Beyond the Pandemic: Pharmaceutical Industry Compliance Considerations

Proskauer - Minding Your Business

Since the ongoing states of emergency were put in place in response to a health crisis, pricing in the pharmaceutical industry is under more of a microscope than usual.  While the immediate focus may be on products that are used to diagnose, treat, or prevent COVID-19, price gouging laws cover a wide variety of pharmaceutical products covering the full range of conditions. Given the current and proposed regulations that may impact pricing, companies should remain mindful of their price gouging compliance policies when considering pricing movements during the states of emergency.

In terms of pricing for products that relate to the novel coronavirus, bipartisan Senate and House bills propose prohibiting market exclusivity for taxpayer-funded COVID-19 drugs, and would not only empower but require the federal government to mandate affordable prices. The bills would also apply the same criteria—prohibiting exclusive licensing, requiring manufacturers report their federal funding and total expenditures, and mandating federally-set affordable pricing—to drugs used to treat future diseases that would cause a public health emergency.  Precisely which drugs might fall into that category will be hard for companies to predict in advance.

The President also issued several executive orders recently that appear to be aimed at reducing prices paid by consumers for certain pharmaceutical products. While their practical impact remains to be seen, the actions indicate that the industry’s prices remain on the White House’s radar, suggesting that pricing will likely continue to be scrutinized at the federal level.

Setting aside predictions and political issues surrounding the pricing of any coronavirus treatments, at the local level, many states already explicitly cover a range of pharmaceutical products, not just those related to the pandemic. California’s price gouging law limits permissible price increases on “medical supplies,” including prescription and nonprescription medications. Texas prohibits “exorbitant” pricing of “medicine.” Maine limits price increases on “pharmaceutical products,” including but not limited to prescription medications.” Idaho prohibits “[t]aking advantage of a disaster or emergency” with “exorbitant or excessive” pricing on “pharmaceuticals.” Minnesota’s March 20, 2020 Executive Order prohibits charging “unconscionably excessive prices” for “pharmaceuticals.”

While many price increases during the pendency of these states of emergency will likely fall within permissible exceptions, including justifications for increased costs, companies would benefit from reviewing those exceptions and documenting the permissible bases for any pricing movements.

While it may be typical for some in the industry to adjust pricing on a regular basis, companies may wish to consider how pricing constraints due to the ongoing states of emergency could impact those practices. If the planned increases fall within permissible justifications or exceptions, then any presumed price caps may not apply. Delaying or staggering increases may also be prudent, depending on the product and which statutes and restrictions are triggered.

For additional guidance on how to evaluate and, if necessary, update internal compliance practices to account for these considerations, read our article on conducting a price gouging audit and our blog post on Price Gouging Dos & Don’ts for Supply Chain Companies.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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