Legal Landmines in Drug Pricing Laws: What’s a State To Do?

Every state in the nation has proposed bills to limit pharmaceutical drug prices and the pace of that legislative work increases each year. The usual responses from pharmaceutical manufacturers and their allies is to threaten to reduce their investments in new drug research and development and challenge the new state laws in federal court. In their appeals, they often argue that the new state laws limit the industry’s free speech, breach patent protections, reveal trade secrets, and extend beyond state boundaries, which they claim violates the federal Dormant Commerce Clause.

As state legislators prepare for their 2020 sessions amid growing interest in addressing prescription drug prices, the National Academy for State Health Policy (NASHP) commissioned the University of California’s Hastings School of Law to develop a legal brief to help state lawmakers avoid some of the industry’s legal landmines.

The legal brief, Navigating Legal Challenges to State Efforts to Control Drug Prices: Pharmacy Benefit Manager Regulation, Anti-Price-Gouging Laws, and Price Transparency, focuses particularly on bills most commonly introduced in states – pharmacy benefit management (PBM) oversight and pricing transparency – and provides insights into anti-price-gouging proposals.

The authors, who are health policy experts and attorneys, note that laws that require PBMs to be licensed or registered with states or require pharmacy audits have historically avoided legal challenges. But today, legal challenges are increasing as states seek more accountability and propose or enact laws to prohibit spread pricing, regulate use of certain pricing lists, or require fiduciary responsibility. And, as always with state reform efforts, the Employee Retirement Income Security Act (ERISA) rears its head if laws “relate to” self-funded plans regulated by federal law. In the brief, authors Katie Gudiksen, Sammy Chang, and Jaime King suggest strategies states can consider to strengthen legislative language against legal challenge.

To date, pharmaceutical groups have challenged transparency laws in two states – Nevada and California.

  • Nevada reached a settlement by limiting and defining what information could be publically disclosed and what would be held confidential.
  • While California moves to implement its law, state officials are awaiting judgment on a lawsuit filed by the industry pending in US District Court in the Eastern District of California.

Industry challenges to transparency laws include alleged violations to trade secret, interstate commerce, and free speech laws. Meanwhile, states are working to thread the needle between consumers’ right to know and protecting industry information.

This new NASHP legal brief is designed to help policymakers navigate the complexity of these laws and help inform their legislative drafting. NASHP’s Center for State Rx Drug Pricing continues to support states as policymakers develop and implement policies to lower drug costs.

NASHP looks forward to its continuing collaboration with colleagues at the University of California’s Hastings College of Law as we advance this important work.

NASHP’s Center for State Rx Drug Pricing, with support from Arnold Ventures, commissioned the analysis from experts affiliated with The Source on Healthcare Price & Competition at the University of California’s Hastings College of Law.