W. States Medical Center v. Shalala

Decision Date06 February 2001
Docket NumberNo. 99-17424,99-17424
Parties(9th Cir. 2001) WESTERN STATES MEDICAL CENTER, a Nevada corporation; WOMEN'S INTERNATIONAL PHARMACY, a Wisconsin corporation; HEALTH PHARMACY, a Wisconsin corporation; APOTHECURE, a Texas corporation; COLLEGE PHARMACY, a Colorado corporation; LAKESIDE PHARMACY, a Tennessee corporation; WEDGEWOOD VILLAGE PHARMACY, a New Jersey corporation, Plaintiffs-Appellees, v. DONNA E. SHALALA, in her official capacity as Secretary, United States Department of Health and Human Services; JANE E. HENNEY, M.D., in her official capacity as Commissioner, Defendants-Appellants
CourtU.S. Court of Appeals — Ninth Circuit

[Copyrighted Material Omitted] Peter J. Smith, Civil Division, Department of Justice, Washington, D.C., for the defendants-appellants.

Michael A. Reiter, Duane, Morris & Heckscher, LLP, Chicago, Illinois, for the plaintiffs-appellees. Michael S. Labson, Covington & Burling, Washington, D.C., for the amicus.

Appeal from the United States District Court for the District of Nevada David A. Ezra, District Judge, Presiding. D.C. No.CV-98-01650-DAE(RLH)

Before: Mary M. Schroeder, Chief Judge, Cynthia Holcomb Hall, and William A. Fletcher, Circuit Judges.

HALL, Circuit Judge:

This appeal requires us to assess the constitutionality of two subsections of the Food and Drug Administration Modernization Act of 1997 ("FDAMA"), 21 U.S.C.S 353a. Subsections 353a(a) and (c) of FDAMA prohibit drug providers from promoting or advertising particular compounded drugs. In return, the providers are exempted from the standard drug approval requirements imposed by the Food and Drug Administration. Plaintiffs seek to enjoin the enforcement of these subsections, contending that they violate the First Amendment's guarantee of free speech. The district court agreed with Plaintiffs and granted their motion for summary judgment in a published opinion. See Western States Medical Ctr. v. Shalala, 69 F. Supp.2d 1288 (D. Nev. 1999). The district court exercised jurisdiction pursuant to 28 U.S.C. 1331 and 1361. We have jurisdiction over this appeal pursuant to 28 U.S.C. 1291.


Plaintiffs are a group of licensed pharmacies. They have prepared written promotional materials that they distribute by mail and at medical conferences to inform patients and physicians of the uses and effectiveness of specific compounded drugs. "Compounding" is a process in which a pharmacist mixes ingredients to create a medication for an individual patient. Compounding is typically used to prepare medications that are not commercially available, such as a medication for a patient who is allergic to an ingredient in a mass produced product. Pharmacists can provide compounded drugs to individual patients only upon receipt of a valid prescription. See 21 U.S.C. 353a(a).

The Federal Food, Drug, and Cosmetic Act ("FDCA"), 21 U.S.C. 301-397, regulates drug manufacturing, marketing, and distribution. It invests the Food and Drug Administration("FDA") with enforcement powers to make sure that the regulations are followed. In 1997, Congress amended the FDCA to exempt compounding from certain requirements of the FDCA, but only if the compounding pharmacies followed several conditions, including refraining from promoting particular compounded drugs. The new legislation sets out several restrictions on compounding including prohibitions on advertisements, like those of the Plaintiffs, that promote particular compounded drugs. See 21 U.S.C.SS 353a(a) and (c).1 Pharmacists may, however, inform the public that they offer general compounding services. See 21 U.S.C.S 353a(c).

Plaintiffs challenged FDAMA's advertising and solicitation restrictions in district court. They contended that the restrictions violate the Free Speech Clause of the First Amendment. In a well-reasoned opinion, the district court granted Plaintiff's motion for summary judgment, holding that the restrictions do not meet the test for acceptable government regulation of commercial speech set forth in Central Hudson Gas & Electric Corp. v. Public Service Commission , 447 U.S. 557, 566 (1980). The district court also held that the unconstitutional provisions were severable from the rest of FDAMA. This Court reviews the district court's grant of summary judgment de novo. See Gutowsky v. County of Placer , 108 F.3d 256, 259 (9th Cir. 1997). "The evidence must be viewed in the light most favorable to the nonmoving party to determine whether there are any genuine issues of material fact for trial, and whether the district court correctly applied the relevant substantive law." Federal Deposit Ins. Corp. v. O'Melveny & Meyers, 969 F.2d 744, 747 (9th Cir. 1992).


In Central Hudson, the Supreme Court set out a four part test for determining the constitutionality of a government restriction on commercial speech. The court must determine whether: 1) the regulated speech is misleading or concerns unlawful activity; 2) the government has asserted a "substantial" interest in restricting the speech; 3) the government has demonstrated that the regulation "directly advances" the asserted interest; and 4) the restriction is not more extensive than necessary to achieve the asserted governmental interest. See Central Hudson, 447 U.S. at 566. Although the government has asserted substantial interests, they have failed to demonstrate that the speech restrictions directly advance those interests or that they are narrowly tailored to those interests.


The First Amendment does not protect commercial speech that is "inherently misleading" or concerns unlawful activity. See id. at 563-64. On appeal, the government does not contend that the prohibited speech is unlawful or misleading, and there is no indication in the record that Plaintiffs' advertisements are untruthful. Therefore, the restricted speech must be evaluated according to the other three Central Hudson factors.


Under the second part of the Central Hudson test, the speech restriction must serve a "substantial" government interest. In the district court, the government argued that the challenged restrictions served three substantial interests: 1) protecting the public health and safety; 2) preserving the integrity of the drug approval process; and 3) balancing the need to preserve drug compounding for individual patients with particularized needs while preventing widespread distribution of compounded drugs. The district court determined that the first two interests were substantial and satisfied the second prong of the Central Hudson test. Because "the Government has a significant interest in protecting the health, safety, and welfare of its citizens," we agree that the first two interests are substantial. Rubin v. Coors Brewing Co., 514 U.S. 476, 485 (1995).

The third asserted interest was "insufficiently clear" to the district court. Western States, 69 F. Supp.2d at 1303. The court reasoned that for an interest in balancing competing goals to be substantial, the goals themselves must be substantial. See id. at 1302. The court agreed that the goal of ensuring the continued availability of compounded drugs to individual patients was a substantial concern, but was not convinced that the government had a substantial interest in preventing widespread compounding. It held that if the government could not offer an adequate rationale for its goal of preventing widespread distribution of compounded drugs, then the government did not have a substantial interest in balancing this concern with the need for continued access to such drugs. See id. at 1302-03.

The government's effort to balance competing goals can be a substantial interest worthy of government protection. See United States v. Edge Broadcasting Co., 509 U.S. 418, 428 (1993) (holding that the "congressional policy of balancing the interests of lottery and nonlottery States is the substantial government interest that satisfies Central Hudson"). But the government must supply a compelling argument or convincing evidence that it has a substantial interest in achieving both goals. The government cannot carry its burden by "mere speculation or conjecture." Edenfield v. Fane, 507 U.S. 761, 77071 (1993); cf. Florida Bar v. Went For It, Inc. , 515 U.S. 618, 624 (1995) (crediting the state's interest as substantial on the basis of a two-year study containing statistical and anecdotal evidence).

We agree with the district court that the government has not met its burden. There is insufficient evidence in the record to conclude that the government has a substantial interest in preventing widespread compounding. The government asserts that increased distribution of compounded drugs is dangerous because of the health risks associated with large numbers of patients taking such drugs. The government neither explains nor supports this contention. In fact, most of the evidence runs to the contrary. Compounding is not only legal under state law, but most states require their pharmacists to know how tocompound. See Sen. Rep. No. 105-43, at 64 (1997). The government has failed to show that its interest in striking a balance between ensuring compounding availability and limiting widespread compounding is substantial. The only substantial interests asserted by the government are protecting the public's health and preserving the integrity of the drug approval process.


Under the third Central Hudson factor, the speech regulation must "directly advance" the government interest. In essence, the government argues that the speech restrictions are necessary to prevent an increase in the demand for compounded drugs that would be injurious to the public health. But the government's argument falls short of what is required to show that the speech restrictions will protect the public. The government has not offered evidence or arguments to explain sufficiently why such restrictions will reduce the type of consumption of compounded...

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