Price control provision to be struck from major pharmaceutical bill ahead of committee vote Wednesday

Megan Messerly
Megan Messerly
Health CareLegislature

Democratic Sen. Yvanna Cancela is striking a significant portion of her major pharmaceutical bill that sought to control the prices of diabetes drugs in Nevada because of constitutional concerns ahead of a committee vote on the bill tomorrow.

The bill, SB265, will be amended to remove the section that would have required manufacturers of pharmaceutical drugs to reimburse patients and insurers if the cost of certain essential diabetes-related drugs increased by more than a certain amount each year, Cancela said Tuesday. She said that legislative staff informed her late Sunday of two potential constitutional concerns with the price control section of the bill — concerns that Senate Minority Leader Michael Roberson said he has discussed with legislative lawyers.

Cancela said she has not surrendered on the price control component, but that she is removing it for now to try to move the bill.

A memo from Chief Litigation Counsel Kevin Powers to Legislative Counsel Brenda Erdoes dated Monday spells out the ways in which the legislation could violate the Interstate Commerce Clause, which restricts the power of states to regulate interstate commerce, and the doctrine of federal preemption as spelled out in the Supremacy Clause, which says that federal law trumps state law when the two are in conflict.

The memo, which a reporter was allowed to view but not post online, states that the U.S. Supreme Court has generally struck down statutes that directly or indirectly burden interstate commerce beyond the state’s borders as invalid under the Commerce Clause. It notes that a statute statutory price regulation would “generally violate” the clause if the regulation determines the prices that pharmaceutical manufacturers may charge or collect for their drugs.

The price control provision of the legislation, as written, would require manufacturers of insulin and another type of diabetes drug called biguanides to reimburse patients or insurers if the list price of the drug, called the wholesale acquisition cost, increases more in a year than the Consumer Price Index’s Medical Care Component.

The memo also cites a Washington D.C. case in which PhRMA, the trade association representing pharmaceutical manufacturers in the United States that also opposes SB265, sued the District of Columbia over a price control measure that made it illegal for manufacturers to sell prescription drugs for resale in the district for an “excessive price.” The court in that case found that the measure violated the Commerce Clause because the majority of pharmaceutical companies’ sales occur outside of the District between out-of-state manufacturers and wholesalers and that regulating those sales would inhibit interstate commerce.

The court also cited the federal preemption doctrine under the Supremacy Clause in that case, finding that the price control law created an obstacle to achieving the purposes of federal patent law. The court found that the D.C. law undermined federal patent law by reducing the reward for innovation among the pharmaceutical industry.

The legislative memo concluded that the Interstate Commerce Clause “imposes significant federal constitutional barriers to state price regulation of prescription drugs” and that “state price regulation is preempted under the Supremacy Clause because it stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress in enacting the federal patent laws.”

A section of a previously proposed amendment to the bill had sought to address a third, separate constitutional concern that the price control process laid out in the legislation could violate the Fifth Amendment’s Takings Clause, which protects against the government confiscating private property without due process or just compensation. Legislative legal counsel had suggested the provision, which creates a process for pharmaceutical manufacturers to appeal a reimbursement under the clause, to ensure that businesses are allowed to earn a reasonable rate of return.

But late Sunday, legislative legal counsel informed Cancela of the additional constitutional concerns with the bill. Cancela said she consulted with multiple lawyers on Monday and ultimately decided to remove the price control portion of the bill ahead of a committee vote on Wednesday.

She said that she remains hopeful that the constitutional issues could be worked out once the bill reaches the Assembly and that there will be a way to “legally execute the refund piece.”

“We’re trying to do something that’s never been done before in Nevada or in the rest of the country so I think it’s important to make sure that we’re not putting legislation forward that could put the state at risk of a lawsuit,” Canela said. “That said, the rest of the bill is still landmark transparency legislation. What we’ve seen is that increased transparency inevitably leads to decreased costs so I think the bill, even without the refund piece, is still a really strong piece of legislation. “

Other portions of the bill, which is up for a vote in Senate Health and Human Services Wednesday afternoon, require manufacturers of diabetes drugs to report certain costs of research and development of the drug, mandate that health care-related nonprofits disclose any contributions they receive from the pharmaceutical industry and implement a lobbyist-like registration for pharmaceutical sales representatives, who would be required to report annually to the state any visits they make to doctors and samples they distribute.

Though the two constitutional concerns with the bill came as a surprise to Cancela, they weren’t to Roberson, who said in an interview Tuesday that he was aware that the price control portion of the bill could conflict with federal patent law in violation of the Constitution. Roberson said that he’s had conversations with legislative staff not about SB265 specifically but the different ways to reduce insulin prices for Nevada consumers and that the constitutional concerns with price controls on pharmaceutical drugs came up in those conversations.

“I have been trying to determine what's the most effective way we as legislators can drive down the costs of insulin for Nevada consumers for Nevadans,” Roberson said. “As part of that effort, I have talked to the Legislative Counsel Bureau about a lot of different ideas as to what we can and cannot do legally to try to ensure that we can reduce the price of insulin medication here in Nevada.”

Roberson said that he is still considering his options as far as bringing forward his own emergency bill to address the cost of diabetes medicine in Nevada.

But he said that based on the constitutional concerns he’s heard, the “best thing we can do is require transparency on everyone,” meaning the pharmaceutical industry, the middlemen in the drug pricing process known as pharmacy benefit managers, or PBMs, and the insurance companies. (PBMs administer prescription drug programs for health plans and contract with pharmacies, negotiate rebates and discounts with manufacturers and process claims.)

Roberson said that he’s spoken with representatives of pharmaceutical manufacturers, PBMs and insurance companies and that they “have been open to stepping forward and being more transparent.” He declined to comment on whether he’s spoken with the governor about the issue.

“I would like to work with Senator Cancela and anyone else who wants to work on truly putting together an effective plan to reduce insulin costs here in Nevada,” Roberson said. “Any industry I would hope would be willing to be as transparent as possible so that we understand why these prices are increasing the way they have.”


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