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DTC in Perspective: Obamacare Stays, Drug Companies at Risk

September 29, 2017 by Bob Ehrlich0

With the failure to come up with an alternative to Obamacare, Congress has left drug companies in a more precarious position. The goal was to make health care more free market oriented and less government controlled. That would have created more competition among health care providers and insurance companies. Patients would have more choice and more responsibility to use their health care dollars more wisely.

Bob Ehrlich
“DTC will likely weather the political storm.”
-Bob Ehrlich

Proponents of Obamacare say more free markets would mean less guarantees of coverage. The Congressional Budget Office has said the Republican plans would have led to many millions losing coverage. I do not want to take sides here. I will say that we do need a compromise that gets votes from both sides to have a long term plan that can endure changes in party control. Obamacare is helping many patients with pre-existing conditions, while hurting many others who are paying higher premiums with super high deductibles. This cannot go on as we are all paying too much for coverage. Our plans are increasingly becoming useful only for major illnesses, not covering routine expenses.

How do drug companies fare in this failure to repeal Obamacare? I am afraid they will now be a target for both parties as a driver of increased premiums and higher deductibles. Congress will have to deal with these issues and will look to drug companies to cut costs. Single payer will not pass, but we can expect to see more government involvement in pricing. Bernie wants reimportation from Canada which he says will save consumers $7 billion a year. He and many others want Medicare to have negotiating power with drug companies. Others in Congress want to end DTC or use tax policy to make it a non deductible expense.

California wants to legislate a notice period for drug price increases and mandate insurers tell them what percent of premiums are the result of drug costs. Other states will also try to add measures to embarrass drug makers with marketing disclosures.

Most patients will support measures against drug makers. We all want lower costs. Few patients understand the industry arguments that innovation justifies higher prices. While most Congressmen understand the need for a profitable drug industry, many think that profit is excessive and will be willing to cut that level of profits. Bernie thinks he knows how much is a fair profit and is perfectly willing to risk innovation for Canadian level prices.

DTC will likely weather the political storm because of commercial free speech provisions. The question is will drug companies voluntarily stop DTC if Congress demands it as a price to prevent reimportation or Medicare price negotiations. Drug makers will do what they need to to keep free market pricing. Unfortunately that means DTC is vulnerable to horse trading.

Drug companies like using DTC and its expanding use is proof they get a good ROI. Remember, however, that DTC spending is only about 1% of US Rx sales and might drive about 2% of sales. It is true that some brands are driven heavily by DTC but most establish 90% of their sales through physician promotion. So, can the drug makers stop DTC and still be successful? Most brands can and will adapt to a no DTC world.

My conclusion is the advertising lobby will prevent any punitive provisions affecting DTC. After all, the same media companies who bash drug companies regularly in their news coverage depend on DTC ads for a large portion of revenue. What is clear is the risk of those DTC restrictions are higher than ever before and we in the drug advertising world must stay involved in defending DTC as a positive force for educating consumers.

Bob Ehrlich


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