Federal judge halts Minnesota AG Ellison from enforcing new prescription drug price control law

Earlier this week a federal judge issued a preliminary injunction against Minnesota Attorney General Keith Ellison that prohibits him from enforcing new state price controls on generic and off-patent prescription drugs.

The new law prohibits drug manufacturers from imposing “an excessive price increase … on the sale of any generic or off-patent drug sold, dispensed, or delivered to any consumer in the state.”   

The Association for Accessible Medicine (AAM)—a trade association that represents generic drug manufacturers—filed the lawsuit challenging the law. In their complaint, they argue the law violates the Commerce Clause of the U.S. Constitution because it regulates prescription drug transactions that take place wholly outside the state of Minnesota.

Judge finds AAM’s challenge “is highly likely to succeed on the merits”

Based on federal judge Patrick Schiltz’s opinion, the constitutionality of the law appeared to be a rather simple legal issue for him to resolve. The dormant Commerce Clause generally prohibits a state from regulating out-of-state transactions. The state had to concede that the law regulated out-of-state transactions between drug manufacturers and wholesalers. None of AAM’s member manufacturers are located in Minnesota and the three largest wholesalers that control 90 percent of the market are outside Minnesota.

The only real question for the judge was whether the transactions had a sufficient connection to Minnesota to authorize the state law. Yet this too was an easy question. The Attorney General conceded the law imposed liability on manufacturers for sales that take place wholly outside Minnesota even if the manufacturer has no knowledge or control over whether the drug will eventually make its way to Minnesota. The state even confirmed the law imposes liability on a manufacturer “even if the Manufacturer has done everything in its power to prevent its drugs from being sold to Minnesota.” (Emphasis added by Judge Shiltz.) The judge then easily dismissed all of the Attorney General’s counter arguments.

Altogether, the clear facts and the on-point legal precedent surrounding AAM’s complaint kept the opinion rather short and sweet. This suggests that Judge Schiltz did not have much difficulty in concluding that AAM’s challenge “is highly likely to succeed on the merits.” (Emphasis added.)

Democrat lawmakers were alerted, but dismissed the legal issues

When the bill moved through committees during the last legislative session, the Democrat sponsors of the bill heard repeated testimony arguing that the bill imposed unconstitutional price controls. This testimony came largely from drug industry representatives. American Experiment also offered testimony, but left the legal arguments to the industry and focused on why drug price controls are bad policy—highlighting how the policy will reduce access to life-saving drugs.

When the bill was before the House Judiciary Finance and Civil Law Committee, Rep. Harry Niska (R-Ramsey)—an opponent of the bill—referenced testimony from AAM asserting that sales from manufacturers to wholesalers happen outside the state of Minnesota. He then asked the author of the bill, Rep. Zach Stephenson (D-Coon Rapids), “At least some transactions that this is regulating the price of happen between a manufacturer outside the state of Minnesota and a wholesaler outside the state of Minnesota, is that accurate?”

In response, Rep. Stephenson assured Rep. Niska that the “the Commerce Clause issues related to this bill are adequately addressed by the nature of the bill.” Stephenson further argued, “I think that the Maryland case that was being discussed was decided on wholly different grounds. I think we’ve learned from that case and come back to it and addressed the bill to make it better.”

The Maryland case was an opinion from the 4th Circuit which struck down a similar Maryland law. Testifiers had earlier argued the Minnesota bill would similarly be struck down.

In his final comment, Rep. Niska counseled that Rep. Stephenson and his counsel “study the Maryland case a little bit closer.” Niska noted that the core holding and core legal problem in that case focused on state drug price regulations on “upstream” transactions between a manufacturer and a wholesaler just like the Minnesota bill does. He warned, “I think that we’re heading for a lawsuit in which the State of Minnesota is not going to win.” He further predicted the state’s loss would be similar to a recent loss where the 8th Circuit struck down a Minnesota law which regulated gold bullion transactions outside the state.

Rep. Niska’s warning proves prescient

All the legal issues which Rep. Niska warned about turned up in Judge Shiltz’s opinion. The gold bullion case turned out to be the primary precedent the opinion relied on. In fact, when assessing whether the transactions had a sufficient connection to Minnesota, the opinion noted “the Minnesota connection is even weaker” for the out-of-state drug transactions than the out-of-state gold bullion transactions struck down by the 8th Circuit.

Then, after explaining why a California case cited by the Attorney General was “not comparable,” the opinion further explains how “the Act does closely resemble the Maryland law” and details how the Maryland opinion supports AAM’s complaint. Overall, the meat of the opinion focuses on these two cases from the 8th and 4th Circuits to support its finding that AAM “is highly likely to succeed on the merits.”

Constitutional errors likely impossible to cure with a legislative fix

Supporters of the law might think lawmakers can go back and tweak the law to not offend the Commerce Clause. The opinion does note that if the law “simply prohibited excessive price increases on the ‘sale’ of any generic drug ‘sold’ in the state, one could plausibly read it as applying only to in‐state sales.” But this type of regulation would never work in practice because it would not be able to reach the initial upstream pricing set by any out-of-state manufacturer—the pricing decision for which all other downstream prices depend. And that is why the current law tries to focus on manufacturers.

In the end, the injunction appropriately applies the Commerce Clause to stop Minnesota regulations from upsetting the flow of commerce outside the state’s borders. The alternative outcome would result in an unmanageable patchwork of competing and conflicting state laws.