A few weeks ago, the Association for Accessible Medicines (AAM) filed a lawsuit in the Northern District of Illinois asking the court to preliminarily enjoin enforcement of a new Illinois generic drug price-gouging law (IL Act) and declare it void and unenforceable under the Constitution. The IL Act prohibits manufacturers and wholesale distributors of certain “essential” off-patent or generic drugs sold in Illinois from engaging in “price gouging.” The lawsuit comes on the heels of AAM’s victory in a lawsuit targeting a similar statute in Minnesota: Senate File No. 2744 (the MN Act). In Association for Accessible Medicines v. Ellison, No. 23-CV-2024 (D. Minn. 2023), the court preliminarily enjoined enforcement of the MN Act, finding that AAM was likely to prevail on its claim that the price-gouging portions of the statute violate the Constitution under a dormant Commerce Clause theory. Though an appeal is pending, the Minnesota ruling represented a significant victory for generic manufacturers, and AAM seeks to obtain a similar decision in its challenge to the IL Act.
These lawsuits have important implications for the future of price-gouging laws generally and may also have implications for future challenges to prescription drug affordability boards (PDABs), which are becoming a frequent feature of state efforts to regulate drug pricing and threaten to further restrict manufacturers’ ability to set prices for their products.
Background on the IL Act
The IL Act prohibits a “manufacturer or wholesale drug distributor” from “price gouging in the sale of an essential off-patent or generic drug that is ultimately sold in Illinois.”
Under the IL Act, “price gouging” is defined as any wholesale acquisition cost (WAC) increase of (i) 30% or more within the preceding year, (ii) 50% or more within the preceding three years, or (iii) 75% or more within the preceding five years that is also “otherwise excessive and unduly burdens consumers because of the importance of the essential off-patent or generic drug to their health and because of insufficient competition in the marketplace.”
To enforce the IL Act, the Attorney General may petition a court to, among other things, restore any money acquired as a result of an illegal price increase to consumers and third-party payors and impose a fine of up to $10,000 per day for each violation.
The IL Act expressly prohibits a manufacturer from “assert[ing] as a defense that the manufacturer or wholesale drug distributor did not directly sell a product to a consumer residing in Illinois.”
Association for Accessible Medicines v. Raoul, No. 24-cv-00544 (N.D. Ill. Jan. 22, 2024)
In its Illinois complaint, AAM primarily alleges that as with the MN Act, the IL Act violates the Constitution under a dormant Commerce Clause theory because manufacturers can violate the IL Act for sales that occur entirely outside of Illinois as long as the drug “is ultimately sold in Illinois.”
The Commerce Clause states that Congress has the power to regulate interstate commerce. The dormant Commerce Clause doctrine provides that even when Congress is “dormant” (i.e., has not acted) as to an interstate commerce issue, states still cannot pass laws addressing that issue if they would impermissibly restrict interstate commerce. AAM argues that courts have found that the dormant Commerce Clause doctrine specifically prohibits laws like the IL Act that “directly” regulate out-of-state transactions.
In support of its dormant Commerce Clause argument, AAM cites the Ellison decision that granted AAM a preliminary injunction against enforcement of the Minnesota law. In Ellison, the court found that AAM was likely to prevail on its dormant Commerce Clause claim because the MN Act “directly regulates transactions that take place wholly outside of Minnesota.” The court emphasized that the MN Act covers not only drugs sold in Minnesota but also drugs sold elsewhere and later dispensed or delivered in Minnesota. The court also found that the fine that can be imposed on manufacturers choosing to withdraw from Minnesota rather than comply with the MN Act compounds its extraterritorial reach by constraining manufacturers’ ability to not do business in the state.
Implications for Manufacturers
If AAM is successful in the Illinois challenge and succeeds in defending its Ellison victory on appeal, it will have provided a strong blueprint for similar challenges to other price-gouging statutes. It will also have potentially provided a blueprint for challenging PDAB statutes.
For example, under Colorado’s PDAB statute, the board may initiate an “affordability review” of any products that exceed certain WAC thresholds.1Then, if the board determines that the product is “unaffordable” for Colorado consumers, it may implement an upper payment limit (UPL) applicable to all purchases of, and payer reimbursements for, a drug dispensed or administered to individuals in the state.2
One could argue that a UPL would directly regulate transactions that largely take place outside of Colorado in a manner similar to the IL Act and MN Act. In addition, because the UPL would limit the amount that purchasers will be able to pay for a manufacturer’s products, it arguably acts as a price cap on manufacturers, just like the IL Act and MN Act.
With PDAB legislation in effect in nine states and pending in eight others, AAM’s price-gouging ligation is providing important insights as to the kinds of PDAB challenges that may resonate with courts, including with respect to the broad range of transactions covered by PDAB legislation and the improper extraterritorial reach that UPLs may have.
Manufacturers should continue to monitor the status of both the Illinois and Minnesota cases as well as any similar litigation that may be filed in the coming months to challenge PDAB statutes.
1See Co. Stat. § 10-16-1406.
2See Co. Stat. § 10-16-1407.
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