                      TO BE PUBLISHED IN THE OFFICIAL REPORTS


                           OFFICE OF THE ATTORNEY GENERAL

                                     State of California


                                     DANIEL E. LUNGREN

                                       Attorney General


                         ______________________________________

                 OPINION             :
                                     :          No. 91-305
                  of                 :
                                     :          MARCH 3, 1992
        DANIEL E. LUNGREN            :

           Attorney General          :

                                     :

          GREGORY GONOT              :

        Deputy Attorney General      :

                                     :

______________________________________________________________________________

          THE HONORABLE TRICIA HUNTER, MEMBER OF THE CALIFORNIA
ASSEMBLY, has requested an opinion on the following questions:

               1.      Do California laws governing pharmacies apply to out-of-state mail order
pharmacies filling prescriptions and mailing them to people in California?

               2.     Is California's current regulation of out-of-state mail order pharmacies
consistent with the commerce clause of the United States Constitution?

                3.    Under California law, may a generic type drug listed on the negative drug
formulary established by the Director of Health Services be substituted for a brand name drug by
an out-of-state pharmacy when filling prescriptions and mailing them to people in California?


                                        CONCLUSIONS

                1.     California laws governing pharmacies apply in limited circumstances to out-
of-state mail order pharmacies filling prescriptions and mailing them to people in California.

               2.     California's current regulation of out-of-state mail order pharmacies is
consistent with the commerce clause of the United States Constitution.

               3.      Under California law, a generic type drug listed on the negative drug
formulary established by the Director of Health Services may be substituted for a brand name drug
by an out-of-state pharmacy when filling prescriptions and mailing them to people in California, if
the pharmacy is registered as a nonresident pharmacy.




                                                1.                                         91-305

                                              ANALYSIS


                 1.      California's Pharmacy Laws

               The first question presented for analysis is whether the laws governing pharmacies
within California are applicable to out-of-state pharmacies filling prescriptions and mailing them
to people in California. We conclude that they are in limited circumstances.

               The laws governing pharmacies dispensing drugs in California are found generally
in chapter 9 of division 2 of the Business and Professions Code (§ 4000 et seq.).1 Additional
provisions having specific application to pharmacists appear in the Health and Safety Code as part
of the Uniform Controlled Substances Act (Health & Saf. Code, § 11000 et seq.) and the Sherman
Food, Drug and Cosmetic Law (Health & Saf. Code, § 26000 et seq.).

                A person within the state who sells or dispenses dangerous drugs or devices must be
registered as a pharmacist with the State Board of Pharmacy ("Board"). (§§ 4050, 4085.) Section
4084.6 prohibits an out-of-state pharmacy from doing business in California unless it obtains an out-
of-state drug distributor's license or registers as a nonresident pharmacy.2 It states in part:

                  "No out-of-state manufacturer, wholesaler, or pharmacy doing business in
          this state who has not obtained a certificate, license, permit, registration, or
          exemption from the board and who sells or distributes drugs in this state through any
          person or media other than a wholesaler who has obtained a certificate, license,
          permit, registration, or exemption pursuant to the provisions of this chapter or
          through a selling or distribution outlet which is licensed as a wholesaler pursuant to
          the provisions of this chapter, shall conduct the business of selling or distributing
          drugs in this state without obtaining an out-of-state drug distributor's license from
          the board or registering as a nonresident pharmacy.

                 "................

                 "The board may deny, revoke, or suspend such out-of-state distributor's
          license for any violation of this chapter or for any violation of Division 21
          (commencing with Section 26000) of the Health and Safety Code . . . ."

Accordingly, under the terms of section 4084.6, if an out-of-state pharmacy is licensed as an out-of-
state drug distributor, it must comply with "this chapter" (§§ 4000-4480) and "Division 21" (Health
and Saf. Code, §§ 26000-26851.1).

                If a pharmacy registers as a nonresident pharmacy, it is required to comply with the
limited set of regulations specified in section 4350.6. Section 4350.6 states in part:

                  "The board may deny, revoke, or suspend a nonresident pharmacy
          registration for failure to comply with any requirement of Section 4050.1 or 4383 or
          for any failure to comply with Section 11164 of the Health and Safety Code."

      1
       All references herein to the Business and Professions Code are by section number only.
  2
   Registration as a nonresident pharmacy is available "only to a nonresident pharmacy which only
ships, mails, or delivers controlled substances and dangerous drugs and devices into this state
pursuant to a prescription." (§ 4050.1, subd. (d).)

                                                    2.                                             91-305

Section 4050.1 requires a nonresident pharmacy to (1) disclose to the Board its officers and
pharmacists, (2) comply with all laws of the state in which it is a resident, (3) maintain its records
so that they are readily retrievable concerning controlled substances and dangerous drugs dispensed
to patients in California, and (4) provide a toll-free telephone service for patients in California,
among other requirements.

               Besides the conditions for doing business in California specified in section 4050.1,
a nonresident pharmacy must comply with section 4383 concerning advertising its services within
California and Health and Safety Code section 11164 regarding filling prescriptions for controlled
substances. As set forth in section 4350.6, these are the only California statutes with which a
nonresident pharmacy must comply in order to retain its California registration.

                 In answer to the first question, therefore, we conclude that California laws governing
pharmacies apply in limited circumstances to an out-of-state mail order pharmacy filling
prescriptions and mailing them to people in California. If it is licensed as an out-of-state drug
distributor, it must comply with sections 4000-4480 and Health and Safety Code sections 26000 -
26851.1. (§4084.6.) If it is registered as a nonresident pharmacy, it must comply with sections
4050.1, 4383, and Health and Safety Code section 11164. (§4350.6)

               2.      The Commerce Clause

               The second question presented for resolution concerns whether California's current
regulation of out-of-state mail order pharmacies is consistent with the commerce clause of the
United States Constitution.

                The commerce clause of the United States Constitution provides in pertinent part:
"The Congress shall have power . . . to regulate commerce . . . among the several states . . . ." In
addition to being a direct grant of power to the federal government, the commerce clause stands as
a limitation on the exercise of state power in matters affecting the movement of persons and things
across state lines. The states may not substantially impede the free flow of commerce from state to
state, but the lawful exercise of their police and taxing powers in matters of local concern may
include limited impacts on interstate commerce in areas not already preempted by congressional
action. (Southern Pacific Co. v. Arizona (1945) 325 U.S. 761, 766-767.)

              In determining whether a state-created impact on interstate commence falls within
permissible bounds, the United States Supreme Court has employed the following balancing test:


               "Where the statute regulates evenhandedly to effectuate a legitimate local
       public interest, and its effects on interstate commerce are only incidental, it will be
       upheld unless the burden imposed on such commerce is clearly excessive in relation
       to the putative local benefits. If a legitimate local purpose is found, then the question
       becomes one of degree. And the extent of the burden that will be tolerated will of
       course depend on the nature of the local interest involved, and on whether it could
       be promoted as well with a lesser impact on interstate activities." (Pike v. Bruce
       Church, Inc. (1970) 397 U.S. 137, 142.)3

   3
   These principles were recently restated by the court in Brown-Forman Distillers Corp. v. New
York State Liquor Authority (1986) 476 U.S. 573, 578:

               "This Court has adopted what amounts to a two-tiered approach to analyzing

                                                  3.                                               91-305
                The foregoing approach is generally applied to cases in which the state regulation
may be deemed nondiscriminatory, that is, where the state does not seek to gain a competitive
advantage, shift the burdensome aspects of commerce to another state, or otherwise seek to isolate
itself economically. Where, however, a discriminatory intent is evident, the court will apply a
virtual "per se" rule of invalidity. (See Lewis v. BT Investment Mgrs. (1980) 447 U.S. 27, 38-42;
City of Philadelphia v. New Jersey (1978) 437 U.S. 617, 623-624; New England Power Co. v. New
Hampshire (1982) 455 U.S. 331, 339.)

                A local purpose which has traditionally been favored by the court is one promoting
the health and safety of a state's inhabitants. The court has, from the time of its earliest decisions,
acknowledged pursuit of that interest as being at the heart of a state's responsibilities. (Wilson v.
Black Bird Creek Marsh Co. (1829) 27 U.S. (2 Pet.) 245, 250; Gibbons v. Ogden (1824) 22 U.S. (9
Wheat) 1, 205.) In the modern constellation of state interests, health and safety continues to loom
large. Relative to economic interests, for instance, protecting health and safety has enjoyed a clearly
preferred status:

                "This distinction between the power of the State to shelter its people from
        menaces to their health or safety and from fraud, even when those dangers emanate
        from interstate commerce, and its lack of power to retard, burden or constrict the
        flow of such commerce for their economic advantage, is one deeply rooted in both
        our history and our law . . . . This Court consistently has rebuffed attempts of states
        to advance their own commercial interest by curtailing the movement of articles of
        commerce . . . while generally supporting their right to impose even burdensome
        regulations in the interest of local health and safety." (H.P. Hood & Sons v. DuMond
        (1949) 336 U.S. 525, 533, 535.)

                Further evidence of the weight given to a state's health and safety concerns can be
found in cases which have allowed states to burden interstate commerce in the furtherance of clean
air and water quality. (Huron Portland Cement Co. v. City of Detroit (1960) 362 U.S. 440, 442
["Legislation designed to free from pollution the very air that people breathe clearly falls within the
exercise of the most traditional concept of the police power"]; Sporhase v. Nebraska ex rel. Douglas
(1982) 458 U.S. 941, 956 [". . . a State's power to regulate the use of water . . . for the purpose of
protecting the health of its citizens -- and not simply the health of its economy -- is at the core of its
police power"].)

                While a state's interest in protecting the health and safety of its citizens can carry
great weight, a regulation adopted pursuant to that interest will be scrutinized to determine whether,
although the ends are legitimate, the state has chosen as its means the curtailment of competition by
out-of-state parties or has a secondary purpose of effecting such curtailment. (See H.P. Hood &


        state economic regulation under the Commerce Clause. When a state statute directly
        regulates or discriminates against interstate commerce, or when its effect is to favor
        in-state economic interests over out-of-state interests, we have generally struck down
        the statute without further inquiry. When, however, a statute has only indirect effects
        on interstate commerce and regulates evenhandedly, we have examined whether the
        State's interest is legitimate and whether the burden on interests commerce clearly
        exceeds the local benefits. We have also recognized that there is no clear line
        separating the category of state regulations that is virtually per se invalid under the
        Commerce Clause, and the category subject to the Pike v. Bruch Church balancing
        approach. In either situation the critical consideration is the overall effect of the
        statute on both local and interstate activity. . . ."

                                                   4.                                             91-305

Sons v. DuMond, supra, 336 U.S. at 538; Baldwin v. G.A.F. Seelig, Inc. (1935) 294 U.S. 511, 523.)
In Dean Milk v. City of Madison (1951) 340 U.S. 349, a state's interest in healthful milk did not save
the regulation in question. The court viewed the regulation as containing elements of economic
protectionism and determined that a less burdensome alternative could have been employed.

                Where the avowed purpose of the regulation is not illusory or suspect, the court will,
even in the health and safety context, proceed with a balancing test. "Regulations designed for that
salutary purpose nevertheless may further the purpose so marginally, and interfere with commerce
so substantially, as to be invalid under the Commerce Clause." (Kassel v. Consolidated Freightways
Corp. (1981) 450 U.S. 662, 670.)

                Here, the outcome of the commerce clause balancing test supports California's current
regulation of out-of-state mail order pharmacies for purposes of health and safety. It is evident that
the state has considerable latitude for regulation in this area. California's laws do not discriminate
against interstate commerce or discriminate in favor of in-state economic interests so as to offend
the commerce clause. The burden placed on interstate commerce is clearly minimal in relation to
the legitimate state purpose of protecting the health and welfare of California residents.

               In answer to the second question, therefore, we conclude that California's current
regulation of out-of-state mail order pharmacies is consistent with the commerce clause of the
United States Constitution.

               3.         The Negative Drug Formulary

              The third question concerns California's "negative drug formulary." Section 4047.6
provides generally that:

       "A pharmacist filling a prescription order for a drug product prescribed by its trade
       or brand name may select another drug product with the same active chemical
       ingredients of the same strength, quantity and dosage form, and of the same generic
       drug type . . . ."

Thus, with certain exceptions and qualifications, section 4047.6 allows a pharmacist to substitute
a generic drug for a brand name drug when filling a prescription.

               One exception applies when the generic drug type or drug product has been listed on
the "negative drug formulary" by the Director of Health Services. Section 4047.7 states:

               "(a) The Director of Health Services shall establish by regulation a formulary
       of generic drug types and drug products which the Director of Health Services
       determines demonstrate clinically significant biological or therapeutic inequivalence
       and which, if substituted under Section 4047.6, would pose a threat to the health and
       safety of patients receiving prescription medication.

               ". . . . . . . . . . . . . . . .

              "(d) Upon adoption of the formulary, and upon each addition, deletion or
       modification to the formulary, the Director of Health Services shall mail a copy to
       each pharmacist licensed by the State Board of Pharmacy and to each physician and
       surgeon licensed to practice in the state by the Medical Board of California and each
       person licensed by the Osteopathic Medical Board of California. No pharmacist


                                                  5.                                            91-305

       shall dispense a generically equivalent drug product pursuant to Section 4047.6 if the
       drug product and its generic drug type is included in the formulary."

If a drug is listed by the Director of Health Services on the negative drug formulary,4 a pharmacist
may not substitute it for a brand name drug as otherwise authorized under section 4047.6.

                 Compliance with section 4047.7 is required of all pharmacies in California and any
pharmacy licensed as an out-of-state drug distributor pursuant to section 4084.6. As previously
noted, however, a pharmacy registered as a nonresident pharmacy under section 4050.1 must comply
only with sections 4050.1 and 4383 and Health and Safety Code section 11164 in order to maintain
its registration, and hence its ability to do business in California. (§ 4350.6.)

               In answer to the third question, therefore, we conclude that under California law a
generic type drug listed on the negative drug formulary established by the Director of Health
Services may be substituted for a brand name drug by an out-of-state pharmacy when filling
prescriptions and mailing them to people in California, if the pharmacy is registered as a nonresident
pharmacy.


                                              *****




   4
    We are informed that no drug is currently listed on the negative drug formulary.

                                                  6.                                            91-305
