As “laboratories of democracy” in the U.S. federal system, states have the unique ability to devise creative solutions to complex policy challenges in ways best tailored to protect their residents. For decades, state lawmakers have been considering creative solutions to address market failures and make prescription drugs more affordable and accessible. A strategy that is gaining popularity is legislation authorizing state prescription drug affordability boards (PDABs) to set limits on the prices that patients, insurers, providers, and pharmacies pay for certain prescription drugs.
Maryland was the first state to pass a PDAB law in 2019, authorizing a five-member board to first set upper payment limits (UPLs) for public purchasers, such as state and local government entities, pending approval from the state legislature. The law also directed the PDAB to make recommendations to the legislature “on the authority it should have to make high cost drugs more affordable for all Marylanders.” Following Maryland’s lead, Colorado, Minnesota, and Washington passed similar laws that allow PDABs to establish UPLs, while other states enacted PDABs to determine spending targets and make policy recommendations, or negotiate with drug manufacturers for Medicaid rebates.
In February 2024, Colorado’s PDAB found that Amgen’s drug Enbrel was “unaffordable”—a determination that allows the PDAB to set a UPL for the drug. In March 2024, Amgen sued in federal district court, claiming that Colorado’s PDAB legislation was unconstitutional.
While the Amgen litigation proceeds, the state’s PDAB continues to review the affordability of other drugs. In June 2024, the PDAB found another drug, Johnson & Johnson’s Stelara, was “unaffordable” and thus chosen for a potential UPL. As PDAB legislation gains traction across the country and more drugs are selected for UPLs, it is very likely that these laws and decisions will continue to be litigated.
In this article, we highlight the claims in Amgen v. Mizner, summarize the filings in the case, and offer takeaways as states continue to enact and implement PDAB legislation to tackle the high cost of drugs.
Colorado Litigation
In its complaint, Amgen argued that the PDAB law violates several constitutional provisions and impermissibly regulates federal health care programs. As a threshold matter, the court will decide whether Amgen can bring the lawsuit. The other questions that the court will determine involve: (i) Colorado’s authority to regulate federally patented drugs under preemption doctrine; (ii) manufacturers’ property interests under the Due Process Clause of the U.S. Constitution; and (iii) the effect of Colorado’s PDAB law on the national drug market under the Dormant Commerce Clause. The parties’ arguments (including amicus briefs by the Colorado Center on Law and Policy, the Biotechnology Innovation Organization, and the Pharmaceutical Research and Manufacturers of America/Chamber of Commerce) on each of these issues are summarized below.
Standing
To bring a lawsuit, one must show that they have been harmed or injured. This is called “standing” in legal parlance. Federal courts typically dismiss cases for lack of standing when the purported injury is indirect or too loosely connected to a party’s actions, or if the injury is conjectural or speculative. Colorado argues that Amgen lacks standing because it has not been harmed or injured, as the PDAB law would apply to downstream purchasers, not Amgen. Amgen argues that it will be affected by the potential actions of the downstream actors
to which a UPL would apply, which Colorado argues is too speculative to establish standing. Amgen also contends that it has suffered an injury by engaging in the judicial process.
In addition to showing harm or injury, a party must show that there is a genuine controversy for the court to address. In other words, the case must be “ripe” for review. Colorado argues that Amgen’s suit is not ripe for review because a UPL for Enbrel has not been established and may never be established. Colorado explains that without the UPL, Amgen cannot show it has been injured. Even so, Amgen asserts that it will be injured when the UPL is set, and the court need not wait until then to hear this case as the possibility of injury is sufficient to establish ripeness.
Amgen also maintains that it is not the UPL but how the law works to affect the price of the drug that will cause injury. According to Amgen, the less wholesalers can charge for the drug downstream, the less they will pay for it when they purchase from Amgen; and as the manufacturer, Amgen will be impacted no matter where in the supply chain the UPL is applied. Colorado explains that even if the PDAB had already established a final UPL, “any injury to Amgen would be speculative and indirect, at best,” since the law is not meant to apply directly to Amgen and the injuries they raise would follow as potential consequences of the regulated actors’ decisions. For those reasons, Colorado has asked the court to dismiss the case.
Federal Preemption
The U.S. Constitution delineates a hierarchy between federal and state laws. When the two conflict, federal law controls, and state law is preempted. Amgen argues that federal patent laws shield Enbrel—a patented drug—from state laws that affect the cost of patented drugs.
Amgen characterizes Colorado’s PDAB law as a “price control scheme” that undermines the purpose of federal patent law. For Amgen, federal patent laws are designed to “ensur[e] that those who develop innovative medicines are rewarded with a period of federal patent exclusivity and pricing discretion, while encouraging generic and biosimilar competition after the end of the relevant patent terms,” and Colorado PDAB law frustrates that purpose “by preventing a patent owner or licensee from charging prices that reflect its federally guaranteed patent exclusivity.” For that reason, Amgen contends, the PDAB law is preempted.
Amgen also argues that the law impermissibly interferes with federal health care programs like Medicare and TRICARE because it dictates the prices that the programs are required to pay for Enbrel. Amgen maintains that the law would apply to all federal payers because it does not expressly exempt them (notwithstanding subsequent clarification from the PDAB that it does not).
Colorado pushes back, explaining that as a sovereign state, it has the authority and the duty to protect the health and welfare of its citizens, including addressing the market failures that make prescription drugs unaffordable. That a drug is patented does not insulate it from state laws aimed at protecting the health and welfare of citizens. Moreover, Colorado argues that the PDAB program does not conflict with federal patent laws because those laws only protect “the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States.” Once the owner sells the invented product, the right to exclude is exhausted. Colorado explains that Amgen’s right to exclude is exhausted as Enbrel moves through the drug market supply chain. Amgen sells Enbrel to wholesalers, who “in turn, sell Enbrel to Colorado pharmacies, which in turn, sell it to Colorado consumers.” Once Amgen sells Enbrel to wholesalers, it no longer has the right to exclude others because it “has received its economic reward” and “cannot use patent law to control the prices downstream in the chain of commerce.” Colorado maintains that because the UPLs would apply to downstream purchases after Amgen has sold Enbrel to other actors in the prescription drug market, Amgen may not assert its patent rights.
Colorado also contends that the preemption argument is moot because UPLs would not apply to federal programs and payers like Medicare. The PBAB-established UPLs would apply only to commercial health plans, state and local governments, and self-funded plans that opt in, and the PDAB has reiterated “that a UPL would not apply to Medicare or self-funded plans subject to ERISA that did not opt-in.” Additionally, the Colorado state Attorney General, who is entrusted with enforcing the PDAB law “explicitly stated that he will only enforce a UPL to the applicability established by the Board.” In its view, Colorado’s disclaiming of the UPL’s applicability to federal programs therefore moots this aspect of federal preemption.
Due Process
The Due Process Clause requires government actors to follow fair processes—usually notice and the opportunity to be heard—before taking a protected right or interest. Amgen argues that it has a property interest in Enbrel, and the accompanying right to “fix the price at which” Enbrel is sold.
Amgen claims that the PDAB law is procedurally unfair because it lacks clear guidelines on how the PDAB determines a drug’s unaffordability. Specifically, Amgen asserts that while the law lists various factors the PBAB must consider, the law does not specify how the PDAB should assess and weigh those factors. Moreover, Amgen claims that due process requires that laws establishing payment rates must ensure a fair and reasonable return on investment. According to Amgen the factors the PDAB must weigh in determining unaffordability and UPLs do not include “any standards to ensure a constitutional rate of return for drug manufacturers.” As a result, Amgen argues that the statute provides the PDAB with unbridled discretion in their ability to set UPL’s, leaving Amgen at risk of being subject to a potentially confiscatory or discriminatory UPL.
Colorado responds that a due process claim requires Amgen to show that it has a protected right or property interest, andAmgen does not have such a right— “to dictate downstream prices of its products after it sells its drug to a wholesaler.” Nothing in the affordability review would impact Amgen’s ability to choose how it sells its product, Colorado explains. Additionally, Colorado contends that even assuming Amgen had a protected interest, the law affords various stakeholders—including drug manufacturers—sufficient opportunities to engage with the PDAB process. Colorado points out that Amgen has been actively engaged in the process by providing comments and attending multiple PDAB meetings.
Colorado maintains that the factors involved in each affordability determination are outlined in detailed reports any time a determination is made. Colorado asserts that due process “does not require every delegation by the legislature to an administrative agency to contain precise, formulaic instructions on how to reach determinations across nuanced contexts,” noting that valid delegations to administrative agencies do not violate due process “simply because they give an agency discretion.” Colorado also explains that notice and opportunity to be heard is typically not required for agencies to implement a rule that generally applies to the public and, in any case, the PDAB’s rules would be reviewable by state judicial review or subject to oversight and reform by the legislature.
Dormant Commerce Clause
The Constitution grants Congress the authority to regulate interstate commerce, but places a limitation on some state laws that may affect interstate commerce or the national market. This implicit limitation is known as the Dormant Commerce Clause. Amgen claims that the PDAB law impermissibly regulates interstate commerce because it applies outside Colorado and affects upstream transactions of Enbrel. Although the UPL would apply to drugs dispensed within the state, Amgen argues that the law still affects transactions with other players within the supply chain, such as manufacturers and distributors, who may be located outside Colorado. Thus, Amgen asserts that the UPL is tantamount to a direct regulation of out-of-state commerce, which violates the Dormant Commerce Clause.
Amgen further states the Colorado PDAB law is impermissible because the burden the law imposes on interstate commerce far outweighs the law’s in-state benefits. Amgen suggests that Colorado could promote its in-state interests by solely regulating transactions that occur entirely within the state, not the transactions that occur entirely outside of Colorado.
Colorado cautions that the Dormant Commerce Clause “is not a license for courts to invalidate any state laws that might impact commerce outside of a state.” Citing a recent Supreme Court decision that upheld a California law restricting the sale of pork from inhumanely raised hogs, Colorado urges the court to take “extreme caution” in using the Dormant Commerce Clause to strike down a state law. In that case, the Supreme Court flatly rejected the claim that a state law that directly regulates wholly out-of-state transactions offends the Dormant Commerce Clause.
Colorado argues that one of the core aims of the Commerce Clause is to prohibit laws that are meant to discriminate against interstate commerce by protecting in-state interests from out-of-state competitors—and because the state law does not discriminate between in and out-of-state transactions, and UPLs apply evenly to both in and out-of-state transactions, it does not violate the clause.
In cases where laws were struck down for impermissibly regulating outside of a state, Colorado asserts that, the laws at issue deliberately “prevented out-of-state firms from undertaking competitive pricing or deprived businesses and consumers in other states of whatever competitive advantages they may possess.” But under the PDAB law, Colorado explains, a UPL does not have either effect and does not tie the cost of medications sold in the state to the cost of the same medication when sold out-of-state.
Lastly, Colorado maintains that Amgen’s argument—that the state is impermissibly regulating transactions occurring wholly out-of-state—is limited in scope and does not apply to the PDAB law because the transactions to which the law applies do not occur entirely outside of the state’s borders. Indeed, the UPL would apply to drugs distributed or dispensed within Colorado.
Next Steps in the Litigation
The court heard oral arguments on October 22, 2024. The presiding judge challenged Colorado’s arguments about standing, expressing skepticism that manufacturers would need to wait until a UPL was established before having standing to challenge the impact of the PDAB statute in court. But on the merits, the judge also asked several questions about the validity of Amgen’s patent preemption and property rights arguments.
A decision on these summary judgment motions will determine the outcome at the district court level. A narrow procedural decision on standing or ripeness grounds could delay a decision on the substance of these legal arguments until a later date. Any decisions by the district court are likely to be appealed.
Amgen’s arguments largely defend its right to protect its profits. Similar to the aggressive legal strategy that manufacturers have used to challenge the Medicare Drug Price Negotiation Program, Amgen is pursuing a range of constitutional challenges that rely on assumptions that it has certain patent rights and a property interest in selling its drug at a certain price. In the federal context, judges have failed to legitimize these lines of argument. However, other state attempts to address price gouging or promote enhanced transparency in the prescription drug market have faced setbacks in Minnesota, Oregon, and Maryland. With appeals pending, some of those decisions may be reversed.
Ultimately, a victory for the Colorado PDAB Board would allow the Board to continue making affordability determinations and issuing UPLs for expensive drugs. But it could also provide considerable encouragement for state lawmakers to continue to pass PDAB bills to tackle the high costs of prescription drugs faced by consumers across the country.
