On February 16, the U. S. District Court for the District of Oregon struck down the state’s drug price transparency law—The Prescription Drug Price Transparency Act (the “Act”)[1]—ruling that the Act’s annual price increase reporting requirement is unconstitutional and, therefore, unenforceable.[2] Following the District Court’s decision, the Oregon Department of Consumer and Business Services (“DCBS” or the “Department”) issued a bulletin indefinitely suspending the annual price increase reporting requirement.[3] However, the Department confirmed its intent to appeal the District Court’s decision,[4] leaving the future of the reporting requirement relatively uncertain.

1. The Oregon Prescription Drug Price Transparency Act

Oregon—one of twenty-three states that requires some level of drug price reporting—passed the Act in 2018, with amendments introduced by HB 2658 the following year, to create the Oregon Drug Price Transparency Program (the “Program”). The Program, which intends to “provide accountability for prescription drug pricing through transparency of specific cost and price information from pharmaceutical manufacturers and health insurers,” requires drug manufacturers and health insurers to report certain drug-pricing information to DCBS.[5] Specifically, the Program requires each reporting manufacturer[6] to report (1) any time the manufacturer markets a new prescription drug with a wholesale acquisition cost (“WAC”) exceeding the Medicare Part D specialty drug threshold; (2) annually any price increase for a prescription drug with a WAC of one-hundred dollars ($100) or more that has increased by ten percent (10%) or more over the previous calendar year, accompanied by a report on patient assistance program(s) offered for the drug; and (3) sixty (60) days before a planned increase in a prescription drug’s price.[7]

For both new drugs and drug price increases, the Program requires manufacturers to report detailed, often highly confidential and sensitive business information related to price determination, including, but not limited to (i) factors contributing to the price increase, (ii) research and development costs paid using public funds, (iii) the manufacturing, marketing, and distribution costs, and (iv) the manufacturer’s revenue and profit.[8] Moreover, the Act requires DCBS to publicly post all of the information disclosed by each reporting manufacturer unless DCBS determines that the information qualifies as a “trade secret”—a high bar under ORS 192.345—and that the public interest does not require such disclosure.[9] This means that DCBS may publicly disclose a manufacturer’s trade secret if DCBS alone determines that such disclosure would serve the public interest.[10]

2. The District Court Decision

Unsurprisingly, drug manufacturers were quick to challenge the extensive – not to mention, public – nature of the disclosures required by the Act and, in 2019, the Pharmaceutical Research and Manufacturers of America (“PhRMA”) filed a suit challenging the Act on multiple constitutional grounds.[11] Nearly five years later, on February 16, 2024, the U.S. District Court for the District of Oregon issued a declaratory judgment, which found that the Act violates the Constitution in two key ways – (1) the annual price increase reporting requirement violates the First Amendment by “compelling speech” (i.e., requiring drug manufacturers to disclose sensitive business information) and, thereby, implying that drug manufacturers, alone, are responsible for drug price increases; and (2) the “public interest” exception for disclosure of drug manufacturers’ trade secrets violates the Takings Clause of the Fifth Amendment, as it stands tantamount to a taking of private property (i.e., manufacturer’s trade secrets) without just compensation. These conclusions by the District Court have the effect of invalidating the Program’s price increase reporting requirement and DCBS’s ability to publish manufacturers’ trade secrets under the “public interest” exception; however, the judgment does not affect any other aspect of the Program.

Five days after the District Court issued the judgment, DCBS issued a guidance bulletin, which suspended the annual price increase reporting requirement until further notice.[12] However, the bulletin clarified that manufacturers who market prescription drugs in the state of Oregon remain subject to the new drug reporting requirement under ORS 646A.689(6), the 60-day price increase notification requirement under ORS 646A.683(2), and the patient assistance program reporting requirement under ORS 646A.689(5). Further, the bulletin confirmed DCBS’s intent to take up the District Court ruling with the Ninth Circuit Court of Appeals, which, if granted, will bring the issue from a state level to a national platform.

3. Takeaways

While the District Court judgment most directly affects drug manufacturers who market prescription drugs in Oregon—as it removes the obligation to report annual price increases—it could create a ripple effect among other states, inspiring legal challenges in states with similar drug transparency reporting requirements.

To date, PhRMA has unsuccessfully challenged similar laws in Nevada and California.[13] In 2017, PhRMA filed a complaint against the state of Nevada over Senate Bill 539, which PhRMA claimed violated federal patent law, the federal Trade Secrets Act, and the Commerce Clause, and constituted an unlawful government taking under the Fifth and Fourteenth Amendments. However, following a series of out-of-court conferences, the parties agreed to move for dismissal of the case without prejudice, so no real judicial precedent was established, but the door remains open for PhRMA to refile.[14] In the same year, PhRMA filed a complaint against the state of California over Senate Bill 17, which PhRMA claimed violated the Commerce Clause and the Fourteenth Amendment, and compelled speech in violation of the First Amendment. Ultimately, the District Court for the Eastern District of California dismissed PhRMA’s motion for summary judgment, finding that PhRMA did not meet the necessary evidentiary standard (i.e., PhRMA did not provide enough evidence to prove that Senate Bill 17 is facially unconstitutional).[15] On appeal, the Ninth Circuit agreed with the district court’s conclusion on the Commerce Clause issue only, and did not opine on the First and Fourteenth Amendment complaints.[16] These prior defeats highlight the monumental nature of PhRMA’s victory in Oregon, which establishes the first substantive judicial precedent on the constitutionality of a state-level drug price transparency law. Moreover, a confirmation by the Ninth Circuit could spur similar challenges to other state laws and, specifically, may be the green light PhRMA has been waiting for to refile its case in Nevada. Such circuit-level precedent could also prompt courts and legislators in states with similar laws to reel back the scope of drug price reporting requirements.

Manufacturers would be prudent to monitor the development of this particular case, especially if DCBS follows through on its stated intent to appeal the decision to the Ninth Circuit, as well as challenges that may arise in the remaining twenty-two states with drug price transparency laws. Following a surge of new drug price transparency laws across states in the past five years, we may be seeing the pendulum begin to swing back, as drug manufacturers gain momentum in challenges to laws that overstep constitutional protections.

FOOTNOTES

<[1] House Bill 4005 (2018), 2018 Or. L. Ch. 7.

[2] See Pharmaceutical Research and Manufacturers of America v. Stolfi, 6:19-cv-01996-MO, ECF 77 (D. Or. Feb. 16, 2014).

[3] See Bulletin No. DFR 2024-3, Oregon Department of Consumer and Business Services Division of Financial Regulation (Feb. 21, 2024).

[4] See id.

[5] See Prescription Drug Price Transparency, Oregon Department of Consumer and Business Services Division of Financial Regulation (last visited Mar. 4, 2024).

[6] Under the Act, a “reporting manufacturer” is any person or entity who manufactures a prescription drug that is sold in Oregon. ORS 646A.689(1)(e).

[7] See ORS646A.689(2),(5),(6); 646A.683(2).

[8] See ORS646A.689(3),(6).

[9] See ORS646A.689(9)-(10).

[10] Although the Act does permit a manufacturer to petition the Attorney General to review a DCBS decision to disclose information, DCBS has full discretion to make the initial determination. See ORS 646A.689(10)(c).

[11] See Pharmaceutical Research and Manufacturers of America v. Savage, 6:19-cv-01996-MO, ECF 1 (D. Or. Dec. 9, 2019).

[12]  See Bulletin No. DFR 2024-3, supra FN 3.

[13]  See Pharmaceutical Research and Manufacturers of America v. Sandoval, 2:17-cv-02315 (D. Nev.); Pharmaceutical Research and Manufacturers of America v. Landsberg, 2:17-cv-02573 (E.D. Cal.).

[14] See Pharmaceutical Research and Manufacturers of America v. Sandoval, 2:17-cv-02315, No. 97 (D. Nev 2018.).

[15] See Pharmaceutical Research and Manufacturers of America v. David, 2:17-cv-02573-MCE-KJN (E.D. Cal. 2021).

[16] See Pharmaceutical Research and Manufacturers of America v. Landsberg, 2:17-cv-02573-MCE-KJN (9^th Cir. 2022).