In Beeman v. TDI Managed Care Services, the Ninth Circuit certified to the California Supreme Court the question of whether a statute requiring prescription drug claims processors to compile and summarize information on pharmacy fees for the purpose of distributing that information to pharmacies is compelled speech, in violation of the state constitution. In a 4-3 decision by Justice Liu, the California Supreme Court held that the statute “implicates” the right to free speech under the state constitution (which explicitly covers “all subjects” (Cal. Const. art. I, sec. 2(a)), but because it “requires factual disclosures in a commercial setting,” is really nothing more than an economic regulation entitled only to rational basis review, which the law passes.
The court distinguished the compelled creation of statistical speech from laws that require a speaker to “adopt, endorse, accommodate, or subsidize a moral, political, or economic viewpoint with which the speaker disagreed.” It asserted that requiring prescription drug claims processors “to transmit a study report on pharmacy fees to insurance companies does not compel speech reflecting any viewpoint, belief, or ideology.” The court acknowledged that the proclaimed purpose for the distribution of these reports was to provide fodder for lobbying activity, but found this to be irrelevant to its analysis.
The court also addressed the fact that this is not typical commercial speech, that is, it does not propose any sort of commercial transaction. It doesn’t matter, according to the court, because the statute “operates in a commercial setting” and “is purely factual in nature.” Though restrictions on commercial speech often are subjected to heightened scrutiny, the court refused to do so here because the law “requires a commercial speaker to privately transmit purely factual information containing no message with which it disagrees.” As such, the compelled speech is held to “facilitate rather than impede” the “free flow of commercial information.” Therefore, using the relaxed rational basis standard of scrutiny (a first in California free speech jurisprudence), the court held that the compelled speech is reasonably related to the Legislature’s “legitimate objective of promoting informed decisionmaking about prescription drug reimbursement rates.”
The majority opinion was joined by Justices Kennard, Baxter, and Werdegar.
In a frankly mind-boggling solo concurrence, Chief Justice Cantil-Sakauye opined that there’s no constitutional violation, because she would have ruled that there was no speech implications in the first place!
Justice Corrigan (joined by Justice Chin) concurs that free speech is implicated, and dissents that the law passes muster, primarily because she finds rational basis scrutiny to be insufficiently protective of the important speech rights at issue. She would have applied intermediate scrutiny because:
“Section 2527 is a unique and unprecedented statute. It is nothing like any other disclosure statute and does not serve the leveling function usually provided by such statutes. It does not require a disclosure to prevent consumer confusion or fraud, further public health or safety, or inform the public about a particular transaction or entity. Nor is it part of a comprehensive regulatory scheme; it is a single statute directed only at speech, in one industry, designed to influence contractual bargaining between sophisticated business entities. The statute involves none of the factors previously cited to warrant a lesser standard of review.”
Applying the intermediate scrutiny review established by the Supreme Court commercial speech cases, Justice Corrigan would find that the statute fails the test and should be invalidated.
PLF filed an amicus brief in the case. What is the practical effect of this decision? Well, we won’t be surprised if it creates a cottage industry for rent-seeking special interests by encouraging businesses to seek personalized advantages by statutorily forcing other independent actors to bear the costs of gathering and conveying information to others. Any business relationship involving an intermediary for reimbursement would be ripe for exploitation; but private companies could try to force other private actors to produce and convey information to them directly as well. The California Supreme Court’s decision utterly fails to grasp that constitutional free speech rights are intended to prevent this type of abuse of the system by ensuring that the government has a narrowly tailored, compelling state interest before forcing private actors to speak. The case will now return to the Ninth Circuit and PLF will stand by to see if the federal constitutional guarantee of free speech will prevail.