A recent opinion from the United States Court of Appeals for the First Circuit concluded that a Vermont law, which banned data mining companies from selling prescription information to pharmaceutical companies, was unconstitutional. This decision will have significant implications as the same federal court has already upheld two similar laws in Maine and New Hampshire, which sets up a reasonable chance for the U.S. Supreme Court to take up the issue.
The case has important results for marketing and advertising practices of pharmaceutical and device companies because the decision recognized the importance of protecting commercial speech against unconstitutional laws that violate First Amendment rights.
Background
When filling prescriptions, pharmacies collect information including the prescriber’s name and address, the name, dosage, and quantity of the drug, the date and place the prescription is filled, and the patient’s age and gender. Pharmacies sell this patient identifiable (PI) data to what are known as “data mining companies,” who aggregate the data to reveal individual physician prescribing patterns and sell it primarily to pharmaceutical manufacturers. The PI data sold by the data-mining companies is stripped of patient information, to protect patient privacy.
New Hampshire Bans Data Mining
New Hampshire state legislature passed a statute in 2006 prohibiting the transmission or use of patient identifiable and PI data for most commercial purposes, such as marketing and advertising or promotion.
The stated intent of the statute, passed without any formal legislative findings, was to protect patient and physician privacy and to reduce health care costs. The law was soon after challenged in the United States District Court for the District of New Hampshire, which found the statute unconstitutional because it restricted commercial speech without directly promoting substantial state interests. Subsequently, the Court of Appeals for the First Circuit reversed the judgment of the New Hampshire district court and upheld the constitutionality of the New Hampshire statute.
The majority opinion concluded that the New Hampshire statute regulated only the conduct of data miners, not speech, and therefore did not violate their First Amendment rights.
Maine’s Date Mining Law
Maine also enacted a law in 2007 regulating the use of PI data. The legislative findings indicate that the statute was passed to improve public health, to reduce costs, and to protect patient and prescriber privacy. The Maine statute prohibits the use of PI data for marketing purposes when the prescriber opts out of its use.
The United States District Court for the District of Maine found the statute unconstitutional because it did not survive intermediate scrutiny (constitutionality test), despite the law having an opt-out provision. Consequently, the Court of Appeals for the First Circuit followed its decision from the New Hampshire case, and reversed the District Court’s preliminary injunction, and found the Maine statute regulating the use of PI data to be constitutional.
Vermont
The Vermont law was adopted in the wake of New Hampshire enacting their law, and shortly before another similar statute adopted in Maine. The Vermont legislature passed Act 80 in 2007, intending to protect public health, to protect prescriber privacy, and to reduce health care costs through the promotion of less costly drugs and ensuring prescribers receive unbiased information.
Section 17 of this Act prohibits the sale, license, or exchange for value of PI data for marketing or promoting a prescription drug, and prohibits pharmaceutical manufacturers and marketers from using PI data for marketing or promoting a prescription drug, unless the prescriber consents. Section 17 was effective on July 1, 2009. The statute adopts an opt-in approach, allowing prescribers to opt in to allow the use of their PI data for marketing purposes. The statute expressly permits the sale, transfer, or use of PI data for multiple other purposes (i.e. insurance, formular compliance).
What made Vermont’s law unique from New Hampshire and Maine are the findings from the legislature. Specifically, the legislature noted that “the goals of pharmaceutical marketing as “often in conflict with the goals of the state.” The legislature also expressed its concern that the “marketplace for ideas on medicine safety and effectiveness is frequently one-sided,” leading doctors to prescribe “drugs based on incomplete and biased information.” The legislature therefore found that “public health is ill served by the massive imbalance in information presented to doctors and other prescribers.”
Essentially, Vermont’s law attempted to correct what it saw as an unbalanced marketplace of ideas that undermines the state’s interests in promoting public health, protecting prescriber privacy, and reducing health care costs.
When the Vermont law was first challenged in the U.S. District Court in Vermont, it was upheld, and found constitutional. As a result, the data mining companies IMS Health Inc., Verispan, LLC and Source Healthcare Analytics, Inc., along with the Pharmaceutical Manufacturers and Researchers Association (PhRMA) appealed to the First Circuit.
Comparison of Vermont law to New Hampshire
The difference between the Vermont law and the New Hampshire statute, according to the Court of Appeals for the First Circuit, is that the latter statute was not a restriction on speech, but primarily a restriction on conduct, although it considered the statute only as it affected the activities of data miners rather than pharmaceutical manufacturers.
The First Circuit interpreted the New Hampshire statute as principally a regulation of conduct because it “restricts the ability of data miners to aggregate, compile, and transfer information destined for narrowly defined commercial ends” in a transaction where the “information itself has become a commodity.” In other words, the court treated the regulation of this information as if the data being ‘mined’ was a product, not speech. Therefore, the court concluded that the New Hampshire law was consistent with the First Amendment for the “legislature . . . to level the playing field not by eliminating speech but, rather, by eliminating the detailers’ ability to use a particular information asset—prescribing histories—in a particular way.”
The Vermont law however, was explicitly aimed to correct the “massive imbalance in information presented to doctors and other prescribers.” The statute specifically decries that “the marketplace for ideas on medicine safety and effectiveness is frequently one-sided.” The First Circuit therefore concluded, “the statute is clearly aimed at influencing the supply of information, a core First Amendment concern.”
Consequently, the court explained that the First Amendment teaches that courts should assume that truthful commercial information “is not in itself harmful,” and concluded that when a statute aims to restrict the availability of such information for some purposes, that restriction must be judged under the First Amendment.
In Vermont’s case, the PI information is not in the government’s possession. Rather, the state seeks to limit the acquisition and use of information in the hands of pharmacies, data miners, and pharmaceutical companies. Because of this, the court explained that Vermont’s case is about the extent of the permissible governmental regulation of information in the hands of private actors. Since the Vermont statute restricts protected speech, the First Circuit said it was necessary to determine whether section 17 violates the appellants’ First Amendment rights.
Commercial speech
To evaluate whether section 17 violated the appellants’ First Amendment rights, the Court of Appeals for the First Circuit uses a four prong test, which was set forth in a U.S. Supreme Court case known as Central Hudson.
Under Central Hudson, the government may regulate commercial speech when (1) “the communication is neither misleading nor related to unlawful activity;” (2) the government “asserts a substantial interest to be achieved” by the regulation; (3) the restriction “must directly advance the state interest;” and finally (4) “if the governmental interest could be served as well by a more limited restriction on commercial speech, the excessive restrictions cannot survive.”
The court explained that for the Vermont statute to survive intermediate scrutiny, Vermont had to show a “substantial state interest” that is directly advanced by the statute, and the regulation must not be more extensive than necessary to achieve the government’s interest.
Substantial State Interest
Vermont alleged that section 17 advanced three substantial state interests: (1) “the state’s interest in protecting the public health,” (2) “protecting the privacy of prescribers and prescribing information,” an interest the state sometimes also refers to as an interest in protecting “medical privacy,” and (3) the state’s interest in containing health care costs in both the private and public sectors.
Essentially, Vermont asserted that it had an interest in preventing pharmaceutical manufacturers from using PI data for two reasons. First, is an interest in the integrity of the prescribing process itself. Vermont asserted that companies should not be able to use PI data to persuade doctors to prescribe brand-name medications “because patient care can be compromised and because patient trust in the health care system is undermined.” Second, they argued that the state has an interest in preserving patients’ trust in their doctors by preventing patients from believing that their physicians are inappropriately influenced by PI data-driven marketing.
However, the court found that Vermont’s asserted interests in medical privacy were too speculative to qualify as a substantial state interest under Central Hudson because Vermont had not shown “any effect on the integrity of the prescribing process or the trust patients have in their doctors from the use of PI data in marketing.”
In fact, Vermont’s own expert was unaware of any instance in which a detailing interaction caused a doctor to prescribe an inappropriate medication. The court explained that “To the extent that the record might suggest PI data has damaged the relationship between doctors and patients, the evidence is either speculative or merely indicates that some doctors do not approve of detailing or the use of PI data in detailing.”
Accordingly, while the court did find that Vermont had a substantial interest in both lowering health care costs and protecting public health, they recognized that the state’s asserted interest in “medical privacy” was too speculative to satisfy the second prong of Central Hudson.
State Law Must Advance State Interest
Under the third prong of Central Hudson, Vermont was required to show that Section 17 “directly advanced the state interest involved,” namely that it advanced the state’s interests in public health and reducing costs in a direct and material way. The court held that Section 17 did not advance either of these interests in a “direct and material way.”
Specifically, the court explained that Section 17 did not directly restrict the prescribing practices of doctors, and it does not even directly restrict the marketing practices of detailers. Rather, it restricted the information available to detailers so that their marketing practices will be less effective and less likely to influence the prescribing practices of physicians.
More importantly, the Court recognized that Vermont “failed to cite to any case from the Supreme Court or the First Circuit that has upheld a regulation on speech when the government interest in the regulation is to bring about indirectly some social good or alter some conduct by restricting the information available to those whose conduct the government seeks to influence.”
What the First Circuit found particularly problematic with Section 17 is that the statute “seeks to alter the marketplace of ideas by taking out some truthful information that the state thinks could be used too effectively.” Vermont’s approach to regulating the interaction between detailers and doctors was premised on limiting the information available to physicians as a means of impacting their conduct. The First Circuit reasoned that “This approach is antithetical to a long line of Supreme Court cases stressing that courts must be very skeptical of government efforts to prevent the dissemination of information in order to affect conduct.” In particular, the court noted that:
“The First Amendment directs us to be especially skeptical of regulations that seek to keep people in the dark for what the government perceives to be their own good.”
Because section 17 is an attempt to influence the prescribing conduct of doctors by restricting the speech of others—namely data miners and pharmaceutical manufacturers—the court concluded that it did not directly advance the state’s interests in protecting public health and reducing health care costs. Instead, the statute restricts protected speech when uttered for purposes the government does not approve of in order to reduce the effectiveness of marketing campaigns and, ultimately, alter the behavior of prescribers, who are not regulated by the statute. The court asserted that this route is too indirect to survive intermediate scrutiny.
Alternatives to Vermont’s Law
The final prong of Central Hudson requires courts to invalidate restrictions on commercial speech “if the governmental interest could be served as well by a more limited restriction on commercial speech.” The First Circuit recognized that if Vermont could have achieved its interests (public health or reduce costs) in a manner that did not restrict speech, or that restricts less speech, Vermont must do so.
Interestingly, the court recognized how Section 17 applies to all brand name prescription drugs, irrespective, for example, of whether there is a generic alternative or whether an individual drug is effective or ineffective. The court asserted that such a law “is a poor fit with the state’s goal to regulate new and allegedly insufficiently tested brand-name drugs in cases where there are cheaper generic alternatives available.” The statute targets the use of PI data to market all brand name prescription drugs, not merely new brand-name drugs or those brand-name medications for which there are generic alternatives.
The statute prohibits the transmission or use of PI data for marketing purposes for all prescription drugs regardless of any problem with the drug or whether there is a generic alternative. The statute bans speech beyond what the state’s evidence purportedly addresses. It seeks to discourage detailing about new brand-name prescription drugs which may not be efficacious or which may not be more effective than generic alternatives. However, it does that by precluding the use of PI data for the marketing of any brand name prescription, no matter how efficacious and no matter how beneficial those drugs may be compared to generic alternatives.
The First Circuit also reasoned that Vermont did have a more direct and less speech restrictive means available. The state could have waited to assess what the impact of its newly funded counter-speech program would be, including academic detailing and sample generic vouchers. The state could mandate the use of generic drugs as a first course of treatment, absent a physician’s determination otherwise, for all those patients receiving Medicare Part D funds. The court noted that “All of these alternative means would directly promote the state’s interests, although they would do so without impacting First Amendment rights.”
Accordingly, because the statute restricted speech even with regard to prescriptions of breakthrough brand-name medications for which there are no generic alternatives, and because the state could pursue alternative routes that are directly targeted at encouraging the use of generic drugs the state wishes to promote, the court concluded that Vermont had not demonstrated that its interests in protecting public health and containing health care costs could not be as well served by a more limited restriction on speech.
Conclusion
As a result, the First Circuit held that section 17 cannot survive intermediate scrutiny and was an unconstitutional regulation of commercial speech under the test set forth in Central Hudson. Despite this outcome of this case, states and consumer groups are still concerned about the practice of data mining because they claim it leads to increased health care costs, compromises patient privacy, and can lead to deceptive or improper practices.
What critics of data mining and industry do not understand is that without data mining, patients, consumers, physicians, and health care will suffer. For example, one of the main reasons why PI data is crucial for pharmaceutical manufacturers to use is because it helps them identify audiences for their marketing efforts, to focus marketing messages for individual prescribers, to direct scientific and safety messages to physicians most in need of that information, and to track disease progression. Without this information, companies will be forced to spend more, not less money, on marketing because they will have to reach broader populations. Moreover, safety messages would not reach doctors in a timely manner or at all, which could potential hurt patients. And how will companies be able to track the success of their drugs treating the diseases they are approved for?
Another reason why PI data is important for companies to use is because it helps them aid law enforcement and to implement risk mitigation programs. Additionally, companies rely on PI data for enrolling patients into clinical trials and post-marketing data and surveillance required by the FDA. Without this data, companies will have a much harder time enrolling and identifying patients for clinical trials. This could lead to discoveries taking longer to develop and research, which means it could take even longer for a product to reach the market to help patients.
It should also be noted that insurance companies and state governments use PI data to encourage the use of cheaper, generic medications. Researchers use PI data to identify overuse of a pharmaceutical in specific populations, to develop new drugs, and to facilitate identification of potential patients to participate in clinical trials. The FDA, the Center for Disease Control, and the federal Drug Enforcement Agency use PI data to monitor usage of controlled substances and to identify prescribers who need time-sensitive safety information. Insurance companies and pharmacy benefit managers use the data to process claims and manage formulary compliance.
Ultimately, as the First Circuit recognized while states and critics aims to decrease detailing, prescribers may want to receive the information detailers provide. Since prescribers are free to decline meetings with detailers, there is no need to restrict commercial speech that is valuable to physicians.