Prescription-data collector IMS's legal drama unfolds in a battle over privacy and free speech, and could be headed to the Supreme Court
IMS Health (RX) has built a lucrative niche collecting data on which drugs physicians prescribe, then selling the information to pharmaceutical companies. But legislators in more than 20 states are considering actions to curb the practices. The Supreme Court could shine a spotlight on this topic in the next few weeks if it decides to hear a closely watched case IMS has been fighting in New Hampshire. The court's ruling would quickly reverberate beyond the pharmaceutical industry, affecting virtually any business that uses information about consumer buying behavior to guide its sales strategies.
The legal drama began in 2006, when New Hampshire passed the Prescription Information Law. It bars the collection of data on what drugs specific doctors prescribe—information drug companies use to fine-tune sales tactics. The law struck right at the heart of IMS's business model, which brought the Norwalk (Conn.) company $311 million in profits on $2.3 billion in sales in 2008. New Hampshire Attorney General Kelly A. Ayotte has argued that collecting prescription data endangers the privacy of physicians and patients, even though patient information is kept anonymous. IMS and another data collection company, Verispan (now SDI Health), sued in federal court to challenge the law, which they believe violates their First Amendment rights to free speech.
The case wound its way up to the U.S. Court of Appeals for the First Circuit, which upheld the New Hampshire law in November 2008. The court ruled that data and speech are not the same thing. Data is just like any product, Circuit Judge Bruce M. Selya said, and states have the authority to legislate how companies sell their goods. "The plaintiffs … ask us in essence to rule that because their product is information instead of, say, beef jerky, any regulation constitutes a restriction of speech," wrote Selya in the November opinion. "We think that such an interpretation stretches the fabric of the First Amendment beyond any rational measure."
Mapping a Sales Strategy
But to the pharmaceutical industry, prescription information isn't beef jerky—it's prime rib. Drug companies use IMS data to guide their salesforce strategies. For example, they can save money by distributing free samples of a new drug only to the biggest prescribers of products in that same class. Without the data, they risk wasting samples on doctors who are just going to throw them in the trash. Adds Dr. Ron Cohen, CEO of biotech company Acorda Therapeutics (ACOR): "We use the data to make sure sales forces are calling on the physicians who are likely to want the most current information." Acorda is awaiting a decision from the Food & Drug Administration—due in October—on a new multiple sclerosis drug, but the company is already mapping out its sales strategy with IMS data. "We want to call on the 5,000 or so physicians who are writing 80% of the prescriptions" for MS drugs, Cohen says. The information "is critical for determining who they are." (Cohen is also on the board of the Biotechnology Industry Organization, which filed an amicus brief in support of IMS's Supreme Court bid.)
If the Supreme Court declines to hear the IMS case, the beef jerky ruling will stand, and that might embolden other states to restrict the collection and trade of consumer data. That could limit a range of activities, from producing targeted Web advertising to screening job applicants for criminal behavior. That's why more than 40 individuals and organizations filed briefs supporting IMS's Supreme Court bid, including the Association of National Advertisers, the Software & Information Industry Assn., and the National Association of Professional Background Screeners. "This issue far transcends prescription drugs," says Dan Jaffe, executive vice-president for government relations at the Association of National Advertisers, an organization that has 360 member companies across a wide range of industries. "In a difficult economy, virtually every segment of the business community is concerned about preserving the ability to use marketing dollars in an efficient way."
Governments also purchase consumer data—and that alone could prompt the Supreme Court to hear the case. "If you want to track swine flu, you might want to know who's prescribing Tamiflu," says Jaideep Bajaj, managing director at ZS Associates, a marketing consulting firm in Boston that works with more than 100 pharmaceutical companies. "How do you do that without the data?"
Privacy advocates, however, believe laws such as the one passed in New Hampshire are vital for protecting consumers. Randy Frankel, IMS vice-president for external affairs, says his company uses sophisticated encryption technology to shield patients' identities. What's more, the American Medical Assn. allows physicians to request anonymity, and about 22,000 docs have done so. But critics fear such technology could fail or that enterprising hackers could somehow glean enough details from the data to determine who has what diseases. "No one knows how strong de-identifying technologies really are," says Lee Tien, senior staff attorney for the Electronic Frontier Foundation. "It's really dangerous to make the assumption that there's no privacy interest here. We're being misled." Says Frankel: "There has been no breach. The groups screaming the loudest are doing so based on hypotheticals."
IMS's first chance to get a hearing at the Supreme Court won't be its last. Legislation similar to New Hampshire's Prescription Information Law has passed in Vermont and Maine. The company intends to fight those, if necessary, all the way to the top.