House Considers Ending Tax Benefit on Rx Drug Advertising; Rangel Eyes $37 Bil. for Health Reform

(MoneyWatch)  House Ways and Means Committee chairman Charles Rangel said he wants to end the tax deduction on prescription drug advertising and by doing so raise $37 billion to pay for healthcare reform. Bloomberg:

"The whole thing is messy, but you can raise $37 billion," Rangel said. "Which means you're taxing somebody $37 billion, and they don't like that."

Bloomberg has a headline that will please anti-reformers: "House Considering $37 Billion Drug Tax, Rangel Says." (There's a debate to be had over whether ending a tax benefit for corporate America is the same as a new tax, but let's let that play out elsewhere.)

The most curious thing about the report is the idea that drug companies spend $37 billion on ads. They don't. Rather, they spend around $4 billion a year. So where does the $37 billion number come from?

My guess is that Rangel, D-N.Y., is referring to sales, general and administrative costs -- the budgets for sales reps, marketing and free samples. SG&A is most drug companies' biggest expense (far ahead of R&D). Add all those budgets together nationally and you'll probably get a lot more than $37 billion. It's in there somewhere.

BNET readers learned in November that this issue was coming. One of the first things out of Rahm Emanuel's mouth after President Obama was elected was a plan to ax deductions on direct to consumer advertising to pay for healthcare. The initial reaction by drug ad lobbyists was shock.

Note that Emmanuel's logic for ending deductibility is slightly more compelling than Rangel's. Emmanuel is looking for a way to pay for healthcare reform, which the Washington Post puts at $1 trillion (!). Rangel, on the other hand, just doesn't like looking at them:

... because, Rangel said, the commercials' rapid-fire "mumble" about potential side effects is "wrong."

"I go to the doctor and say, 'Did you ever think about ordering this for me?' If he says no, I don't like him, because they promised me on TV that I [would] have no problems at all," Rangel said of televised drug commercials.

He added, "Why didn't you yell loud that [the drug] . . . could kill me as a side effect?"

BNET's take: There's an opportunity here for Pharma (and PhRMA). This is a bargaining chip. Overall, reform will probably benefit the drug industry by widening the scope of patients with money for drugs and guaranteeing payments. Yes, there may be some form of price control or rationing, but think of the revenue stability that comes with that -- and its effect on drug stocks. So in order to get something out of reform, or at least to avoid something worse, companies might want to consider giving up deductibility on ads as a token of good faith.

Besides, we all know they don't work anyway, right?

Photo by Flickr user Jon Person, CC.

• Previously:
• Insomnia and Antidepressant Sales Give Lie to DTC Myths
• Millward Brown Launches Defense of Drug Ad Effectiveness
• Q&A: How the Drug Business May Lose the Right to Advertise
• Obama Already Turning Into a Nightmare for Big Pharma