New efforts to tax healthcare marketing and communications

 

By Jon Bigelow, Executive Director, Coalition for Healthcare Communication

 

The threatened “pharma marketing tax” may be back in play this year, at both the federal and state levels.

At the federal level, in mid-January Sens. Jeanne Shaheen, D-N.H., and Elizabeth Warren, D-Mass., introduced the “End Taxpayer Subsidies for Drug Ads Act,” with 14 co-sponsors (several of whom, like Sen. Warren, are prospective presidential candidates, including Sens. Sherrod Brown of Ohio, Kirsten Gillibrand of New York, Amy Klobuchar of Minnesota, and Bernie Sanders of Vermont).

The bill is simple: It would amend the Internal Revenue Code of 1986 to completely remove deductibility of marketing expenses for any promotion of prescription drugs to consumers (in contrast to the 50 percent amortization scheme proposed in some past bills). And it would define direct-to-consumer (DTC) marketing broadly to include journals, magazines, newspapers, and other periodicals; broadcast radio, television, and telephone communications; direct mail; billboards; and internet or digital advertising, social media, and mobile media.

At least for now, the bill does not mention marketing and communications addressing health care professionals.

 

Subsidy – or valuable education

The intent of the Shaheen-Warren bill is obvious in its title, which describes the longstanding deductibility of the cost of advertising as an ordinary and necessary business expense – a deduction available to all businesses under the tax code for over 100 years – as being an unwarranted “taxpayer subsidy” in the case of DTC.

Actually, the marketing singled out here is an important part of the health communication that informs patients about diseases and therapies. Guidelines for DTC pharmaceutical marketing emphasize the need for messages to be accurate, non-misleading, and within FDA-approved labeling. The purpose is to educate consumers about the conditions for which medications are prescribed, provide balanced information on risks and benefits, and encourage patients to talk with their healthcare professionals. Of course, it is the healthcare professional who makes, following examination of the patient, the clinical assessment whether to prescribe the advertised pharmaceutical, or any therapy at all.

The bill’s sponsors also ignore the question of legality: normally, the tax code treats product categories equally, yet this bill is aimed specifically at one type of message. Ironically, the sponsors would impose on the marketing of lifesaving drugs a tax burden that they do not impose on marketing of, for example, liquor, tobacco, and firearms.

 

A “shovel ready” solution?

Even if this legislation does not immediately move forward, it may become a factor as congressional concern over the ballooning federal deficit grows. Deficits sharply increased after the “Tax Cuts and Jobs Act” passed in December 2017. Many ideas now floating around Washington entail new spending (extending the individual tax cuts, new defense programs, building a border wall, infrastructure investments, etc.), yet no one wants to raise taxes. Meanwhile the federal debt is growing and interest rates are rising, making the drag on the annual budget ever more burdensome. Congress will be looking for ways to claw back significant money – often during last-minute negotiations on key legislation, when both parties will reach for already-defined measures that can quickly be added to a bill.

Sadly, removing the deductibility of pharma marketing expenses qualifies as nearly “shovel-ready.” In past years, the Congressional Budget Office (CBO) estimated that a proposal to completely end the deductibility of pharmaceutical marketing costs would raise $37 billion over a 10-year period – a virtual $37 billion tax on pharma marketing activities. In 2017, the CBO scored a different version – a bill covering all marketing (not just pharma DTC) but allowing a 50 percent deduction of expenses in the year expended and amortization of the rest over either five or 10 years – as raising more than $168 billion over 10 years. Although the CBO hasn’t yet scored the Shaheen-Warren bill, presumably it, too, would have a significant impact.

While the prior attempts did not succeed, the key players are different this time on both the Senate side (due to retirements) and House side (due to the change to Democratic control), and sentiment in Washington against pharma marketing is stronger than ever.

 

At the state level

Meanwhile, in late January we had another reminder that state legislatures, too, can take steps that effectively impede the ability to provide information to patients.

Senate Bill 5659, introduced in Washington State, would place a 2 percent tax surcharge on pharmaceutical advertising revenues paid to broadcasters, newspapers and magazines, and billboards. Proceeds from this tax would be directed to prevention and management of substance addiction and behavioral health conditions. This, too, would be an unconstitutional tax on advertising. Like the Shaheen-Warren bill at the Federal level, the Washington State legislative proposal reflects the profound skepticism about the value and motives of pharmaceutical marketing.

The Coalition for Healthcare Communication will be watching both of these tax proposals very closely. We will remind key players that healthcare marketing serves an important information role and that there are First Amendment issues in singling it out for different tax treatment. We also stand ready, working with our partners in other organizations, to swing into action to mobilize membership support when it is needed. Please visit us at www.cohealthcom.org to stay up to date. medadnews