January 18, 2019 Bob Ehrlich0
Drug companies are under renewed attack. There is yet another new bill in the Senate to end the tax deductibility of DTC ads. The latest is from Elizabeth Warren, who will use drug companies as a campaign talking point about corporate greed. The bill would end all forms of tax benefits for any media type.
We also see the House scheduling hearings on how drug companies price their drugs. We can expect harsh treatment of drug CEOs who will be called to Washington to be attacked by Congress in public televised hearings. Another idea floating in Congress and HHS is to peg US drug prices to Europe. Congress will say that this is a fair way to set US prices as Americans should pay no more than the Germans.
According to a study by Deloitte, all this vitriol is happening as R&D return on investment is down to a paltry 1.9% last year. So critics want drug companies to develop drugs to fight disease with price controls and crappy returns on their R&D investments. Drug companies are in a no-win situation. The critics say drug makers make too much money and are raising prices too fast based on inflation. Yet the data shows they are having trouble recovering R&D investment. Critics want drug companies to improve health outcomes but want to prevent drug companies from free market pricing.
Drug makers are an appealing political target for both parties. Some of the criticism is valid. Drug makers have taken prices up too far too fast. A little prudence is called for if drug makers want to prevent the political hammer from dropping. On the other hand, their dilemma is how to fund that R&D while still providing decent returns to investors. Europe and Canada are getting a free ride off of American consumers. No one expects the average Parisian to volunteer to pay more. Riots in Paris over fuel costs show no chance Europe will help out on drug price support.
So here we are. What is the solution to this mismatch in drug prices? Clearly drug companies are risking draconian measures from Congress. As Dems turn left you can bet they will attack drug companies more vigorously and might even get Republicans and Trump to agree. Nothing will happen quickly but this time may be different. I am afraid it is entirely possible that DTC could be a sacrificial offering to the critics who vastly overestimate the power of DTC ads to create demand. DTC works but is not the driving force in building brands. That advertising, however, is the public face of the drug companies and critics blame DTC for raising demand for premium priced drugs. They think that keeping the information from consumers will keep prices down.
Congress and HHS will try to cajole drug makers to slow down increases. They have already decided to mandate list price be part of consumer ads. Next may be ending the tax deduction for advertising. After that price controls are a real possibility. The Democratic candidates for the 2020 Presidential election will all have a plan to nationalize health care and they will all include price controls in that platform. With Trump as anti-industry as they are we can expect violent agreement that drug makers will be targeted.
So to my colleagues in DTC advertising, buckle up and expect new regulations geared at making DTC harder to execute. I do not expect a ban, but FDA and Congress will be looking for ways to make all our professional lives more difficult.