Price Limits, Affordability Boards, Penalties, Oh My: Minnesota Enacts Sweeping Drug Pricing Reforms

On May 24, Minnesota enacted the Commerce and Consumer Protection Omnibus Bill, Senate File 2744 (SF 2744), which significantly expands the state’s existing drug pricing activities with serious implications for all drug manufacturers, and particularly generic drug manufacturers.

The drug pricing provisions of SF 2744 establish two mechanisms intended to curb rising drug costs: (1) a prohibition on generic drug manufacturers from taking price increases above a specified threshold and (2) a Prescription Drug Affordability Board to identify, review, and establish an upper payment limit on certain high-cost drug products sold in the state.  We address each below.

Prohibition on Excessive Price Increases

The law prohibits manufacturers from imposing or causing to be imposed an “excessive price increase,” whether directly or through a wholesale distributor, pharmacy, or similar intermediary, on the sale of any generic or off-patent drug sold or dispensed to any consumer in the state.  A price increase is considered “excessive” when the increase, adjusted for inflation using the Consumer Price Index (CPI), exceeds $30 for a 30-day supply or course of treatment lasting under 30 days, and:

• 15% of the wholesale acquisition cost (WAC) over the immediately precedent calendar year; or
• 40% of the WAC over the immediately preceding three calendar years.

Importantly, “price increase” is not defined in this statute.  It appears not to mean a WAC increase, because the term WAC is specifically used in defining the price increase triggers, but not in reference to the manufacturer’s price increase.  If a price increase is not an increase in WAC, its meaning is unclear.  Is it an increase in average price, and if so, averaged over what period?  Is it an increase in AWP/SWP?  Best price?  Some other price?  Is the price that in Minnesota only or in the U.S. generally?  The ambiguity in this critical term makes it impossible for manufacturers to know how much they can increase prices without incurring severe penalties, and leaves the law vulnerable to legal challenge for unconstitutional vagueness.

Note also that the thresholds for violating Minnesota’s excessive price increase prohibition are below that which triggers generic drug price increase reporting to the state.  Under Minnesota’s Prescription Drug Price Transparency Act, manufacturers must submit detailed pricing information for any generic prescription drug with a WAC of at least $100 for a 30-day supply or shorter course of treatment for which it increased the WAC by 50% or greater over the previous 12-month period.  In other words, with the enactment of SF 2744, any manufacturer that triggers Minnesota’s price increase reporting for generics will also be in violation of Minnesota law.

Similar to state drug pricing reporting requirements, any manufacturer that takes an excessive price increase will receive notice from the commissioner of health and must submit a drug cost statement to the state attorney general within 45 days of such notice.  The statement must itemize the cost components related to production of the drug, identify increases in materials or manufacturing costs, and provide other information that the manufacturer believes relevant to determining whether a violation has occurred.

A range of steep penalties could befall a manufacturer who violates this prohibition.  After a manufacturer submits (or fails to submit) the required drug cost statement, the AG may petition a court to issue an order to, inter alia:

• compel the manufacturer to provide the required drug cost statement or additional information, including by answering interrogatories, producing documents, or being examined under oath;
• restrain or enjoin the violation, including by requiring drug prices to be restored to a non-violative level;
• require the manufacturer to repay to all Minnesota consumers, including any third-party payers, any money acquired as a result of the violative price increase; or

impose a civil penalty of up to $10,000 per day for each violation.  The statute confuses the issue by providing that “every individual transaction in violation of [the excessive price increase prohibition] is considered a separate violation,” making it unclear whether this is a per-day or per-transaction penalty, and, if the latter, what the transaction is.  SF 2744 also provides a private right of action to enforce the prohibition.

In case some manufacturers decide to pull their products from Minnesota rather than face its excessive price increase prohibition, SF 2744 also prohibits manufacturers from withdrawing a generic or off-patent drug from sale or distribution within the state for the purpose of avoiding the prohibition on excessive price increases.  In other words, a violative manufacturer not only pays penalties, but is also compelled to continue marketing the drug in Minnesota (at a reduced price).  As a separate requirement, a manufacturer that intends to withdraw a generic or off-patent drug from sale or distribution within the state must provide written notice of the withdrawal to the AG at least 90 days in advance.  Failure to comply with either of these withdrawal requirements will subject the manufacturer to a $500,000 penalty.

Prescription Drug Affordability Board

The law also establishes a nine-member Prescription Drug Affordability Board and an 18-member stakeholder advisory council to provide advice to the Board on drug cost issues.  Initial appointments to both the Board and advisory council will occur by January 1, 2024.

The Board, in consultation with the advisory council, is tasked with identifying certain prescription drug products based on the following criteria:

• brand name drugs or biologics for which the WAC increased by more than 15% or more than $2,000 during any 12-month period or course of treatment lasting under 12 months, adjusting for changes in the CPI;
• brand name drugs or biologics with a WAC of $60,000 or more per calendar year or course of treatment;
• biosimilar drugs with a WAC that is not at least 20% lower than the referenced brand name biologic at the time the biosimilar is introduced; and
• generic drugs for which the WAC:
  • is $100 or more for a 30-day supply, course of treatment under 30 days, or one unit of the drug if its labeling does not recommend a finite dosage; and
  • increased by 200% or more during the immediately preceding 12-month period, adjusting for changes in the CPI.

The Board is not required to identify all drugs that meet the above criteria and may, in consultation with the advisory council and the commissioner of health, identify drug products that fall outside these criteria but otherwise could create “significant affordability challenges” for Minnesota’s healthcare system or Minnesota patients.  Identified drugs and related price information will be publicly disclosed, except for information the Board determines to be proprietary, not public, or trade secret.

The Board may then initiate a cost review of any such identified drug product.  In conducting the cost review, the Board will determine whether appropriate utilization of the drug has led or will lead to affordability challenges for the state’s healthcare system or patients, which may include a review of the following factors:

• the price at which the drug has been and will be sold in the state, and the price of therapeutic alternatives;
• manufacturer price concessions, discounts, rebates, and drug-specific patient assistance;
• measures of patient access, including cost-sharing;
• the cost to group purchasers based on patient access;
• in the case of a generic or off-patent prescription drug, the extent to which the AG or a court has determined that the price increase was excessive in violation of the prohibition discussed above; and
• any information the manufacturer chooses to provide.

Note that any information submitted by the manufacturer will be publicly disclosed except information the Board determines to be proprietary, not public, or trade secret, based on standards the Board will establish.  There will be a public comment period to develop these standards.  For now, the law makes no reference to the manufacturer’s role in claiming trade secret exemption, but we expect manufacturers to make these claims when submitting any information it considers to be trade secret.

Given the possibility of public disclosure of likely sensitive business information, manufacturers with drugs under review may be reluctant to provide information to the Board.  At the same time, providing this information could influence whether the Board determines that the drug product creates an affordability challenge—a determination which has significant implications for the manufacturer.

If the Board makes such a determination, it will establish an upper payment limit (UPL) that will apply to all purchases of and payer reimbursements for that drug in the state.  The UPL may take effect no sooner than 120 days after the Board publicly releases this decision.  Any person affected by a Board decision may request an appeal within 30 days of that decision, but note that it is the Board who makes the initial decision, hears the appeal, and renders the appeal decision.  The appeal decision is subject to judicial review by a Minnesota court.

The establishment of a UPL is not the only consequence that manufacturers may face for its pricing activities under this provision of SF 2744.  Upon a determination that a manufacturer is noncompliant with the UPL requirements, the AG may pursue enforcement through civil or criminal penalties.

Potential Legal Challenges

In enacting the law, Minnesota lawmakers ignored opposition not only from trade groups like PhRMA and the Association for Accessible Medicines (see here and here), but also organizations including the Minnesota Society of Clinical Oncology, and the Association for Clinical Oncology (here), the Council for Citizens Against Government Waste (here), and the National Taxpayers Union (here).  We expect the Minnesota law to face Commerce Clause, vagueness, and possibly other constitutional challenges, similar to those brought against a generic price gouging prohibition in Maryland that was struck down by the Fourth Circuit in 2018 (see our post here).  For now, we will continue to monitor the law, its future implementing regulations, and any legal challenges as they develop.