Senate Democrats Introduce Bill That Would Limit Drug Companies’ Tax Deductions for Marketing Expenses
Hoping to reduce prescription drug costs, Senate Democrats unveiled a bill yesterday that would limit the amount of marketing expenses drug makers can claim as a tax deduction, AP/Newsday reports. The sponsors of the measure, led by Sen. Debbie Stabenow (D-Mich.), say that the bill would "trickle down to cut drug costs," which they say are rising at a double-digit rate in part because of the proliferation of direct-to-consumer ads. Under current law, drug companies can deduct from their taxable income both costs related to advertising, promotion and marketing and costs related to research and development. The bill would limit drug makers' deduction for advertising to no more than the amount deducted for research. For instance, a company that spends $500 million on marketing but only $400 million on research and development could deduct only $400 million for marketing (Carter, AP/Newsday, 5/8). In 2000, drug makers in the Fortune 500 spent 30% of their revenues on marketing and administration, compared to 12% on research and development, according to Stabenow. "Our concern is that market research not be more important than medical research," she said. The increased tax revenue resulting from the bill would go the Medicare trust fund, the sponsors said (Murphy, Kansas City Star, 5/8). Drug costs rose 17% last year, the fourth straight year of increases since the FDA loosened rules for DTC ads in 1997. Drug companies say the ads help educate patients about available treatments, while critics say the ads encourage consumers to ask for unnecessary brand-name drugs, driving up drug costs (AP/Newsday, 5/8).
Pharmaceutical Research and Manufacturers of America spokesperson Jeff Trewhitt said the bill would not save the federal government any money and challenged Stabenow's assertion that drug makers spend more on advertising than research and development. Trewhitt said that in 2000, drug companies spent $15.7 billion on marketing -- $2 billion on DTC ads -- and $26.4 billion on research and development. "We're not sure about the value" of the bill, he said, adding, "We wish [Stabenow] would spend much more time and energy working with her colleagues trying to reach bipartisan agreement on Medicare reform" (Kansas City Star, 5/8). But Sen. Richard Durbin (D-Ill.) said that Congress cannot create a Medicare drug benefit unless drug costs are brought under control. Members of the Senate Democrats' prescription drug task force, which is headed by Stabenow, said that the bill, titled the "Fair Advertising and Increased Research Act," is one of several measures designed to achieve that goal. "You cannot design a program for Medicare that has costs that go up 16% a year. It cannot be done," Durbin said (Rovner, CongressDaily, 5/7).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.