The I.R.S. tax code is the latest means to an effort to end the flood of advertising by drug companies. Senator Claire McCaskill (D-MO) has introduced the proposed End Taxpayer Subsidies for Drug Ads Act (S. 2478) that would prohibit pharmaceutical companies from taking a tax write-off on their direct-to-consumer advertising of prescription drugs in any form—including radio, TV, online, print, billboards, or direct mail.
McCaskill said ending the ability of drug makers to deduct marketing costs as a standard business expense would also help lower the cost of prescription drugs. “A good first step would be to stop subsidizing their ads for drugs that must be prescribed by a doctor,” she said. “Too many drug companies are spending more on sales and marketing than on research and development.”
The U.S. is one of only two countries that allow direct-to-consumer (DTC) pharmaceutical advertising. McCaskill said she was spurred to propose the change in tax law after learning that several large pharmaceutical companies are using a reported $50 billion in savings from the recently enacted tax reform legislation to pay for executive bonuses and stock buyback programs. The bill has been referred to the Senate Finance Committee, where it faces an uncertain future. McCaskill has so far only recruited two cosponsors: Jeanne Shaheen (D-NH) and Sherrod Brown (D-OH).
DTC marketing has been a growth category for radio in recent years but pharmaceutical companies pulled back on marketing last year. Kantar Media reports total DTC ad spending totaled $6.13 billion in 2017 across all media. That was a 4.6% decline from a year earlier. Pfizer was the biggest advertiser, but its $1.3 billion investment in 2017 represented a 7.1% decline from a year earlier. The biggest DTC brand advertised last year was Humira with drug maker AbbVie spending $429 million across all media to support the drug that’s used for a variety of medical conditions.
Congress has already had in cue pending legislation introduced last year in both the House and Senate that would not only abolish the tax deduction for DTC prescription drug ads but also pave the way for Medicare to negotiate drug prices. The proposed Improving Access to Affordable Prescription Drugs Act (H.R. 1776 and S. 771) has only had Democratic support – Republican leadership has failed to even schedule a hearing on either bill. By taking a more narrow approach, McCaskill hopes her proposal doesn’t fall into the same legislative abyss.
The Association of National Advertisers has vowed to fight any change to DTC advertising’s deductibility. “Such a radical change in the tax code would be misguided, bad public policy and raise very serious First Amendment concerns,” EVP Dan Jaffe wrote in a recent blog post. He said DTC not only serves to educate Americans about their health care options but going after drug companies would prove counterproductive. “The tax laws should provide the same tax treatment for the advertising costs of every legal product and service in America,” Jaffe said. “Singling out a specific industry for onerous differential tax treatment would punish the speech of companies in that industry, politicize the tax code and create dangerous precedents for any controversial category of advertising.”
DTC advertising has been repeatedly targeted during the past decade. One forecast during the Obamacare debate estimated that ending the tax deduction could raise $37 billion in federal tax revenue over a 10-year span. But the powerful pharmaceutical lobby, aligned with media and advertising allies, have been successful in grounding any legislation that’s been introduced. As McCaskill was introducing her bill, the Pharmaceutical Research and Manufacturers of America (PhRMA) responded by releasing a report that showed the drug industry was responsible for 4.7 million U.S. jobs and more than $1.3 trillion in economic output. That tally included 113,004 marketing-related jobs and $34.4 billion in marketing and communications spending.