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Another Shot At Big Pharma: Taking Away Their Tax Deduction For Marketing?

Karen Tumulty and Michael Scherer wrote a very depressing story about how the pharmaceutical industry got its way in the health care debate. While the public has focused on the insurance industry’s fight against reform, the drugmakers have actually spent more (about $600,000 a day), and gotten more for their money. Their deal with the White House and the Senate Finance Committee will give them extended patent protection on the most expensive drugs (12 years for biologics, rather than 5), while ensuring that past deals not to have the government bargain for lower drug prices or import cheaper drugs from foreign countries remained intact.

A few Democrats have grumbled at this approach, but most of them have been bought off. We know about Byron Dorgan’s bill on reimportations; that will get a vote as an amendment in the Senate, but would need an unlikely 60 votes to pass. There’s another measure which has surfaced in recent days, however, that might have a slightly better chance. S. 1763, sponsored by Sen. Al Franken (D-MN), would “deny the deduction for advertising and promotional expenses for prescription pharmaceuticals.”

Currently, corporations can for the most part deduct advertising and marketing as necessary business expenses, and that holds for the drug industry. However, many studies have shown that drug ads have a deleterious effect on the patients who seek them, as it leads to overtreatment, bad diagnoses, increased medical costs and aggravated patient risk. Only two countries on Earth allow direct-to-consumer advertising for drugs: the US and New Zealand. And American restrictions on those ads have become so lax that the industry has tripled its ad spending from 1997 to 2005. Removing the tax deduction status for advertising would at least provide a financial incentive away from blanketing the airwaves with drug ads, which may lower overall health spending.

The bill was introduced early this month by Franken, with Sherrod Brown and Sheldon Whitehouse as co-sponsors. This week, Tom Udall and Mark Begich, a centrist, signed on. There’s a companion House bill that has languished. But the drug industry is bothered enough by the prospects to plant an article about it in Advertising Age, the Madison Avenue trade mag. In it, there’s a suggestion that this measure could work its way into the final health care bill.

U.S. Senator Al Franken (D-Minn.), along with co-sponsors Sens. Sherrod Brown (D-Ohio) and Sheldon Whitehouse (D-R.I.), have introduced legislation (S. 1763) to disallow the federal tax deduction for all advertising and marketing expenses for prescription drugs. There are rumblings that the senators would like to have the proposal added to the health-care reform legislation, and the possibility exists that they may offer it as an amendment when the proposed bill is considered by the full Senate.

That would seemingly put in jeopardy the handshake deal that pharmaceutical companies struck earlier this year with the Obama administration and Senate Finance Committee leaders, which calls for drug-makers to pick up an estimated $80 billion in health-care costs over 10 years in exchange for no further crackdowns on the industry.

“From our perspective, that would appear to be the case,” said Clark Rector, exec VP-government relations for the American Advertising Federation.

The story includes a host of right-wing and corporate hacks taking their shots at the bill, without anyone defending it. But it at least shows some nervousness around this. I don’t know if we can expect this measure to reach the final bill and blow up that secret Pharma deal or not, but it would be good, in my opinion, if progressives at least made some more noise about the bloody murder that the drugmakers have gotten away with in this bill.

Calls to Franken and Sherrod Brown’s offices have not yet been returned.

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David Dayen

David Dayen