In a decision that surprised many, on Tuesday, November 18, 2008, the US Court of Appeals for the First Circuit reversed a federal district court and upheld the New Hampshire Prescription Information Law (click here for the statutory text). The New Hampshire law thus becomes the first in the nation to outlaw the commercial use of prescription data that identifies either the patient or the prescribing physician. Barring a stay during an appeal, the First Circuit ruling (click here for the decision) will allow a similar prescription privacy law enacted by Maine to go into effect as well.

Although New Hampshire’s next door neighbor Vermont is in the jurisdiction of the Court of Appeals for the Second Circuit, the New Hampshire decision could influence the outcome of a similar case challenging the Vermont statute restricting the use of physician prescribing data. The First Circuit ruling also could encourage the enactment of similar legislation in numerous states outside of New England since over a dozen legislatures interested in curbing prescription drug costs already have bills before them imposing limitations on the use of prescribing data. A proliferation of such laws could change how pharmaceutical companies target physicians for detail calls and pay their commissioned sales forces in ways that go well beyond the expected impact of the restrictions on prescription data use included in the revised PhRMA Code on Interaction with Healthcare Professionals (click here for Code) scheduled to go into effect on January 1, 2009.

Two companies that collect and sell prescription data – IMS Health, Inc. and Verispan, LLC – filed suit against the New Hampshire law in 2006. The US District Court for the District of New Hampshire found the law unconstitutional and enjoined its restrictions on the transfer or use of prescriber-identifiable data in an April 2007 ruling (click here for the decision). The court did not, however, enjoin the law’s prohibition against the transfer or sale of patient-identifiable data. The district court concluded the law violated the First Amendment because it “restricts constitutionally protected speech without directly serving the State’s substantial interests” in protecting patient and physician privacy and reducing health care costs. The court observed that “alternatives exist that would achieve the State’s interests as well or better without restricting speech.”

The First Circuit saw the New Hampshire law differently. Judge Bruce M. Seyla, writing for the majority, found that the limitations on data transfers in the statute were not restrictions on protected commercial speech.  Rather, the appellate court concluded the law regulated conduct, not speech. The court distinguished the activities at issue from normal commercial speech on the ground that the prohibited activity did not restrict the entry of new information “into the marketplace with the possibility of stimulating better informed consumer choices.” Further, to the extent the law impinged on any speech, “the societal benefits flowing from the prohibited transactions pale in comparison to the negative externalities produced.” The First Circuit explained that in cases such as this where information has become a commodity, regulating the commoditized information does not constitute a restriction on speech.  

The court also held that even if the Prescription Information Law were a restriction on speech, the law’s provisions were still constitutional because they serve a substantial government interest, directly advance that interest, and restrict speech no more than necessary to further that interest. In a separate opinion, concurring and dissenting, Judge Kermit V. Lipez concluded that the New Hampshire law does restrict protected commercial speech between detailers and prescribers, but that the state’s interest in cost containment was sufficient to justify that restriction.

For additional information about the First Circuit’s ruling on IMD Health Inc. v. Ayotte, 1st Cir., No. 07-1945 (Nov. 18, 2008), please contact:

Larri Short
short.larri@arentfox.com
202-775-5786

Samuel Cohen
cohen.samuel@arentfox.com
202-857-6322