Requiring Disclosure of Gifts and Payments to Health Care Professionals: A Legal Overview

Congressional research reportAug 26, 2009

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Requiring Disclosure of Gifts and Payments

to Health Care Professionals: A Legal

Overview

Jennifer Staman

Legislative Attorney

-name redactedLegislative Attorney

August 26, 2009

Congressional Research Service

7-....

www.crs.gov

R40790

CRS Report for Congress

Prepared for Members and Committees of Congress

Requiring Disclosure of Gifts and Payments to Health Care Professionals

Summary

In recent years, questions have been raised over the propriety of certain financial relationships

between health care professionals such as physicians, and the pharmaceutical and other medical

industries. As part of these relationships, companies may give gifts or make payments to

healthcare professionals as part of their marketing efforts, or for other purposes. In an effort to

promote transparency and prevent inappropriate relationships, there has been interest in requiring

disclosure of certain types of payments. Several states and the District of Columbia have enacted

legislation requiring pharmaceutical companies to disclose gifts and payments made to health

care professionals. While companies are free to voluntarily disclose this information, there is

currently no federal requirement to do so.

This report briefly outlines American Medical Association (AMA) guidelines addressing gifts to

physicians from industry, and describes selected state disclosure laws already in effect. The report

also discusses proposed federal legislation, in particular, the Physician Payments Sunshine Act of

2009 (S. 301, H.R. 3138). In addition, the report analyzes potential legal and constitutional

considerations associated with a federal disclosure requirement, including how a court may

evaluate a federal disclosure requirement if it were challenged on First Amendment grounds. If a

federal disclosure requirement was enacted and subsequently challenged on these grounds, it

appears likely to survive judicial scrutiny. This report supersedes CRS Report RL34094,

Requiring Disclosure of Gifts and Payments to Physicians: State Efforts and a Legal Analysis of

Potential Federal Action, by (name redacted).

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Requiring Disclosure of Gifts and Payments to Health Care Professionals

Contents

Introduction ................................................................................................................................1

Existing AMA Guidelines .....................................................................................................2

Selected State Disclosure Measures.......................................................................................2

Minnesota .......................................................................................................................3

Vermont ..........................................................................................................................4

District of Columbia........................................................................................................4

Maine .............................................................................................................................5

Massachusetts .................................................................................................................5

Federal Proposals Requiring Federal Disclosure of Gifts and Other Payments .......................6

Legal Analysis of a Federal Disclosure Requirement ...................................................................7

Payment Disclosure and the Anti-Kickback Statute ...............................................................7

Physician Payments Designated as Trade Secrets?.................................................................8

Constitutional Considerations of a Federal Disclosure Requirement ......................................9

Conclusion................................................................................................................................ 12

Contacts

Author Contact Information ...................................................................................................... 13

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Introduction1

In recent years, the issue of industry gifts and other payments to health care professionals such as

physicians, and the possible conflicts of interest that could arise from these payments, has been

controversial. 2 Examples of gifts and payments mentioned in media reports include meals,

honoraria for speaking engagements, and travel expenses for conferences. As Congress addresses

health reform, there has been interest in increasing transparency, preventing inappropriate

relationships, and requiring disclosure of gifts and other payments made to physicians. While

companies are free to voluntarily disclose this information about gifts and other payments, there

is no current federal requirement to do so.

Supporters of a federal disclosure provision emphasize concern about the effects of gifts and

payments on both the cost of prescription medication and on health care quality.3 They may point

to recent data showing that payments from pharmaceutical companies influence some physicians’

decisions to prescribe certain medications, occasionally resulting in over-prescribing of the most

expensive medications or even causing unnecessary health risks for patients.4 They also argue that

the ethical guidelines such as the American Medical Association (AMA) code discussed below

are insufficient deterrents because they “are not being followed.”5 Groups opposing a federal

disclosure argue that it is unnecessary because existing guidelines within the medical and

pharmaceutical-marketing professions discourage unethical behavior.6 They also argue that gifts

and payments can benefit patients, as physicians receive product samples, attend educational

seminars, and receive detailed information about particular medications. 7

This report outlines the existing AMA guidelines on disclosure and describes certain state

disclosure laws and selected federal legislation, in particular, the Physician Payment Sunshine Act

Portions of this report were prepared with the assistance of Benjamin Rodkin, Law Clerk, Congressional Research

Service.

It has been estimated that drug companies spend $7 billion annually on promotion to medical professionals in the

United States. Robert Steinbrook, Physician-Industry Relations—Will Fewer Gifts Make a Difference?, 360 New

England Journal of Medicine 557 (Feb. 5, 2009).

A 2009 Institute of Medicine Report examining conflicts of interest in medicine found that the acceptance of gifts and

other financial relationships are common between physicians and pharmaceutical, medical device, and biotechnology

companies. The report also concludes that disclosure of financial relationships between industry and health

practitioners is “a critical but limited first step” in identifying and responding to conflicts of interest. See Bernard Lo

and Marilyn J. Field, Editors, Committee on Conflict of Interest in Medical Research, Education, and Practice, Institute

of Medicine, Conflict of Interest in Medical Research, Education, and Practice, available at http://www.iom.edu/CMS/

3740/47464/65721.aspx.

See, e.g., Gardiner Harris, Psychiatrists Top List in Drug Maker Gifts, N.Y. Times, June 27, 2007, at A14 (reporting

that “the more psychiatrists have earned from drug makers, the more they have prescribed a new class of powerful

medicines known as atypical antipsychotics to children, for whom the drugs are especially risky and mostly

unapproved”); Gardiner Harris and Janet Roberts, A State’s Files Put Doctors’ Ties to Drug Makers on Close View,

N.Y. Times, March 21, 2007, at A1 (“Research shows that doctors who have close relationships with drug makers tend

to prescribe more, newer and pricier drugs.”).

Paid to Prescribe? Exploring the Relationship Between Doctors and the Drug Industry: Hearing Before the Senate

Special Committee on Aging, 110th Cong. (June 27, 2007), http://aging.senate.gov/hearing_detail.cfm?id=277848&

(statement of Senator Herb Kohl).

Id. (statement of Marjorie E. Powell, Senior Assistant General Counsel, Pharmaceutical Research and Manufacturers

of America).

Id.

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of 2009 (S. 301, H.R. 3138). This report also analyzes various legal and constitutional

considerations that may pertain to a federal disclosure requirement.

Existing AMA Guidelines

The AMA Code of Medical Ethics, which “serves as the primary compendium of medical

professional ethical statements in the United States,”8 addresses ethical considerations for gifts

given to physicians by companies in the pharmaceutical, device, and medical equipment

industries. 9 In the opinion of the AMA’s Council on Ethical and Judicial Affairs on “Gifts to

Physicians from Industry,” it is acknowledged that while many gifts to physicians from the drug

manufacturing and other industries may serve an important and socially beneficial function, other

gifts may be considered inappropriate if they fall outside of certain guidelines. For example, gifts

accepted by physicians “should primarily entail a benefit to patients and should not be of

substantial value.”10 Items such as textbooks, modest meals, and other gifts are appropriate if they

serve a genuine educational function. Cash payments should not be accepted. In addition,

permissible gifts must be “related to the physician’s work,” and gifts such as pens and notepads

are appropriate under the code. The guidelines also provide that while subsidies used to

underwrite the costs of continuing medical education conferences or professional meetings are

acceptable, subsidies from industry should not be accepted directly or indirectly to pay for the

costs of travel, lodging, or other personal expenses of physicians attending conferences or

meetings, nor should subsidies be accepted to compensate for the physicians’ time. In addition,

physicians should not accept gifts with “strings attached.” For example, if gifts are given by a

drug company in relation to the physician’s prescribing practices, the gift is considered improper.

The AMA guidelines are self-regulating, and thus there may be no legal consequences for failure

to adhere to these ethical standards.11

Selected State Disclosure Measures

Legislation requiring pharmaceutical companies and other entities to disclose gifts and payments

to health care professionals has been enacted in states such as Maine, Minnesota, Vermont, and

Massachusetts, as well as the District of Columbia. Minnesota enacted the first disclosure law

more than 10 years ago, and other disclosure laws were enacted relatively recently. The state laws

have some similarities; they all require disclosure on an annual basis and exempt certain

Id.

AMA Code of Medical Ethics (2006), Opinion 8.061 - Gifts to Physicians from Industry, available at

http://www.ama-assn.org/ama/pub/category/2498.html.

Id.

It should also be noted that industry groups have also issued ethical guidelines relating to relationships with health

care practitioners. For example, the Pharmaceutical Research and Manufacturers of America (PhRMA), which

represents pharmaceutical and biotechnology companies, has adopted and recently revised its voluntary Code on

Interactions with Healthcare Professionals, available at http://www.phrma.org/files/

PhRMA%20Marketing%20Code%202008.pdf. This code provides, among other things, that distribution of noneducational items (such as pens, mugs, and other “reminder” objects typically adorned with a company or product logo)

to healthcare providers and their staff is prohibited. The code acknowledges that such items, even though of minimal

value, “may foster misperceptions that company interactions with healthcare professionals are not based on informing

them about medical and scientific issues.” In addition, the code states that companies should not provide any

entertainment or recreational benefits to healthcare professionals, but that occasional meals are appropriate if they are

provided healthcare professionals’ offices in conjunction with informational presentations.

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categories of gifts and payments. However, states such as Vermont and Massachusetts prohibit

certain gifts from being provided to health care professionals.12 In addition, states such as Maine,

as well as the District of Columbia, require the reporting of expenses relating to marketing

products to the general public.

As authority for the disclosure requirements, states have invoked their responsibilities as

regulators and as protectors of public welfare. They have also expressed concern with the rising

cost of prescription medication and noted their role in reimbursing such medication through their

Medicaid programs. For example, Maine’s asserted purpose in its disclosure legislation focuses

on the state’s roles as “guardian of the public interest” and “administrator of prescription drug

programs.”13 In addition to states that have already enacted disclosure legislation, many other

states have considered legislation to regulate the relationship between pharmaceutical companies

and physicians. 14

Minnesota

Minnesota’s Wholesale Drug Distribution Licensing Act generally prohibits a “wholesale drug

distributor”15 from offering or giving any gift of value to a practitioner. 16 However, a gift does not

include drug samples intended for free distribution to patients, items with a “total combined retail

value, in any calendar year, of not more than $50,” educational materials, and salaries and

benefits given to the pharmaceutical companies’ own representatives. 17 Minnesota’s requirement

is a licensing requirement; therefore, a penalty for non-compliance might be denial of a wholesale

drug distributor license in the state.

Minnesota’s act requires each “wholesale drug distributor” to submit an annual report to the state

detailing (1) payments to sponsors of medical conferences; (2) honoraria and payments of

expenses for practitioners who serve on faculties of professional or educational meetings; and (3)

compensation of practitioners in connection with research projects. The report must identify the

nature of value of any payments totaling $100 or more to a particular practitioner during the

year.18 In contrast to the other states, Minnesota does not require that an annual summary report

be provided to its state legislature. However, the state law provides that information submitted

pursuant to its disclosure requirement is “public data.”19

See generally, David Armstrong, Two States Restrict Firms’ Gifts to Doctors, Wall Street Journal, July 1, 2009, at

A3.

Me. Rev. Stat. Ann. tit. 22, §2698-A(1) (2004 & Supp. 2007).

See National Conference of State Legislatures, 2008 Prescription Drug State Legislation, available at

http://www.ncsl.org/IssuesResearch/Health/2008PrescriptionDrugStateLegislationNCSL/tabid/14418/Default.aspx.

Under the Minnesota statute, a “wholesale drug distributor” is “anyone engaged in wholesale drug distribution” and

includes manufacturers, drug warehouses, and others. Minn. Stat. §151.44(b). The definition does not include a

“medical device manufacturer that distributes drugs as an incidental part of its device business.” Minn. Stat. §151.461.

According to the Minnesota Board of Pharmacy, a gift would include any money, real or personal property, a service,

a loan, a forbearance or forgiveness of indebtedness, or a promise of future employment, that is given and received

without the giver receiving consideration of equal or greater value in return. See Minnesota Statutes § 151.461 – Gifts

to Practitioners Prohibited, Frequently Asked Questions, available at http://www.phcybrd.state.mn.us/forms/

giftsfaq.pdf.

Minn. Stat. §151.461. A gift does also not include the three categories of payments that are subject to the reporting

requirements discussed infra. See the text accompanying footnote 18.

Minn. Stat. §151.47(f).

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Vermont

In 2008, Vermont amended its disclosure legislation to ban certain gifts from manufacturers of

prescribed products and wholesale distributors to health care providers.20 A gift is defined by the

state statute to include something of value provided to a health care provider for free, including

any payment, food entertainment, or anything else of value. The statute makes an exception from

the ban for certain specified allowable expenditures.21

Under the amended disclosure requirements, manufacturers are required to annually disclose to

the Vermont Attorney General the value, nature, purpose, and recipient information about

allowable expenditures given to health care providers, academic institutions, or certain

organizations serving health care providers.22 The attorney general must report annually on the

disclosures to Vermont’s General Assembly and the governor and must make the reported data

publicly available on a website. The state attorney general may also sue violators for civil

penalties not to exceed $10,000, plus attorneys’ fees. While Vermont’s earlier disclosure law

required the attorney general to keep confidential all trade secret information, this provision was

repealed by the 2008 legislation. 23

District of Columbia

The District of Columbia’s disclosure law applies to every “manufacturer or labeler of

prescription drugs dispensed in the District that employs, directs, or utilizes marketing

representatives in the District.”24 The District requires each pharmaceutical manufacturer or

labeler to annually report expenses associated with items such as educational or informational

programs or materials; food, entertainment, and gifts; trips and travel; and product samples.25

Furthermore, each report must provide the “value, nature, purpose, and recipient” of each

expense. 26 However, like Minnesota and Vermont, the District exempts certain categories of items

from the reporting requirements, including expenses worth less than $25, “reasonable

reimbursement” for clinical trials, product samples if they will be distributed to patients for free,

and scholarships for attending “significant” conferences if the attendee is chosen by the

association sponsoring the conference. 27 Violators of the disclosure law may be subject to a fine

of $1,000 plus attorneys’ fees.28 The District of Columbia requires the D.C. Department of Health

to compile an annual report presenting the disclosed information in “aggregate form.”29 In

addition to the provisions relating to physicians, it mandates disclosure of expenses associated

Vt. S.48 § 2 (2008).

Allowable expenditures include sponsor of an educational, medical, scientific, or policy-making conference or

seminar; honoraria; expenses related to bona fide clinical trials; and certain royalties and licensing fees. 18 V.S.A. §

4631a(a).

18 V.S.A. § 4632(a)(1).

See discussion of trade secrets, infra.

D.C. Code §48-833.01.

D.C. Code §48-833.03(a)(2).

D.C. Code §48-833.03(a).

D.C. Code §48-833.03(b).

D.C. Code §48-833.06.

D.C. Code §48-833.04.

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with advertising to the public at large, including through television advertisements, “as they

pertain to District residents.”30

Maine

Under Maine’s disclosure law, pharmaceutical manufacturers and labelers must file an annual

report that discloses, among other things, all expenses associated with (1) educational or

informational programs or materials; (2) food, entertainment, and gifts; (3) trips and travel; and

(4) product samples.31 Maine’s law also exempts expenses worth less than $25, reasonable

reimbursement for clinical trials, product samples if they will be distributed to patients for free,

and scholarships for attending “significant” conferences if the attendee is chosen by the

association sponsoring the conference. 32 As in the District of Columbia, violators may be subject

to a fine of $1,000 plus attorneys’ fees.33 The Maine disclosure statute also resembles the

District’s law in that it contains a broad reporting requirement that extends to expenses associated

with marketing to the general public.34 Maine requires that a report summarizing the aggregate

data and a report providing analysis be provided to the Maine attorney general’s office and the

state legislature each year by November 30 and January 1, respectively.35

Massachusetts

The Massachusetts Act to Promote Cost Containment, Transparency and Efficiency in the

Delivery of Quality Healthcare, enacted in 2008, requires pharmaceutical or medical device

manufacturers that employ a person to sell or market a drug, medicine, or medical device in the

commonwealth to adopt and comply with a “marketing code of conduct,” as established by

regulation.36 Under this code of conduct, the provision or payment for things such as meals

(subject to exception); entertainment or recreational items of value (e.g., tickets to sporting

events); and financial support for the costs of lodging, travel, and other expenses of non-faculty

health care practitioners attending a continuing medical education (CME) event, conference, or

professional meeting may be prohibited.37 However, the provision, distribution, or dissemination

of peer-reviewed academic, scientific, or clinical information, and the provision of prescription

drugs to a health care practitioner solely for the use of the practitioner’s patients, among other

things, are permitted by the code of conduct.

In addition, every pharmaceutical or medical device manufacturing company must annually

disclose to the department of public health the value, nature, purpose and particular recipient of

any fee, payment, or other economic benefit of at least $50, which the company provides to

persons authorized to prescribe, dispense, or purchase prescription drugs or medical devices in

D.C. Code §48-833.03(a)(1).

22 M.R.S. §2698-A(4)(B).

22 M.R.S. §2698-A(5).

22 M.R.S. §2698-A(8).

22 M.R.S. §2698-A(4)(A).

22 M.R.S. §2698-A(3).

See Mass. SB. 2863 (July 31, 2008), available at http://www.mass.gov/legis/bills/senate/185/st02pdf/st02863.pdf.

See also 105 C.M.R. § 970.000 et seq.

ALM GL ch. 111N, § 2.

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the commonwealth.38 The department of public health is responsible for making all disclosed data

publicly available and easily searchable on its website. In addition, the department must report to

the attorney general items of value provided in violation of the market code of conduct.

Federal Proposals Requiring Federal Disclosure of Gifts and Other

Payments

Legislation has been introduced in the 111th Congress that would require disclosure of gifts and

other transfers of value from manufacturers of a covered drug, device, biological, or medical

supply39 to health care provider recipients. The Physician Payments Sunshine Acts of 2009, as

introduced in the House (H.R. 3138) and the Senate (S. 301), contain similar but not identical

provisions. In addition, other versions of these bills have been included in health reform proposals

considered in various House and Senate committees. 40

Under S. 301 and H.R. 3138, a manufacturer of drugs and other medical products that provides a

payment or other transfer of value to a covered recipient (e.g., a physician, a physician medical

practice, or a physician group practice) or a recipient’s designee would be required to annually

submit specified information to the Secretary41 about the recipients and the payments or other

transfers of value, including a description of the form of transfer of value such as cash or stock,

and the nature of the transfer of value (e.g., consulting fee, gift, food, entertainment, charitable

contribution). Exceptions would be made for certain transfers of value of a small dollar amount,

product samples for patient use that are not intended to be sold, and educational materials that

directly benefit patients or are intended for patient use. In addition, manufacturers and other

entities would be responsible for submitting to the Secretary information regarding certain

ownership or investment interests held by a physician or a physician’s immediate family member,

not including interest in a publicly traded security or mutual fund.

Manufacturers and other entities that fail to submit the required information in a timely manner in

accordance with regulations would be subject to an annual civil monetary penalty of at least

$1,000 but not more than $10,000 for each payment or transfer of value not reported, up to a

maximum of $150,000. Any entity that knowingly fails to submit information would be subject to

a civil monetary penalty of at least $10,000 but not more than $100,000 for each payment or

transfer of value, and may not exceed $1,000,000 in total for each annual submission of

information. In addition, under both bills, the Secretary must make the submitted information

available through a website that is searchable, in a format that is clear and understandable, and

that meets various other requirements. The bills would also preempt state laws and regulations

that have analogous requirements to the federal bill, but would not interfere with state laws that

mandate the reporting or disclosure of information not required under the federal bill.

ALM GL ch. 111N, § 6.

A “covered” drug, device, biological, or medical supply is one for which payment is available under Medicare,

Medicaid, or the State Children’s Health Insurance Program. See, e.g., Section 2 of H.R. 3138.

See, e.g., H.R. 3200, 111th Cong. (2009).

Presumably, “Secretary” as referred to in the bills means the Secretary of Health and Human Services.

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Legal Analysis of a Federal Disclosure Requirement

In enacting a federal disclosure requirement, Congress may consider the following statutory and

constitutional considerations. These considerations include the prohibition of certain payments

under the anti-kickback statute, and the question of whether payments to physicians could be

considered trade secrets, which require certain legal protections. Another issue is whether

requiring a pharmaceutical company or other entity to make a disclosure would violate the

freedom of speech guaranteed under the First Amendment.

Payment Disclosure and the Anti-Kickback Statute

While current federal law does not require disclosure of industry payments to health care

professionals, it may prohibit certain payments from being given or received. Under the federal

anti-kickback statute, it is a felony to knowingly and willfully offer, pay, solicit, or receive

anything of value (i.e., “remuneration”), directly or indirectly, overtly or covertly, in cash or in

kind, in return for a referral or to induce generation of business reimbursable under a federal

health care program such as Medicare or Medicaid. 42 The statute prohibits both the offer or

payment of remuneration for patient referrals, as well as the offer or payment of anything of value

in return for purchasing, leasing, ordering, or arranging for, or recommending the purchase, lease,

or ordering of any item or service that is reimbursable by a federal health care program. Persons

found guilty of violating the anti-kickback statute may be subject to a fine of up to $25,000,

imprisonment for up to five years, and exclusion from participation in federal health care

programs for up to one year. However, a number of statutory and regulatory “safe harbors” to the

anti-kickback statute protect various business arrangements from prosecution. Safe harbors

include certain types of investment interests, personal services and management contracts,

referral services, space rental or equipment rental arrangements, warranties, discounts, and

employment arrangements. As mentioned above, the anti-kickback statute only applies to

referrals for services reimbursable under a federal health care program. Thus, if a company were

to offer a kickback or other type of remuneration that did not involve reimbursement from the

federal government, the anti-kickback statute would not be implicated.

In 2003, the Department of Health and Human Services’ Office of the Inspector General (OIG)

issued Compliance Program Guidance for Pharmaceutical Manufacturers (CPG),43 designed to

assist pharmaceutical manufacturers in developing and implementing internal controls and

procedures that promote compliance with applicable statutes, regulations, and requirements of

federal health care programs.44 In addition, the CPG alerted companies and health care

practitioners to activities that could lead to prosecution under the anti-kickback statute as well as

other federal laws. 45 Among other things, the CPG explains that pharmaceutical companies and

their employees and agents often engage in a number of arrangements that offer benefits to

physicians or others in a position to make or influence prohibited referrals under the antikickback statute. Examples of remunerative arrangements between pharmaceutical manufacturers

42 U.S.C. § 1320a-7b(b).

68 Fed. Reg. 23731.

Id.

See Rebecca Dresser, Pharmaceutical Company Gifts: From Voluntary Standards to Legal Demands, The Hastings

Center Report, Vol. 36 Iss. 3, May/June 2006.

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and parties in a position to influence referrals that were cited by OIG included entertainment,

recreation, travel, meals, or other benefits in association with information or marketing

presentations, as well as gifts, gratuities, and other business courtesies. OIG indicated these

arrangements potentially implicate the anti-kickback statute if any one purpose of the

arrangement is to generate business for the pharmaceutical company. While the CPG guidelines

for companies to follow in developing or maintaining compliance programs are not legally

binding, the document puts manufacturers on notice as to certain arrangements that OIG may see

as suspect.46

Physician Payments Designated as Trade Secrets?

A trade secret can be defined as secret, commercially valuable information. 47 It is a company’s

proprietary interest in such information that is protected from disclosure, theft, or unauthorized

use under both state48 and federal law. 49 The U.S. Supreme Court has explained that for subject

matter to be protected as a trade secret, the material must meet minimal standards of novelty and

inventiveness to avoid extending trade secret protection to matters of general or common

knowledge in the industry in which it is used.50 Whether information qualifies as a “trade secret”

under federal or state law, however, is a question of fact that is to be determined by a jury.51

Confidential commercial information can lose its trade secret status through unprotected

disclosure. For example, a trade secret may lose its legal protection by accidental or intentional

disclosure by a company’s employee. 52 Once a trade secret is exposed to the public, its protected

character is lost forever and cannot later be retrieved. 53

Some pharmaceutical companies have attempted to shield certain physician gift and payment

information from public disclosure by designating it as confidential trade secrets, in order to

prevent their competitors from gaining information about drugs under development, their

marketing practices, and their consulting and research arrangements.54 Until recently, Vermont

law allowed pharmaceutical companies to protect such data as trade secrets, thus preventing the

state’s attorney general from publicly disclosing the information. 55 This exemption in Vermont’s

Id.

UNIFORM TRADE SECRETS ACT § 1(4), available at http://www.law.upenn.edu/bll/ulc/fnact99/1980s/utsa85.pdf. See

also the definition of “trade secret,” RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 39 (“A trade secret is any

information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret

to afford an actual or potential economic advantage over others.”).

The Uniform Trade Secrets Act (UTSA) was published in 1979 by the National Conference of Commissioners on

Uniform State Laws and codifies the common law concerning trade secrets. The UTSA has been adopted by 46 states

and the District of Columbia.

Economic Espionage Act, codified at 18 U.S.C. §§ 1831 et seq.

Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974)(“[S]ome novelty will be required if merely because that

which does not possess novelty is usually known; secrecy, in the context of trade secrets, thus implies at least minimal

novelty.”).

4 ROGER M. MILGRIM, MILGRIM ON TRADE SECRETS § 15.01.

Religious Tech. Ctr. v. Netcom On-Line Communication Servs., 923 F.Supp. 1231, 1256 (N.D. Cal. 1995).

In re Remington Arms Co., 952 F.2d 1029, 1033 (8th Cir. 1991).

Jacob Goldstein, Drug Industry Trade Secrets: Speaking Fees, Education Subsidies, WALL STREET JOURNAL HEALTH

BLOG, Nov. 4, 2008, available at http://blogs.wsj.com/health/2008/11/04/drug-industry-trade-secrets-speaking-feeseducation-subsidies.

VT. STAT. ANN. tit. 18 § 4632(a)(3) (Supp. 2005) (“The office of the Attorney General shall keep confidential all

trade secret information... In the event that the Attorney General receives a request for any information designated as a

(continued...)

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disclosure law, however, was criticized for being too widely used by the companies and thus

severely restricting public access to detailed physician payment information.56 In May 2009, the

Vermont legislature passed a law,57 effective July 1, 2009, that eliminates the trade secret

exemption. 58

Neither the Senate or House version of the Physician Payment Sunshine Act 2009 permits a

company to characterize physician payment data as trade secrets to avoid public disclosure.

However, legislation introduced in the 110th Congress, the Drug and Medical Device Company

Gift Disclosure Act (H.R. 3023), contained a provision that would have directed the FDA

commissioner to “keep confidential any information disclosed to or otherwise obtained by the

Commissioner ... that relates to a trade secret ... ”59

Constitutional Considerations of a Federal Disclosure Requirement

If Congress were to enact a federal disclosure requirement, it would likely survive judicial

scrutiny. A preliminary question when considering the constitutionality of any federal statute is

whether any power enumerated in the Constitution authorizes Congress to take such action. A

disclosure requirement would likely pass that preliminary threshold. Congress has broad authority

to regulate activities under its Commerce Clause60 power, including the authority to regulate

activities as long as they “substantially affect” interstate commerce. 61

The second question in determining the constitutionality of a federal statute is whether the statute

violates any constitutional provision. The First Amendment is one plausible basis for a

constitutional challenge to a disclosure provision. Specifically, pharmaceutical and other

companies might argue that mandatory disclosure of gifts and payments to physicians violates

their First Amendment freedoms of speech and association.62

Companies might identify two different manifestations of “speech” implicated by a federal

disclosure provision. First, they might argue that the disclosure of information regarding gifts and

payments is unconstitutionally compelled speech. Second, they might argue that the gifts and

(...continued)

trade secret, the Attorney General shall promptly notify the company of such request. Within 30 days after such

notification, the company shall respond to the requester and the Attorney General by either consenting to the release of

the requested information or by certifying in writing the reasons for its claim that the information is a trade secret.”).

Paid to Prescribe? Exploring the Relationship Between Doctors and the Drug Industry: Hearing Before the Senate

Special Committee on Aging, 110th Cong. (June 27, 2007) (statement of Peter Lurie, Deputy Director, Public Citizen’s

Health Research Group).

Available at http://www.leg.state.vt.us/docs/2010/bills/Passed/S-048.pdf.

Natasha Singer, Doctor Gifts To Be Public In Vermont, N.Y. TIMES, May 20, 2009, at B1 (noting that pharmaceutical

companies had declared 83% of their payments to physicians to be trade secrets under Vermont’s pharmaceutical

marketing disclosure law before the statute was amended).

H.R. 3023, §2.

The Commerce Clause of the U.S. Constitution empowers Congress “[t]o regulate Commerce with foreign Nations,

and among the several States, and with the Indian Tribes.” U.S. Const. art. II, §8, cl. 3.

See, e.g., United States v. Lopez, 514 U.S. 549, 558-59. For a discussion of Commerce Clause jurisprudence, see

CRS Report RL32844, The Power to Regulate Commerce: Limits on Congressional Power, by (name redacted) and

(name redacted).

For a general discussion of First Amendment jurisprudence, see Constitution of the United States of America,

Analysis and Interpretation, Congressional Research Service, p. 1076 et seq.

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Requiring Disclosure of Gifts and Payments to Health Care Professionals

payments are, themselves, speech that the law unconstitutionally restricts. As a threshold matter,

it is not clear that gifts and payments made to physicians are “speech.” The Supreme Court has

treated monetary transactions as “speech” in the past, most notably in the area of campaign

finance. 63 However, the payments at issue here are arguably distinct from campaign contributions

because they are not “political expression” or “discussion of governmental affairs” as were the

transactions in the campaign finance arena.64 If the gifts and payments are not speech, then they

fall outside of First Amendment protection.

A federal provision would likely survive a compelled speech challenge. The First Amendment

generally prohibits the government from compelling speech.65 However, two case law trends

suggest that a court would uphold a federal provision compelling disclosure of gifts and payments

made to physicians or other health care professionals. First, a court might analyze the disclosure

by pharmaceutical companies in the context of compelled commercial speech. 66 Commercial

speech is “speech that proposes a commercial transaction.”67 Although the disclosures would not

themselves propose commercial transactions, they report transactions made for the purpose of

increasing business. In the compelled commercial speech category, under applicable case law, the

government’s interest need only be “reasonably related” to the disclosure requirements to survive

judicial scrutiny.68 Mandatory disclosure of gifts and payments to health care professionals

appears reasonably related to potential governmental interests, such as transparency and patient

protection. Second, even if the compelled speech at issue is viewed as non-commercial, a court

would likely uphold the provision. Although the Court has invalidated nearly all laws it has

reviewed in the non-commercial compelled speech category,69 most of the Court’s noncommercial compelled speech cases addressed political speech, which garners a greater level of

constitutional protection than other types of speech.70 In contrast, the speech implicated here, if

not commercial, is medical rather than political. Therefore, a federal disclosure provision would

likely survive a compelled speech challenge under the First Amendment.

A mandatory disclosure provision would likewise probably survive a restricted speech challenge.

Such a challenge would allege that the provision unconstitutionally restricts pharmaceutical

companies’ gifts and payments to health care professionals. If gifts and payments are “speech,”

then such transactions are likely also commercial speech, because a likely message conveyed by

See McConnell v. FEC, 540 U.S. 93, 120 (2003) (citing Buckley v. Valeo, 424 U.S. 1, 14-23 (1976)).

Buckley, 424 U.S. at 14.

See Riley v. National Federation of the Blind of North Carolina, Inc., 487 U.S. 781, 797 (1987).

Most commercial compelled speech cases have addressed mandatory disclosures in advertising. See, e.g., Zauderer v.

Office of Disciplinary Counsel, 471 U.S. 626, 651 (1985) (upheld a state law mandating disclosure of specific payment

information in lawyers’ advertisements for contingency fee services). The disclosure at issue here would seem to differ

from advertising disclosures because it involves direct disclosure to the government rather than to consumers.

However, a court might analyze the disclosure involved here in the commercial context despite this difference because

it, like advertising disclosures, would compel information regarding business transactions, with one potential purpose

being to disseminate the disclosed information to a public audience.

Bd. of Trustees of the State Univ. of N.Y. v. Fox, 492 U.S. 469, 482 (1989) (emphasis in original).

Zauderer, 471 U.S. at 651.

One exception is Meese v. Keene, in which the Court upheld a law mandating disclosure of associations with foreign

governments by distributors of political propaganda, finding that such disclosures did not “prohibit, edit, or restrain the

distribution of advocacy materials.” 481 U.S. 465, 480 (1987).

See, e.g., Wooley v. Maynard, 430 U.S. 705 (1977) (invalidating a New Hampshire law making it a misdemeanor to

not display the slogan “Live Free or Die” on one’s license plate); West Virginia State Bd of Ed. v. Barnette, 319 U.S.

624 (1943) (invalidating a state law requiring school children to recite the Pledge of Allegiance).

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Requiring Disclosure of Gifts and Payments to Health Care Professionals

the gifts and payments is, for example, that doctors should prescribe the promoted drugs.

Commercial speech garners less constitutional protection than political or other types of speech.71

The applicable test for determining the constitutionality of commercial speech is the four-part

Central Hudson test.72 Under the Central Hudson framework, the preliminary questions are (1)

whether the speech is protected by the First Amendment (i.e., is not unlawful or misleading), and

(2) whether the government’s asserted interest in regulation is “substantial.”73 If the regulation

satisfies both preliminary questions, the third and fourth prongs then apply: (3) whether the

regulation directly advances the government’s asserted interest, and (4) if so, whether the

regulation is no more extensive than is necessary to serve that interest.74

Assuming that the gifts and payments made to health care professionals are not unlawful or

misleading, a court would find that the first Central Hudson prong is satisfied. A court would also

likely find that a federal disclosure requirement satisfies the second prong. In Rubin v. Coors

Brewing Co., the Supreme Court found “substantial” the government’s interest in deterring efforts

by beer companies to advertise the most potent beer. 75 Here, the government’s potential

interests—for example, transparency, reduced drug costs, and patient protection—would seem

likely to be at least as “substantial” as the interest asserted in Rubin.

The third and fourth Central Hudson prongs could be closer issues, but would still likely result in

a finding of constitutionality. When applying the third prong, the Supreme Court has indicated

that courts should consider the effect of the regulation in its general application, rather than as

applied to the particular group challenging the law. 76 In a case invalidating a law on the basis of

the third prong, the Supreme Court stated that the government must “demonstrate that the harms

it recites are real and that its restriction will in fact alleviate them to a material degree.”77

Although it seems likely that the government could identify a real harm caused by gifts and

payments to physicians, some question exists as to whether mandatory disclosure of such gifts

and payments would “materially alleviate” that harm. The Court noted in the above case that the

government offered “no studies” giving evidence of the asserted harm and failed to present even

“anecdotal” evidence that the law would address the harm identified.78 Thus, the question might

be whether the government can present sufficient studies and anecdotal evidence to show that the

disclosure would alleviate any identified harm created by gifts and payments to health care

professionals.

Regarding the fourth Central Hudson prong, the Supreme Court has clarified that “no more

extensive than necessary” should not be interpreted strictly to require the government to use the

“least restrictive means” of all available alternatives to accomplish its purpose; rather, the fourth

U.S. v. Edge Broadcasting Co., 509 U.S. 418 (1993). For more information on treatment of commercial speech, see

CRS Report 95-815, Freedom of Speech and Press: Exceptions to the First Amendment, by (name redacted).

Central Hudson Gas & Electric Corp. v. Public Service Comm’n, 447 U.S. 557, 566 (1980). Note, however, that in

the most recent Supreme Court commercial speech case, the Court noted that some justices “have expressed doubts”

about the Central Hudson test’s applicability in certain circumstances. Thompson v. Western States Medical Center,

535 U.S. 357, 367 (2002).

Central Hudson, 447 U.S. at 566.

Id.

514 U.S. 476 (1995).

Edge Broadcasting, 509 U.S. at 501-502.

Edenfield v. Fane, 507 U.S. 761, 771 (1993).

Id.

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prong merely requires a reasonable “fit” between the legislature’s ends and the means chosen to

accomplish those ends.79 Thus, a court need only find a reasonable fit between a disclosure rule

and the government’s asserted interest in order to uphold the government action. For laws

affecting political speech, in contrast, the more onerous “least restrictive means” test applies.

Nonetheless, in a disclosure case involving political speech in the context of campaign finance,

the Court stated that disclosure is generally the “least restrictive means” of addressing corruption

in government.80 Since the fourth Central Hudson prong is less onerous than the “least restrictive

means” test, it is likely that disclosure would survive First Amendment scrutiny in the

commercial speech arena.

A federal disclosure requirement would likely also survive a freedom of association challenge.

The Supreme Court has stated that “compelled disclosure, in itself, can seriously infringe on

privacy of association and belief.”81 To be constitutional, a disclosure law must have a “relevant

correlation” or “substantial relation” to the asserted government interest.82 It is unclear whether

the right of association would extend to an “association” between a pharmaceutical company and

a physician, since the Supreme Court cases to date have generally invalidated laws on freedom of

association grounds only when political or membership associations were at issue.83

Even if a court found that the pharmaceutical company-physician relationship constituted an

“association” such that it triggered right of association claims under the First Amendment, it is

unlikely that a court would find that a disclosure law violated privacy of association rights

because the Court has upheld disclosure laws against freedom of association challenges in other

contexts. For example, in Buckley v. Valeo, the Supreme Court upheld federal laws mandating

disclosure of certain campaign finance activities, holding that the government’s interest in

regulation outweighed the private association concerns raised by the requirements.84 It seems

likely that government interests asserted here would similarly outweigh the pharmaceutical

companies’ freedom of association concerns.

Finally, it is telling in assessing a federal disclosure requirement’s constitutionality that the state

disclosure laws now in effect have faced no significant legal challenges. Although a U.S. district

court recently invalidated on First Amendment grounds a New Hampshire law regulating

prescription information, that law was distinct from the possible federal requirement discussed

here because it prohibited disclosure of prescription information. 85

Conclusion

In sum, there have been recent efforts to crack down on perceived conflicts of interest between

health care professionals and the pharmaceutical and other medical industries, in particular

through disclosure of certain gifts or other payments. Several states have already enacted

Bd. of Trustees of the State Univ. of N.Y. v. Fox, 492 U.S. 469, 480 (1989).

Buckley v. Valeo, 424 U.S. 1, 68 (1976).

Id. at 64.

Id.

See, e.g., Rumsfeld v. Forum for Academic and Inst. Rights, Inc., 547 U.S. 47 (2006) (finding no violation of

plaintiffs’ associational rights where the “association” mandated by the law did not involve membership).

Buckley, 424 U.S. at 61.

IMS Health Inc. v. Ayotte, No. 06-cv-280-PB, 2007 WL 1244077 (D.N.H., April 30, 2007).

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Requiring Disclosure of Gifts and Payments to Health Care Professionals

legislation requiring companies to disclose gifts and payments to these professionals. Federal

legislation has also been introduced, which would require disclosure of gifts and other transfers of

value from the pharmaceutical and other entities to health care provider recipients.

A federal disclosure requirement would likely survive a legal challenge. Pharmaceutical

companies might challenge the provision on First Amendment grounds. However, it appears

likely that it would survive judicial scrutiny under the various applicable tests of constitutionality.

Author Contact Information

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Legislative Attorney

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Congressional Research Service

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Legislative Attorney

[redacted]@crs.loc.gov, 7-....

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