Pharmaceutical companies may be allowed to flag certain diabetes drug pricing data as confidential when they report it to the state for the first time in a couple of months — a move by officials that could potentially mitigate at least some of the concerns raised by the industry in a lawsuit last year.

A set of draft regulations, released by the Department of Health and Human Services on Friday, address the primary contention from the pharmaceutical industry about Nevada’s first-in-the-nation diabetes drug transparency law passed by the Legislature in 2017. The industry argued in a lawsuit filed in federal court in September that the law’s requirement that manufacturers of certain essential diabetes drugs identified by the department report pricing data to the state is unconstitutional and would deprive manufacturers of their trade secret protections in violation of federal law.

The regulations, as both the Nevada attorney general’s office and legislative attorneys have argued in court, could provide a framework that would allow pharmaceutical companies to report the specific data required by law — including costs of manufacturing the drug, profits earned, rebates and discounts handed out and, under certain circumstances, explanations for price increases — while allowing the state to aggregate that information and produce a report to the public that does not disclose any company’s trade secrets.

The overall goal of the regulation is to leave what is or isn’t a trade secret up to the courts to decide, should the department receive a public records request to disclose the underlying data behind the report to the public. The regulation doesn’t concede that any of the information is or could be a protected trade secret; it only lays out a path for manufacturers to take the issue to court.

“We’re really just trying to find that middle ground,” said Julie Kotchevar, deputy director at the department.

A spokeswoman for PhRMA, the pharmaceutical industry’s powerful Washington D.C.-based trade association and a plaintiff in the lawsuit, said in an email Friday that the association is still reviewing the draft regulations.

Though most of the law leaves little wiggle room, the draft regulations could add further specificity to parts where pharmaceutical companies have objected.

For instance, the law requires the department to analyze information submitted by pharmaceutical companies by June 1 every year to compile a report on the price of the drugs it has identified as essential to diabetes treatment, the reasons for any increases in the prices of those drugs and the effect of those prices on overall spending on prescription drugs in Nevada. The draft regulations emphasize that the report will include information in the aggregate — and not the line by line information reported by the companies — to describe drug-pricing trends and how those costs might place a burden on Nevada’s health system.

In court, pharmaceutical companies have suggested that the final report released to the public will include too much specific information and compromise their ability to compete against other diabetes drugs manufacturers. However, both the attorney general’s office and legislative lawyers argued that it’s too early to make that argument since the department has yet to adopt any regulations relating to the law.

As drafted, the regulations would allow manufacturers to flag specific data elements, such as the amount of rebates awarded for a certain drug, as confidential, if they believe that they meet the definition of a trade secret under federal law. (For years, protecting trade secrets was left up to the states, but in 2016, Congress passed the federal Defend Trade Secrets Act to provide a uniform standard for protecting a business's secrets.)

To deem a data point confidential, manufacturers would be required to submit a detailed description to the department about why they believe the information qualifies as a trade secret under federal law.

Then, if the department receives a request to release any of the confidential information, say by a member of the public or the media, it would notify the manufacturer of the request and provide them with a copy of the written request for those records. The department would allow the manufacturer 30 days to take legal action under the DTSA before releasing the information. The requestor would also be notified of the 30-day period and would be provided the detailed description of the manufacturer’s assertion that the information qualifies as a trade secret.

That same process would apply to the middlemen in the drug pricing process, known as pharmacy benefit managers, who are also required under the new bill to report certain data related to profits received and rebates negotiated with pharmaceutical companies over the essential diabetes drugs.

The draft regulations roughly parallel a suggestion made by the pharmaceutical industry in a court filing last month. They acknowledged that if the department believes federal trade secret law prohibits the state from disclosing manufacturer’s trade secrets, the department might be able to adopt regulations that “narrow the issues in dispute in this litigation.”

“Such regulations, at a minimum, would need to prohibit the Department from publishing, in any manner, information that manufacturers designate as a trade secret without first affording the manufacturer the opportunity to defend its trade-secret designation,” they wrote in a brief. “They would also need to make clear that all information manufacturers disclose to the Department pursuant to Sections 3.8 and 4 of the Act is ‘confidential’ within the meaning of the Nevada Public Records Act … to ensure that private parties — including competitors and customers — cannot access the information through a public-records request.”

The regulations also are in line with suggestions made by both the attorney general’s office and legislative lawyers in their court filings as to how the department might be able to collect the relevant information while also ensuring that they don’t disclose information to the public in violation of federal trade secret law.

The attorney general’s office — on behalf of the department and the governor, the two original named defendants in the suit — argued that the final report compiled by the department is only required by law to provide an analysis of the information reported by the manufacturers, not any information that may be a trade secret itself. If the department were to disclose information considered a trade secret under federal law, manufacturers would be able to sue the department, the office has argued.

The Legislature, too, argued that lawmakers’ intent in passing the law wasn’t to strip the information required to be disclosed to the department of any possible trade secret protections, as companies could take the appropriate steps to make sure they either don’t report trade secret-protected information to the department or enter into a confidentiality agreement with the department to protect the information.

But the broader question is whether Nevada trade secret law really is pre-empted by the new federal law.

The Culinary Health Fund, which helped shepherd the bill through the Legislature, disagrees with both of those interpretations and argues in a brief that intent of the law was to remove trade secret protections from all information required to be disclosed to the department and that doing so is “perfectly legal.” The health fund, which provides insurance to more than 130,000 Culinary Union workers and their family members, wants all the information required to be disclosed to the department to be available to the public.

The pharmaceutical companies agree with the health fund in their belief the law’s intent was to strip trade secret protections from the information required to be reported, but instead argue that doing so is a violation of both the U.S. Constitution and that the Nevada law is pre-empted by federal trade secret law.

U.S. District Court Judge James Mahan denied the pharmaceutical industry’s initial request to halt implementation of the law, but has yet to issue a final judgment on whether the Nevada law should stand. A hearing date on all the parties’ requests for that final judgment has yet to be scheduled.

Until then, the department’s goal is to schedule a workshop on the regulations by mid-February, with the intent to have a full hearing on them by mid-March. After that, the regulations would go to the Legislative Commission for final approval. Manufacturers of essential diabetes drugs are required to make their first report by April 1.