Navigating Legal Challenges to State Efforts to Control Drug Prices: Pharmacy Benefit Manager Regulation, Anti-Price-Gouging Laws, and Price Transparency

Abstract

In the last several years, states have increasingly attempted to use legislative efforts to control drug prices. Trade groups representing the interests of the pharmaceutical industry, however, have challenged the constitutionality of many of these efforts. This issue brief analyzes the legal challenges brought against state laws to address rising drug prices and the legal theories on which these laws are often challenged. Part I reviews how a trade association has used the Employee Retirement Income Security Act of 1974 (ERISA) to threaten state regulation of pharmacy benefit managers (PBMs) in four states and Washington, DC (DC). Part II analyzes Association for Accessible Medicines v. Frosh to explain how the Dormant Commerce Clause invalidated Maryland’s prohibition on price gouging or “unconscionable price increases” for drugs. Part III examines how legal challenges arising from federal patent and trade secret laws could hamper state efforts to further drug price transparency. Finally, in each part, using our analysis of key cases, we offer suggestions to states considering similar legislative actions to minimize the risk that courts will overturn them.

Keywords: drugs, price transparency, pharmaceuticals, state regulation, trade secrets, health policy

JEL Classification: H:75, I:00. I:1, I:10, I:11, I:13, I:18, K:32, P:36