McCaskill takes aim at DTC ad tax deduction; measure expected to face stiff resistance

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Sen. Claire McCaskill (D-MO) is redoubling her efforts to put an end to tax cuts for direct-to-consumer marketing expenses currently enjoyed by pharmaceutical companies.The senator introduced legislation earlier this month to amend the IRS code to “deny the deduction for advertising and promotional expenses for prescription drugs” for any taxable year.


“Drug companies have too much influence in Washington,” McCaskill said in a statement. I'm determined to fight these high drug prices and a good first step would be to stop subsidizing their ads for drugs that must be prescribed by a doctor. Too many drug companies are spending more on sales and marketing than on research and development. And Missourians are tired of paying for it.”


McCaskill actually filed an amendment to the tax bill last year to eliminate the deduction, but it did not move forward. “This year we dodged a bullet,” said Sharon Callahan, CEO of TBWA\WorldHealth and chair of the Coalition for Healthcare Communication's executive committee, referring to McCaskill's failed attempt.


Speaking at the Medical Advertising Hall of Fame annual dinner in February, she added, “I would imagine that in the next election cycle...we will be under siege again.”


That attack came sooner rather than later, in the form of the senator's latest bill. Pharma companies are expected to put up aggressive resistance to the measure.


Aaron Kesselheim, an associate professor at Harvard Medical School who specializes in drug prices, told MM&M that while much depends on the agenda of the committee in which the bill is being debated, it's traditionally “quite difficult to get these kinds of smaller bills through Congress because of the substantial lobbying power of the pharmaceutical industry.”


Erin Fox, the senior director of drug information for the University of Utah, agreed that the odds are stacked against the bill, which is called the “End Taxpayer Subsidies for Drug Ads Act.” “Pharma donates to a lot of politicians, and they're going to trot out the argument that these advertisements help patients become aware of therapies that they might not know about,” she said.


The deductibility issue has been a political hot potato for some time. Healthcare marketers have fretted about it for the last decade or so.


Earlier proposals have called for cutting the ad tax deductibility for overall marketing expenses (not just pharma's) from 100% down to 50% in the first year, with the rest amortized over the next five or 10 years. According to that math, the ad tax deduction would save the government $169 billion, per the Congressional Budget Office, and the immediate effect would be a 12% increase in the after-tax cost of marketing in the first three years following enactment.


McCaskill has a history of taking on pharma companies in pursuit of lower drug prices. In 2016, she was a member of a bipartisan committee that released a report investigating sudden spikes in decades-old prescription medications. She has also targeted specific companies, imploring them to explain the rationale behind their pricing schemes, such as Strongbridge Biopharma's sale of paralysis drug Keveyis, as well as four drug companies that manufacture naloxone, used to treat overdoses.


Fox surmises that now is a shrewd time to introduce the legislation, since drug pricing is on the minds of the general public thanks to high-profile news stories like Martin Shkreli getting convicted and Donald Trump claiming to prioritize cutting prices.


“I actually don't think very many people understand that drug companies get a tax benefit from all of this advertising, so it might be an easy win,” she said—easier, at least, than more controversial measures that might have a more sweeping impact on drug prices.


Both experts agreed that pharma companies will likely continue to advertise to consumers regardless of whether they receive a tax break. “Certainly pharma believes it's a money-maker for them, so I think they will probably continue to advertise,” Fox said.


Kesselheim, for his part, sees the closing of any loopholes as “ultimately something that we should shoot for.”


“It's not clear to me why there needs to be a tax break for pharmaceutical advertising,” he said.


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