Legal Issue

Whether the Free Speech Clause of the California Constitution extends so far into the ordinary business of government as to forbid regulation of basic economic activity whenever that activity happens to involve language or information, including the enactment of a statute that requires the gathering and mailing of unadorned statistical data.

Overview

A group of pharmacies in California filed a class action lawsuit in federal district court against prescription drug claims processors for failing to follow state law requiring them to disclose pharmacy data (and, in particular, prices charged to private customers) to third-party payers.  Third party payors, such as health insurance companies, reimburse California pharmacies after they fill customers’ prescriptions, and prescription Drug Claims Processors (also known as Pharmacy Benefit Managers), act as intermediaries between pharmacies and third-party payors in the reimbursement process.  The pharmacy benefit managers argued that the statute (Section 2527) compels speech in violation of the California Constitution, based in part on appellate state court opinions holding that the state law regulates noncommercial speech in violation of the state constitution, and that the statute thus fails under strict scrutiny.  The district court denied the motion of the pharmacy benefit managers for judgment on the pleadings, and they appealed.  In July 2011, the U.S. Court of Appeals for the Ninth Circuit held that the statute is lawful under the First Amendment.  The defendants appealed to the Supreme Court of California.   

On March 6, 2013, the Public Health Law Center, Public Good Law Center, Consumer Action, and Consumers for Auto Reliability and Safety filed an amicus brief in the Supreme Court of California, supporting the pharmacies.  The brief argues that the free speech clause does not provide heightened protection to the transfer of statistical data, that the conveyance of purely factual data is not subject to the federal Constitution’s limits on compulsion of speech, and that subjecting economic regulations like Section 2527 to heightened scrutiny under the First Amendment would endanger countless ordinary economic regulations that require the disclosure or transfer of information.

Outcome

On December 19, 2013, the California Supreme Court upheld the constitutionality of the challenged statute, rejecting the pharmacy benefits managers’ arguments that factual disclosure laws require extensive review under the Free Speech Clause. The Court held that only the most lenient form of scrutiny – “rational basis” review – was called for, since the statute involved only the transmission of information and did not require regulated entities to adopt or support any particular viewpoint or opinion.