Will Sec. Clinton’s proposal to dis-incentivize DTC advertising work?

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Introduction

Recent news has included multiple instances of abrupt rises in prescription drug prices. Most recently, Martin Shkreli, the CEO of Turing Pharmaceuticals, increased the price of Daraprim 5000% from $13.50 a pill to $750 a pill (partly due to the fact that only 8,000 prescriptions for Daraprim are filled a year.) This brought the attention of various potential presidential candidates, including Democratic contender Hillary Clinton.

Former Secretary Hillary Clinton demanded “a stop to excessive profiteering and marketing costs” by proposing various steps including by stopping “direct-to-consumer drug company advertising subsidies, and [requiring that companies] reinvest funds in research.” Secretary Clinton proposed eliminating corporate write-offs for direct-to-consumer advertising specifically by denying tax breaksfor direct-to-consumer advertising.

This grabbed the attention of pharmaceutical companies and their advertising counter parts. The biotech industry responded badly to Secretary Clinton’s proposal and PhRMA president and CEO, John Castellani, warned that such proposals, if they become laws, “would kill jobs, risk patient safety and halt investment in new cures for diseases such as Alzheimer’s, Parkinson’s and cancer.” The Association of National Advertisers (ANA) also responded to the proposal and called it “misguided and unconstitutional” and likely to fail on a variety of grounds:

The ANA believes that such proposals were effectively posturing by Fmr. Sec. Clinton and pointed to previous attempts at similar proposals. The ANA pointed out that “Congress rejected many of these proposals to restrict DTC advertising in 2007 when they passed major legislation reforming the FDA. The Congress also rejected these types of prescription drug ad tax proposals when they were put forward in 2009.”

The ANA described restricting these ads or denying the tax deduction for DTC marketing costs as “unwise and counterproductive” since these ads constituted “health awareness and helps consumers prevent serious health problems through earlier disease diagnosis.”

Fmr. Sec. Clinton’s proposal, as presently understood, proposes that only the pharmaceutical industry’s spending on advertising be singled out and chastised. Her proposal that only the advertising of the life science industry be non-tax deductible suggests a differential treatment of the industry compared to other industries and potentially causes a constitutional problem. As disfavored “commercial speech” the government actions would have to typically demonstrate that:

1. The regulated speech concerns an illegal activity, or
2. The speech is misleading, or
3. The government's interest in restricting the speech is substantial, the regulation in question directly advances the government's interest, and
4. The regulation is narrowly tailored to serve the government's interest.

If Sec. Clinton manages to make such a proposal into law, it is all but assured that the law would be challenged in court. The present Supreme Court has been hesitant to limit speech especially if the primary reason for such limitations is a financial burden. Accordingly, it is presently difficult to anticipate that a court would see Sec. Clinton’s proposal to reduce drug costs by disallowing the tax deduction on DTC communications as a substantial government interest.

Assuming arguendo that reducing drug costs by disallowing the tax deduction represents a substantial government interest, is also difficult to see how this potential law would achieve that interest. If the cost of advertising is not tax deductible, it is unlikely that companies would simply stop advertising, but instead would pass those costs onto consumers. This would necessarily raise the price of drugs, as opposed to lowering it. Sec. Clinton’s proposed law would therefore not be narrowly tailored to serve the interest of reducing pharmaceutical costs. Accordingly, such a proposal is hence unlikely to survive a constitutional challenge.

Since there is historical precedence for the failure of legislative attempts to prevent drug advertising, the proposal does not consider the value brought by pharmaceutical advertisements, and because such an attempt to control drug advertisements is unlikely to pass constitutional scrutiny, it is likely that such a proposal by a distinguished attorney like Fmr. Sec. Clinton likely represents posturing in a contentious government election and does not represent a law that is likely to pass Congressional and judicial scrutiny.

For details on how Fmr. Sec. Clinton’s proposal may affect your Firm, or for details about the Kulkarni Law Firm’s Minos program on reviewing your promotional pieces, please reach out to the Kulkarni Law firm (here).

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Photo by kakissel / CC BY