Take Aim at Advertising to Cut Drug Prices, Congress Hears

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By Bronwyn Mixter

Congress should eliminate the tax deduction pharmaceutical companies can take on direct-to-consumer advertising, the chairman of a scientific panel told a Senate committee Dec. 12.

The cost of advertising has to be factored into the price of the drug product, Norm Augustine, chair of the National Academies of Sciences’ Committee on Ensuring Patient Access to Affordable Drug Therapies, said. Advertising also encourages patients to ask for a particular drug product, and advertised drugs tend to be the most expensive in their class, he said. While advertising can’t be banned due to the First Amendment, Congress could discourage advertising by eliminating the tax exemption, Augustine said.

Augustine spoke at a Senate Health, Education, Labor, and Pensions Committee hearing to examine a National Academies of Sciences, Engineering, and Medicine report on making medicine more affordable. The report comes as policy makers are grappling with how to curtail drug price increases.

Augustine said the academies’ report, released in November, makes many other recommendations for lowering prices, including allowing the federal government to negotiate drug prices, refining methods to determine the value of drugs, and requiring biopharmaceutical companies to disclose net prices.

Sen. Lamar Alexander (R-Tenn.), chairman of the HELP Committee, said the research for the report was concluded in May and that Congress has taken significant steps to address some of the concerns in the report. Specifically, he said Congress passed and President Donald Trump signed updated user fee agreements, which pay for a quarter of the Food and Drug Administration’s work. The fees support the employment of drug and device reviewers at the agency. The new law should help the FDA approve new drugs more quickly, he said.

This is the third hearing on drug prices by the Senate HELP Committee in 2017. In June, the first hearing examined the path a prescription drug approved by the FDA takes from the manufacturer to patient, and how this path affects what the patient pays. At a second hearing in October, the committee heard from industry experts on what goes into the price Americans pay when picking up their prescriptions.

On Dec. 13, a House committee will take up the issue of drug costs in an examination of the pharmaceutical supply chain. At that hearing, the Energy and Commerce Committee will hear from representatives of hospitals, pharmacists, drug industry groups, insurers, and others.

Banning Drug Advertising

The report from Augustine’s panel recommended banning drug advertising entirely, but as Augustine said, that can’t be done due to the First Amendment.

Proposing a ban on prescription drug advertising suggests “that consumer ignorance should be preferred to consumer information and involvement in health care decision making,” John Kamp, executive director of the Coalition for Healthcare Communication, told Bloomberg Law in a Dec. 12 email after the hearing. The coalition promotes the free exchange of scientific and medical information and is composed of media, health-care, and other organizations.

“Yes, advertising costs money, but classic economic theory says that advertising also increases competition and lowers costs,” Kamp said. “Advertising also increases the speed of innovation. In this case, that means getting new, life enhancing and life extending drugs to patients. Let’s not ignore basic economics and sensible public health policy.”

Allowing Price Negotiations

Allowing the federal government to negotiate drug prices could have unintended consequences, Douglas Holtz-Eakin, president of the American Action Forum, said at the hearing. The American Action Forum is a nonprofit issue advocacy group based in Washington that promotes center-right public policy.

Holtz-Eakin said allowing the health and human services secretary to negotiate drug prices for Medicare could cause drug manufacturers to charge higher prices to private payers.

Congress should instead focus on encouraging competition, Holtz-Eakin, a former head of the Congressional Budget Office, said.

But Augustine said it would be useful if the HHS could negotiate on behalf of patients. “This negotiating process works in almost every other element in the U.S. economy,” he said.

Consolidation of Industry

Sen. Tim Kaine (D-Va.) questioned whether health-care industry consolidation, like CVS buying Aetna, would increase costs.

CVS Health Corp. recently announced that it will buy Aetna Inc. for about $67.5 billion. The deal is one of the biggest health-care mergers in the past decade, combining the largest U.S. drugstore chain with the third-biggest health insurer.

Augustine said pharmacies, insurers, and pharmacy benefit managers are consolidating, and this gives them more power. He said the National Academies recommends the Federal Trade Commission and the Department of Justice shouldn’t permit consolidations in the industry when there won’t be ample competition after the merger.

But Holtz-Eakin said mergers, like the CVS-Aetna merger, should be permitted and then monitored after for misconduct.

To contact the reporter on this story: Bronwyn Mixter in Washington at bmixter@bloomberglaw.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bloomberglaw.com

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