Maryland Law Will Criminalize Unethical Price Gouging

In an editorial published in the New England Journal of Medicine, Jeremy A Greene, MD, PhD, professor of medicine at the Johns Hopkins University School of Medicine, and William V Padula, PhD, assistant professor at the Johns Hopkins University Bloomberg School of Public Health, lauded recent legislation by passed in the state of Maryland that will make unethical price gouging more difficult and illegal.

“To paraphrase Senators Susan Collins (R-Maine) and Claire McCaskill (D-Missouri), who were the chair and the ranking member of the Senate Special Committee on Aging, firms that corner the market on off-patent medications and raise prices wildly often do so simply because they can,” Drs Greene and Padula wrote. “When the committee issued a 130-page report last December documenting the parallel strategies used by firms to engage in monopolistic price gouging on older essential drugs, the senators pointed out that these actions, though arguably unethical, have so far not been found to be illegal. Until now.”

According to the commentary, the law was designed to prevent unconscionable price increases among essential off-patent or generic drugs. The law gives the State’s Attorney General the power to prosecute pharmaceutical manufacturers that raise prices of drugs in noncompetitive drug markets.

The law has built in protections for pharmaceutical companies that develop innovative branded specialty medications and firms that sell the majority of low-priced generic medications. According to the commentary, the law is specifically designed to trigger a prosecution only when a manufacture intentionally engages in a pricing strategy that takes advantage of a drug’s non-competitive off-patent status. 

“Manufacturers of innovative drugs will not be affected, nor will the majority of generic drug manufacturers, who collectively generated $1.7 trillion in cost savings over the past decade by participating in competitive markets to bring drug prices down,” Drs Greene and Padula wrote.

The law’s protections include several criteria that must be met before the Attorney General can prosecute a pharmaceutical manufacturer for engaging in price gouging. Drs Greene and Padula explained that a high bar of unconscionability must be met, which legally demonstrates that a pricing structure is “based on terms so egregiously unjust and so clearly tilted toward the party with superior bargaining power that no reasonable person would freely agree to them. This standard includes cases in which the seller vastly inflates the price of goods.”

Furthermore, the Attorney General can only prosecute for price increases among generic drugs that have become noncompetitive in the marketplace, meaning that there are less than four manufacturers actively participating in a specific drug market. 

Drs Greene and Padula said that this bill could trigger similar bills across the country. They explained that this was the case in the 1970s, when Kentucky first passed controversial a bill that allowed pharmacists to substitute generic drugs for branded prescriptions—a law that had spread to every US state within 8 years. 

“It is too soon to tell what the local and national effects of the Maryland law will be,” Drs Greene and Padula concluded. “But this effort is part of a growing movement among states to address untenable increases in prescription-drug prices. Maryland’s law has overwhelming support from its legislators and citizens—and is an important demonstration of state governments’ role in ensuring the affordability of essential
medicines.” —David Costill