Beeman v. Anthem Prescription Mgmt., LLC

• Decision Date: 19 December 2013
• Docket Number: No. S203124.,S203124.
• Citation: 315 P.3d 71,58 Cal.4th 329,165 Cal.Rptr.3d 800
• Parties: Jerry BEEMAN et al., Plaintiffs and Respondents, v. ANTHEM PRESCRIPTION MANAGEMENT, LLC, et al., Defendants and Appellants. Jerry Beeman et al., Plaintiffs and Respondents, v. TDI Managed Care Services, Inc., et al., Defendants and Appellants.
• Court: California Supreme Court

58 Cal.4th 329

315 P.3d 71

165 Cal.Rptr.3d 800

Jerry BEEMAN et al., Plaintiffs and Respondents,

v.ANTHEM PRESCRIPTION MANAGEMENT, LLC, et al., Defendants and Appellants.

Jerry Beeman et al., Plaintiffs and Respondents,

v.TDI Managed Care Services, Inc., et al., Defendants and Appellants.

No. S203124.

Supreme Court of California

Dec. 19, 2013.

Morrison & Foerster, Shirley J. Hufstelder and Benjamin J. Fox, Los Angeles, for Defendant and Appellant Argus Health Systems, Inc.

Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., Gail E. Lees, Christopher Chorba, Blaine H. Evanson, Los Angeles; Husch Blackwell, Thomas M. Dee and Christopher A. Smith, for Defendant and Appellant Express Scripts, Inc.

Morgan, Lewis & Bockius, Thomas M. Peterson, Molly Moriarty Lane, San Francisco, and Richard S. Odom, for Defendant and Appellant Anthem–Prescription Management, LLC.

Steptoe & Johnson, Martin D. Schneiderman and Jason Levin, Los Angeles, for Defendants and Appellants AdvancePCS, AdvancePCS Health L.P., PharmaCare Management Services, Inc., and TDI Managed Services, Inc.

Holland & Knight, Richard T. Williams, Los Angeles, and Tara L. Cooper, for Defendants and Appellants PharmaCare and TDI Managed Services.

Heller Ehrman, Richard S. Goldstein, John M. Landry, Los Angeles; Orrick, Herrington & Sutcliffe and Richard S. Goldstein, for Defendant and Appellant Medco Health Solutions, Inc.

Troutman Sanders, C. Leeann McCurry ; Musick, Peeler & Garrett and Kent A. Halkett, Los Angeles, for Defendant and Appellant Benescript Services, Inc.

Pillsbury Winthrop Shaw Pittman, Thomas N. Makris, Sacramento, and Brian D. Martin, San Diego, for Defendant and Appellant First Health Services Corp.

Roxborough, Pomerance, Nye & Adreani, Craig Pynes, Agoura Hills, Nicholas P. Roxborough and Marina N. Vitek, Woodland Hills, for Defendant and Appellant National Medical Health Card.

Snell & Wilmer and Sean M. Sherlock, Costa Mesa, for Defendant and Appellant Restat, LLC.

Reed Smith, Kurt C. Peterson, Margaret M. Grignon, Kenneth N. Smersfelt, Los Angeles, Judith E. Posner and Brett L. McClure, Los Angeles, for Defendant and Appellant Tmesys, Inc.

Sonnenschein Nath & Rosenthal, David S. Alverson, Los Angeles, Stephen J. O'Brien, Rachel M. Milazzo ; SNR Denton, Stephen J. O'Brien and Rachel M. Milazzo, for Defendant and Appellant Cardinal Health MPB, Inc.

Hogan & Hartson, Hogan Lovells U.S. and Neil R. O'Hanlon, Los Angeles, for Defendant and Appellant Mede America Corporation.

Dykema Gossett, J. Kevin Snyder and Vivian I. Kim, Los Angeles, for Defendant and Appellant Prime Therapeutics.

Kirtland & Packard and Robert A. Muhlbach, El Segundo, for Defendant and Appellant RX Solutions, Inc.

McDermott, Will & Emery, Robert Mallory and Matthew Oster, Los Angeles, for Defendant and Appellant WHP Health Initiatives.

Deborah J. La Fetra, Sacramento, and Lana Harfoush, for Pacific Legal Foundation as Amicus Curiae on behalf of Defendants and Appellants.

The Consumer Law Group, Alan M. Mansfield ; Peitzman Weg and

Michael A. Bowse, Los Angeles, for Plaintiffs and Respondents.

Seth E. Mermin, Thomas Bennigson and Timothy Sun for Consumer Action, Consumers for Auto Reliability and Safety, The Public Health Law Center, Inc., and Public Good Law Center as Amici Curiae on behalf of Plaintiffs and Respondents.

LIU, J.

We granted a request from the United States Court of Appeals for the Ninth Circuit, sitting en banc, to address the following issue of state law pursuant to California Rules of Court, rule 8.548 : Does Civil Code section 2527 compel speech in violation of article I, section 2 of the California Constitution ?

Civil Code section 2527 requires prescription drug claims processors to compile and summarize information on pharmacy fees and to transmit the information to their clients. Defendants contend that this statute is a content-based speech requirement that cannot satisfy either strict scrutiny or intermediate scrutiny under California's free speech guarantee. Plaintiffs counter that the statute only requires the transmission of "objective, statistical data" and therefore does not implicate any free speech protection. In addition, plaintiffs contend that the statute, if it implicates a right to free speech, is ordinary economic regulation subject to rational basis review and, in any event, would satisfy the intermediate scrutiny standard that applies to restrictions on commercial speech.

As explained herein, we hold that Civil Code section 2527 does implicate the right to free speech guaranteed by article I of the California Constitution. At the same time, we hold that the statute, which requires factual disclosures in a commercial setting, is subject to rational basis review and satisfies that standard because the compelled disclosures are reasonably related to the Legislature's legitimate objective of promoting informed decisionmaking about prescription drug reimbursement rates.

I.

In the panel decision now being reviewed en banc, the Ninth Circuit provided the following description of the parties to this litigation: "Plaintiffs own five independent retail pharmacies licensed in California. Defendants are current or former pharmacy benefit managers (‘PBMs'). They ‘contract with third-party payors or health plan administrators such as insurers, HMOs, governmental entities, and employer groups to facilitate cost-effective delivery of prescription drugs to health plan members or other persons to whom the third-party payors provide prescription drug benefits.’ PBMs assist in the ‘processing of prepaid or insured prescription drug benefit claims submitted by a licensed California pharmacy or patron thereof.’ In other words, PBMs act as intermediaries between pharmacies and third-party payors such as health insurance companies. Pursuant to this role, PBMs may create networks of retail pharmacies that agree to accept certain reimbursement rates when they fill prescriptions for health plan members. According to Defendants, network reimbursements ‘generally are lower than what pharmacies would charge uninsured, cash-paying customers.’ " ( Jerry Beeman and Pharmacy Services v. Anthem Prescription Management (9th Cir.2011) 652 F.3d 1085, 1090 (Beeman II ).)

In 2002, plaintiffs filed a federal class action suit alleging that defendants failed to comply with Civil Code section 2527. (All further statutory references are to the Civil Code unless otherwise indicated.) Section 2527 imposes specific obligations on "prescription drug claims processor[s]" as a prerequisite of entering into or performing any contracts with licensed California pharmacies or processing or assisting with the processing of any prescription drug claim involving licensed California pharmacies. ( § 2527, subd. (a).) The act defines "prescription drug claims processor" as "any nongovernmental entity which has a contractual relationship with purchasers of prepaid or insured prescription drug benefits, and which processes, consults, advises on, or otherwise assists in the processing of prepaid or insured prescription drug benefit claims submitted by a licensed California pharmacy or patron thereof." ( § 2527, subd. (b).) For purposes of this litigation, defendants do not contest that they are "prescription drug claims processors" subject to section 2527. ( Beeman II, supra, 652 F.3d at p. 1090, fn. 1.)

Section 2527, subdivision (c) requires prescription drug claims processors to "conduct[ ] or obtain[ ] the results of a study or studies which identifies the fees, separate from ingredient costs, of all, or of a statistically significant sample, of California pharmacies, for pharmaceutical dispensing services to private consumers. The study or studies shall meet reasonable professional standards of the statistical profession. The determination of the pharmacy's fee made for purposes of the study or studies shall be computed by reviewing a sample of the pharmacy's usual charges for a random or other representative sample of commonly prescribed drug products, subtracting the average wholesale price of drug ingredients, and averaging the resulting fees by dividing the aggregate of the fees by the number of prescriptions reviewed. A study report shall include a preface, an explanatory summary of the results and findings including a comparison of the fees of California pharmacies by setting forth the mean fee and standard deviation, the range of fees and fee percentiles (10th, 20th, 30th, 40th, 50th, 60th, 70th, 80th, 90th). This study or these studies shall be conducted or obtained no less often than every 24 months."

Section 2527, subdivision (d) requires prescription drug claims processors to send the studies to their clients: "The study report or reports obtained pursuant to subdivision (c) shall be transmitted by certified mail by each prescription drug claims processor to the chief executive officer or designee, of each client for whom it performs claims processing services. Consistent with subdivision (c), the processor shall transmit the study or studies to clients no less often than every 24 months.

[¶] Nothing in this section shall be construed to require a prescription drug claims processor to transmit to its clients more than two studies meeting the requirements of subdivision (c) during any such 24–month period. [¶] Effective January 1, 1986, a claims processor may comply with subdivision (c) and this subdivision, in the event that no new study or studies meeting the criteria of subdivision (c) have been conducted or obtained subsequent to January 1, 1984, by transmitting the same study or studies previously transmitted, with notice of cost-of-living changes as measured by the Consumer Price Index (CPI) of the United States Department of Labor."

Section 2528 provides for civil enforcement of section 2527 : "A violation of Section 2527 may result only in imposition of a civil remedy, which includes, but is not limited to, imposition of statutory damages of not less than one thousand dollars ($1,000) or...