholesale pricing by the companies in violation of the U.S. Constitution's bar on state-level regulation of interstate commerce. Maryland appealed this ruling to the U.S. Supreme Court, but the justices declined to take up the case in 2019.
The outcome of the legal challenges to Maryland's drug price-gouging law was that the law was ultimately struck down and not revived, despite the state's efforts to uphold it. This ruling set a precedent that limited the power of states to regulate prescription drug costs and left them struggling to cover rising healthcare costs.
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Frequently asked questions
Price gouging is defined as "an unconscionable increase in the price of a prescription drug". An "unconscionable increase" in the price of a drug is one that is "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".
Maryland's price gouging law was passed in 2017, making it the first state to enact a law that protects consumers from price gouging by prescription drug manufacturers. The law allows the state's attorney general to sue generic drug manufacturers who engage in price gouging and return that money to consumers.
The law was met with mixed reactions. Some supported it as a way to protect consumers from high drug prices, while others, including the Association for Accessible Medicines, argued that the law was unconstitutional and would create drug shortages.
While there is no direct evidence that Maryland's price gouging law created drug shortages, some concerns were raised about its potential impact on drug availability. The law was also challenged in court, with the U.S. Supreme Court ultimately rejecting Maryland's bid to revive the law in 2019.
