Coalition Commentary by Executive Director John Kamp

April 17, 2017 — Agencies, media and clients all need to watch closely as this Congress looks to regulate medical manufacturers’ real or perceived excess profits, or at least bring down the cost of medical products for citizens. So far, the political heat on medicine companies has not been focused much on marketing, but instead has been targeting prices and increased transparency. Marketing is mostly a tertiary matter, caught in the crossfire over pricing.

However, you best believe that if pricing and transparency bills come to votes this year, medical marketing will be lumped in among other provisions. Marketing changes, if they come at all, likely will appear in one to three main forms, each with its unique dangers to industry’s bottom lines.

First, consider the direct-to-consumer (DTC) advertising delay bill introduced repeatedly in the House of Representatives by Rosa DeLauro (D-Conn.). DeLauro would not ban DTC, but would disallow it for the first three years after a drug is approved. Although this is not a knock-out punch, it would be a direct hit for launch campaigns, during the critical early years of a drug’s patent-protected period. Such legislation would be vulnerable to a First Amendment court challenge, but it would not be a slam dunk for the industry and could be in litigation for years.

Second, look at the wide-ranging pricing proposals being put forward by a group of Democratic Senators led by Sherrod Brown (D-Ohio) and Al Franken (D-Minn.). Marketing takes a back seat in these proposals to pricing and transparency, but tucked near the end is a familiar provision to eliminate the tax deductibility of DTC advertising.

Watch this one very closely, because although such provisions are termed DTC-only provisions, past versions have been “scored” by the tax specialists in a way that sweeps in the entire marketing spend. If marketing is not tax deductible by manufacturers, the actual costs go up and the return on investment (ROI) goes down. Marketing spend will drop in concert to its ROI. This threat to marketing is the most vulnerable to a First Amendment challenge, but it too could take years of court wrangling to be successfully challenged.

The third danger is tax reform, and the possible elimination of the tax deduction for all marketing that could well be taken up in that larger legislative package. There again, the actual cost of marketing would go up and the ROI down, but not so drastically as with the Brown/Franken plan because it would presumably be paired with a reduction in the overall tax rates for manufacturers, media and agencies.

Broad-spectrum tax legislation cannot be successfully challenged under the First Amendment and may be applauded, not opposed, by clients. Although tax reform is a major priority for the Trump administration and Republican leaders in Congress, expect it to take much longer than predicted.

For much more on these and other challenges to our business, make sure you’re signed up to attend the May 15-16 Coalition Rising Leaders Conference on Healthcare Policy, to be held in Washington, D.C. Hear about tax reform and the pharma industry from 4A’s Executive VP for Government Relations Dick O’Brien, who will parse the content and prospects for various proposals. The program will feature a keynote speaker each day, with former FDA Commissioner Dr. Robert Califf speaking on May 15, and Sen. Chris Murphy (D-Conn.) speaking on May 16. Additional speakers include Prevision Policy Senior Editor Kate Rawson, BIO Senior VP Kay Holcombe, APCO Worldwide President for Healthcare Wayne Pines, and attorney and former EVP and General Counsel for PhRMA Mit Spears. A panel of industry experts also will address how knowing what happens in Washington matters to the careers of healthcare communicators. To register, contact me at jkamp@cohealthcom.org.