The DTC Tax Vampire

"The First Amendment does not exclude drug companies." -Bob Ehrlich

Vampires have recently made a comeback in popularity with hit movies and a new HBO television series. So too has this DTC tax deduction issue come back from the dead. The New York Times ran an article on 7/27 with the title “Lawmakers Seek To Curb Drug Commercials.” I was one of the sources for the story and was quoted several times, accurately I might add. Despite DTC being rounding error in total health care costs, some Congressmen cannot resist the publicity gain in bashing drug companies.

The latest version of the House health reform bill stripped out the Rangel tax penalties for drug ads. There are some Congressmen, however, who are not yet satisfied. They see drug commercials as an evil that needs to be eradicated. Using the tax code they feel they can force these commercials off the air. The New York Times piece by Natasha Singer cited Congressmen Nadler(D-NY) and Lipinski(D-IL) who are pushing separate pieces of legislation to end the deduction. Undeterred by the facts, these two Congressmen feel that America will be a better place if the drug advertising did not exist. The facts, as Ms. Singer quoted me on, are that DTC impact is minor in the overall health care cost structure. Assuming DTC produces a 2 to 1 ROI, then that spending results in $8 billion of incremental sales. This is out of $2.4 trillion in annual total health care costs and $235 billion in drug spending.

The reason Congress loves to hammer DTC is that their constituents see it and think it leads to higher cost of drugs. Never mind that no study says DTC leads to higher cost. In fact the competitive nature of DTC has the opposite effect. The more consumers know drug alternatives exist; the more insurance companies can play one drug off against another and negotiate lower prices. I expect that Congress will continue to portray all health care insurance and drug providers as the problem. Look at President Obama using his bully pulpit to hammer “greedy” insurance companies and drug makers.

I have no doubt that Nadler and Lipinski think government will do a better job informing consumers of the best options for their care. After all they have your interest at heart versus the free market advertisers. In fact I expect Nadler and Lipinski are working on telling you which doctor to use, which tests are unnecessary and when you are too old to get surgery. These folks always think private industry is out to screw you and government is there to save you. They are always free speech advocates except when it comes to business.

I saw CNBC’s anti-DTC anchor Erin Burnett interview Mr. Nadler on 7/28 who was touting his bill. Once again Ms. Burnett showed her clear preference for a ban as she asked if consumers need to see another Viagra ad. Don’t they know what it does by now, she added. Ok, Erin, do we need another Budweiser ad, or Coke ad, or CNBC ad? Don’t we know what they all do? Fortunately Dan Jaffe of the Association of National Advertisers was there to counter Nadler and say that drug products would be the only business excluded from the universal practice of advertising deductions. He also added that banning ads for products that help you make no sense.

Does anyone think prices would drop if DTC was banned? The effect would be for drug companies to transfer those budgets to other promotion or drop it to profit. I suspect that the benefit of additional disease diagnoses from DTC inspired physician visits far outweighs the cost of wasteful prescriptions.

It is the ultimate in nerve for Congress to single out one Industry for punishment for political reasons. Our Supreme Court would likely rule that any punitive tax treatment is violating commercial free speech. I am fearful what is next from a Congress intent on deciding which businesses they prefer to succeed. Next will be eliminating deductions for ads for vehicles such as SUV’s, fast food, sugared beverages, private jets and anything else not fitting their political agenda.

I do not say DTC is perfect or unbiased. It is advertising. No consumer should accept it as the full story. That is why we have it regulated by FDA and have mass amounts of other information freely available to argue for alternative treatments. Nadler and Lipinski want their “truth” to be substituted for drug ads. That will not be accepted by more level headed Congressmen and Senators who know The First Amendment does not exclude drug companies. The vampire issue will be back I am sure, even after the Nadler and Lipinski bills die through a well-deserved stake in the heart.

Bob Ehrlich, Chairman
DTC Perspectives, Inc.