As the country debates the best path forward for the nation’s healthcare system, interest groups continue to advance different ideas to address their pet causes. One popular cause is the reduction of drug prices. Though that debate often occurs based on narrow perceptions of the dollar figures at issue, ideas for price reduction are worthy of consideration, especially given the increasing budgetary percentage that government and personal spending healthcare now occupies. One drug-price-reduction idea advanced toward the end of last year, however, should be vigorously opposed.
In mid-December, Norm Augustine, chair of a National Academies of Science committee, presented a report to the Senate Committee on Health, Education, Labor & Pensions that recommended several policies to lower healthcare prices. Among them, the committee report advised that Congress ban pharmaceutical manufacturers from advertising directly to consumers (also known as “DTC advertising”). In his testimony, Augustine walked the plan back, admitting that a ban would violate manufacturers’ First Amendment right to speak truthfully about their products.
When questioned by members of the Senate Committee, he then shifted his focus to the tax code, suggesting that Congress eliminate the tax deduction those drug companies can take on DTC advertising. Congress has previously considered and rejected bills that would eliminate or suspend the DTC advertising tax exemption, most recently in 2016. The argument supporting such an idea goes as follows: advertising costs money, costs that manufacturers inevitably pass on to the final consumers. Further, patients tend to ask doctors about the medicines they see advertised, which in turn tend to be the most expensive in their class.
But Augustine’s proposal is misguided for several reasons. Ending the DTC tax exemption is not about sound tax policy; it’s about limiting drug companies’ speech rights. Thus, any change to DTC advertising tax exemption represents a backdoor ban. Such selective withholding of the advertising tax deduction is a content-based restriction on drug companies’ speech—a clear violation of the First Amendment. As related in a 2007 Washington Legal Foundation paper on a similar proposal, the U.S. Supreme Court taught us long ago that regulating speech under the “guise” of taxation is a particularly “odious method” of regulation.
Of course, Congress has the power to end advertising deductions generally, but it cannot selectively target industries or messages of which it disagrees. The Court has repeatedly struck down such selective speech regulation as First Amendment violations. The Court has made it clear that content-based speech restrictions, even in the business context, are subject to heightened judicial scrutiny. Without a substantial governmental interest, the subject regulation cannot withstand First Amendment scrutiny. And the Court has already held that reducing healthcare costs cannot justify regulations that discourage disfavored speech or target specific speakers. See Sorrell v. IMS Health, Inc., 131 S. Ct. 2653, 2668 (2011). Thus, any targeted withdrawal of the DTC advertising tax exemption would likely fail judicial scrutiny.
Second, the committee report and Augustine’s testimony regarding it ignore fundamental economic principles. DTC advertising increases the amount of information about drugs consumers have access to. Having more information, consumers can better compare the various options they have, including finding the cheapest product, increasing competition between drug companies. While patients still need to go through their prescribing doctors to access these treatments, DTC advertising can initiate conversations that lead to consumers finding the best, and cheapest, option.
This increased competition inevitably leads to cheaper drug prices and better outcomes for patients. Instead of raising costs, DTC advertising increases competition between drug companies and therefore actually decreases the cost of drugs for consumers.
But worst of all, Augustine’s proposal would cause serious harm to the patients it aims to benefit. The proposal would discourage drug manufacturers from advertising to consumers, thereby reducing the amount of information patients have about possible treatments. Many serious medical conditions go undiagnosed and untreated, partially because patients don’t know that relevant treatments exist. DTC advertising ensures that there is more information available to consumers and helps to start valuable conversations between patients and their healthcare providers.
While increased demand for drugs will undoubtedly raise their costs, such minor increases cannot outweigh the lives saved and extended because sick patients get the care that they need.
The start of a new year brings the opportunity for progress, a time where we look forward and try to make the next year better than the one that’s passed. As we enter 2018 it’s useful to pause and reflect on the changes that we would like to see enacted and those we’d rather keep the same.
While the National Academies of Science is rightly looking for ways to reduce healthcare costs, Mr. Augustine’s proposal to eliminate the tax exemption for DTC advertising is misguided. It is likely unconstitutional, counter-productive, and would result in worse healthcare outcomes for millions of Americans. This year, let’s continue to incentivize DTC advertising and leave his proposal back in 2017.
Also published by Forbes.com on WLF’s contributor page.