The end or just the beginning? Exploring federal preemption of state marketing and distribution laws

OF INCREASING CONCERN to the pharmaceutical industry has been the explosion of state laws governing the marketing and distribution of prescription drug products and devices. At the heart of most legislative efforts in this regard is impatience with a federal government that does not regulate these areas. In the absence of federal guidance, the states have chosen to act and the result is a patchwork of confusing and often conflicting state laws. Over the years there have been a number of attempts by the federal government to introduce legislation that would govern these areas and preempt existing state laws. To date, all of these attempts have failed.

As the industry awaits a decision in the United States Supreme Court case Wyeth v. Levine, which explores federal preemption issues, a spotlight has been cast on the federal preemption of state prescription drug marketing and distribution laws. Currently, there are two pieces of federal legislation that would preempt state laws: (1) The Physician Payments Sunshine Act, which would displace state marketing disclosure laws and (2) The Safeguarding America’s Pharmaceuticals Act, which would preempt state wholesale distribution pedigree requirements. While several of the federal bills discussed in this article were introduced in the 110th Congress that ended last year, they are expected to be revived as the new Congress reconvenes in 2009.

This article will explore the proliferation of existing state laws and examine the impact of federal legislation that would preempt state laws.

State disclosure/limitation laws

To date, seven states— California, Maine, Massachusetts, Minnesota, Nevada, Vermont, and West Virginia—and the District of Columbia have enacted laws requiring pharmaceutical companies to disclose, limit, or prohibit expenditures incurred in connection with detailing healthcare practitioners and/or licensed healthcare entities. The legislative intent behind such laws is to encourage transparency in the interactions between pharmaceutical manufacturers and licensed practitioners and to promote cost containment.

Generally, these laws require companies to disclose the value, nature, and purpose of gifts, fees, payments, and subsidies valued at more than a specified dollar amount. For example, Minnesota, which was the first state to enact such a law in 1993, requires distributors to annually disclose the nature and value of “all payments, honoraria, reimbursement or other compensation” totaling a $100 or more.[1] The District of Columbia [2] and Maine [3] laws, by contrast, further require companies to disclose expenses associated with the advertising and direct promotion of drugs through various media, in addition to physician-marketing expenditures. California [4], Massachusetts [5], and Nevada [6] are unique in that they require companies to establish a Compliance Program or Marketing Code modeled after federal and/or industry guidance.

Massachusetts’ law would also require the disclosure of financial interactions between companies and certain healthcare practitioners.

Significantly, the report forms for each of the states differ in key respects. For example, the District of Columbia, Maine, Minnesota, and Vermont require companies to report the names of the healthcare practitioners receiving items of value. In contrast, West Virginia [7] requires companies to report only the total number of prescriber-recipients.

Additionally, not all of the states permit companies to report marketing costs via electronic means. The net effect of these disparities is that regulated companies are forced to develop systems of tracking that take into account the nuances of each state’s law.

Pedigree laws

At the state level, there has also been a proliferation of laws regulating the distribution of drug products. There are currently 31 states that require manufacturers and distributors to document the lineage of each prescription drug they distribute from point of manufacture to final sale (i.e., “pedigree”). These “pedigree” laws are designed to ensure that each link in the chain of prescription drug distribution is accounted for so that companies can effectively determine the origins of a particular shipment before passing the products on to the retail chain/pharmacy and ultimately to the consumer.

Most states, with the exception of California, exempt the original manufacturer of record from the requirement to “pass” pedigree. In these states, however, each subsequent wholesale distributor must complete and pass pedigree in either paper or electronic form. The majority of states additionally exempt from pedigree those transactions that take place within the “normal chain of distribution” (i.e., transactions that do not deviate from the customary route for the shipment of drugs).

California is currently the only state that requires companies to pass pedigree in electronic form. California will begin enforcing its electronic pedigree requirements in 2015.[8]

What is preemption?

The doctrine of federal “preemption” has generated considerable discussion and debate in recent years. Generally “preemption” refers to federal law’s displacing effect on conflicting or inconsistent state law. There are two main types of preemption theories: express and implied preemption. Express preemption occurs when federal law expressly states that it preempts state law. In contrast, implied preemption occurs when it is Congress’ intent to preempt state law, but federal law does not explicitly state this intention.

Physician Payments Sunshine Act

In an effort to create uniformity at the national level with respect to marketing disclosure and limitation laws, Senators Charles Grassley and Herb Kohl introduced the “Physician Payments Sunshine Act of 2007” on September 6, 2007.[9] A House version of the bill was introduced shortly thereafter in March 2008.[10] Both the Senate and the House bills would require manufacturers of drugs and devices whose annual revenue exceeds $100 million to report, on a quarterly basis, payments or transfers of value exceeding $25 or more.[11]

In May 2008, Senators Grassley and Kohl prepared draft amendments to the Senate bill. These draft amendments included language to preempt states from requiring pharmaceutical companies to disclose or report payments or transfers of value “for purposes of including such information in any State-sponsored database or other repository of information.”[12]

Most recently, on January 22, 2009, Senators Grassley and Kohl released a new version of the draft amendments to the Senate bill.[13] According to the new revised version, states would still be preempted from requiring a pharmaceutical company to disclose or report information regarding a payment or other transfer of value provided by the company to a covered recipient. Unlike the previous version, however, this new version includes a “No Preemption of Additional Requirements” provision that would permit states to enact laws that would require companies to disclose or report information that is not required to be disclosed or reported under the proposed federal law.

Significantly, this new version would permit states to impose disclosure and reporting requirements that are more restrictive than the federal standard.

Safeguarding America’s Pharmaceuticals Act

In the absence of settled federal pedigree regulations, many states have adopted their own pedigree requirements resulting in a miscellany of distribution requirements that have become increasingly burdensome on the pharmaceutical manufacturers who attempt to comply. In an effort to create uniform pedigree standards, on April 17, 2008, Representatives Stephen Buyer and Jim Matheson introduced the “Safeguarding America’s Pharmaceuticals Act of 2008.” [14] This legislation would expand federal drug pedigree requirements and would require, among other things, a manufacturer packing list and pedigree statement, in either paper or electronic form, for all prescription drugs sold within the United States.[15]

Most significantly, the pending legislation also provides that states may not “establish or continue in effect any requirement with respect to statements of distribution history, manufacturer packing lists, unique standardized numerical identifiers, or drug identification and tracking systems for prescription drugs that is different, or in addition to, any requirement” imposed by the Act.[16]

It appears that the preemption language quoted above, unlike the preemption language in the Physician Payments Sunshine Act, would preclude the states from enacting any laws that would differ from the proposed federal requirements. It is currently unclear whether a national standard would impose any less of an administrative burden on companies than the current system of varying state laws.

Case study: Wyeth v. Levine

The issue of federal preemption of state laws is currently playing out on the national stage in the highly anticipated decision of the United State Supreme Court in the case of Wyeth v. Levine. On November 3, the high court will consider whether FDA approval of a prescription drug’s labeling preempts state law claims challenging the safety, efficacy, or labeling of that drug. Plaintiff Diana Levine, who had her arm amputated after being treated with Phenergan, an anti-nausea drug manufactured by Wyeth, sued the drug manufacturer in Vermont state court arguing that Wyeth failed to adequately warn of the risks associated with the administration of the drug.[17] Wyeth, in turn, asserted that because Phenegran’s label was approved by the FDA, it could not change Phenergan’s labeling to comply with Vermont law without violating federal law.[18] The lower courts found in favor of Ms Levine.

A decision by the United States Supreme Court in favor of Wyeth would potentially preclude all state tort claims based on a prescription drug label’s failure to warn when the FDA has already approved that label. The outcome of this case may set a precedent for all future cases centering on federal preemption issues. A decision in this case is expected before the end of the Court’s term in June.

Looking ahead & tips for compliance

During the 2008 session, there were 22 states that had legislation pending that would create new state marketing disclosure and/or limitation laws. Also in 2008, 14 states introduced legislation that would create new pedigree laws or significantly revise existing pedigree laws. It is likely that without federal intervention nearly all states will have some form of law or regulation governing marketing expenditures and pedigree over the next three to five years.

It is therefore critical that companies consider the following: (1) which states are introducing these new laws; (2) what types of requirements these laws will impose on the manufacturer/distributor; (3) whether the laws contain any exemptions for certain types of companies or products; (4) the extent to which the law is a departure from the traditional paradigms (e.g., in the case of pedigree laws, whether the law will require only electronic pedigrees); and (5) the likelihood of the law’s passage (e.g., consider how often a similar piece of legislation has been defeated in the same state).

Monitoring activity at the state level is critical to ensuring that companies are prepared for the implementation of new marketing and pedigree requirements. In addition to monitoring, however, it is equally critical for companies to develop internal processes for compliance with the various state laws.

Conclusion

While the industry waits to see whether the federal bills discussed above are reintroduced and passed in Congress, the states continue to enact laws imposing often conflicting requirements with respect to pharmaceutical marketing and distribution. Because these areas have traditionally been within the states’ province, it is likely that any effort at the federal level to preempt state laws will be challenged. Companies must, therefore, remain vigilant in assessing each law’s requirements and adopting internal mechanisms for compliance as appropriate. Federal legislation that delivers on the promise of ending the proliferation of varying state laws may actually only usher in the beginning of new compliance challenges on a national scale. PC

REFERENCES

1. Minn. Stat. § 151.47(f) (2008).

2. See D.C. Code § 48-833.01-.03 (2008).

3. See Me. Rev. Stat. Ann. tit. 22 § 2698-A (2008).

4. See Cal. Health & Safety Code § 119402(a)-(e) (2008).

5. See 2008 Mass. Acts ch. 305.

6. See Nev. Rev. Stat. § 639.570 (2008).

7. See W. Va. Code § 5A-3C-13 (2008).

8. See Cal. Bus. & Prof. Code § 4034(a) (2008).

9. S. 2029, 110th Cong. (1st Sess. 2007).

10. Physician Payments Sunshine Act of 2008, H.R. 5605, 110th Cong. (2d Sess. 2008).

11. See S. 2029, 110th Cong. § 2; H.R. 5605, 110th Cong. § 2.

12. See Proposed Physician Payments Sunshine Act of 2008 at § 2. Note, this version of the Senate bill was made public on May 20, 2008, but has not been officially introduced.

13. See Proposed Physician Payments Sunshine Act of 2009. Note, this version of the Senate bill was made public on January 22, 2009, but has not been officially introduced.

14. H.R. 5839, 110th Cong. (2d Sess. 2008).

15. Id. § 4.

16. Id. § 8 (emphasis added).

17. See generally Levine v. Wyeth, 944 A.2d 179 (Vt. 2006).

18. See id. at 188-90; see also Brief for Petitioner at 4, Wyeth v. Levine, No. 06-1249 (May 27, 2008).

ABOUT THE AUTHORS

Sarina D. Rivera is an attorney at Porzio, Bromberg, & Newman PC, a law firm with offices in Morristown, NJ and New York, NY. She is a member of the firm’s pharmaceutical marketing and sales compliance and litigation department. She is also a Director of Quality Control of Porzio Pharmaceutical Services LLC, located in Morristown, NJ. She can be reached at [email protected].

Jennifer A. Sanfilippo is an attorney at Porzio, Bromberg, & Newman PC. She is a member of the firm’s pharmaceutical marketing and sales compliance litigation department. She can be reached at [email protected].

Kiaema R. Reid is a regulatory analyst with Porzio Pharmaceutical Services, LLC. She is a member of the company’s state disclosures and limitations team and is responsible for the updating and maintenance of the company’s state disclosures and limitations database. She can be reached at [email protected].