WLF Legal Backgrounder
Protecting The Public From Itself: The Unconstitutional "Say No To Drug Ads" Act
By Saurabh Vishnubhakat
March 12, 2010 (Vol. 25 No. 7)
This LEGAL BACKGROUNDER examines the Say No to Drug Ads Act1 proposed to end the tax deductibility of direct-to-consumer (DTC) prescription drug advertising. After evaluating the SNDAA's policy implications and its impact on free commercial speech, the publication concludes that the legislation would be unsound and unconstitutional if passed into law.
The Value of Commercial Speech
The U.S. Supreme Court recognizes that an advertiser's economic interest "hardly disqualifies him from protection under the First Amendment" and, further, that a "consumer's interest in the free flow of commercial information . . . may be as keen, if not keener by far, than his interest in the day's most urgent political debate."2 Socially, this free dissemination is "indispensable," for under a free enterprise economy, "the allocation of our resources in large measure will be made through numerous private economic decisions."3 The public interest demands, therefore, "that those decisions, in the aggregate, be intelligent and well informed."4 Indeed, even where "advertising communicates only an incomplete version of the relevant facts, the First Amendment presumes that some accurate information is better than no information at all."5 This robust constitutional preference for information extends as far as monopoly markets.6
The SNDAA's Burden on Commercial Speech
By denying a tax benefit to DTC advertising, the SNDAA chills this commercial speech. Its effect is particularly egregious because it abolishes an existing tax benefit and is not incidental, but an assault on the speech itself.7 The SNDAA seeks a content-based denial of a tax deduction, albeit one to which drug companies are not entitled.8 Even so, it violates the unconstitutional conditions doctrine, that "government may not deny a benefit to a person on a basis that infringes his constitutionally protected freedom of speech even if he has no entitlement to that benefit."9
Although content-based speech restrictions are presumptively unconstitutional,10 the government "can make content-based distinctions when it subsidizes speech."11 Although tax deductions "are a form of subsidy . . . administered through the tax system,"12 the two are not identical.13 Denials of tax deduction are constitutionally distinct from grants of subsidy.14
The SNDAA's denial of a tax deduction, then, cannot be legitimized simply by renaming its effects: the legislation must pass constitutional muster on its merits.15
The SNDAA's Failure of the Central Hudson Test
Commercial speech receives presumptive First Amendment protection if it neither concerns unlawful activity nor is misleading.16 For its part, a regulation must assert a substantial government interest, directly advance that interest, and be only as extensive as needed to serve that interest.17 The regulation fails if any condition is unmet.
First Amendment Protection for DTC Advertising.
The use of prescription drugs is legal, if regulated. The SNDAA presumes, however, that DTC advertising is misleading.18 Yet the Food and Drug Administration monitors the veracity of DTC advertising by mandatory review of all such materials19 and by issuance of cautionary "untitled" letters and enforcive "warning" letters for noncompliance.20 Of the 98 regulatory letters issued during 1997-2001, only 6 merited a warning letter.21 These regulatory letters as a whole dwindled to 43 issuances between 2002 and 2007,22 following a 2002 policy23 that improved the review process. This paucity of adverse findings indicates that DTC advertising is not categorically misleading.24
Contradictory Government Interests.
As to substantial interests, courts have upheld numerous policies analogous to the SNDAA's pursuit of lower drug prices and informed medical choices.25 These constitute a cumulative interest in public health.26 There is also a substantial interest in raising funds for government functions.27 The effort to balance competing interests can itself be a substantial interest,28 though that the government "must supply a compelling argument or convincing evidence that it has a substantial interest in achieving both goals."29 The SNDAA's interests in public health and tax revenue are not merely competing, but in direct tension with each other: if DTC advertising were meaningfully correlated to prescription drug prices and sales, then any public health-friendly decline in DTC advertising would also reduce taxable profits.
Imaginary Problems, Impotent Solutions.
Though one substantial interest can sustain a regulation that directly advances it,30 the government cannot abstractly assert even well-established interests.31 The government "must demonstrate that the harms it recites are real and that its restriction will in fact alleviate them" meaningfully.32 The government "must carefully calculate the costs and benefits associated with" its burden on commercial speech.33 Here, the SNDAA professes to reduce drug prices, to better inform consumers' and physicians' medication choices, and to generate tax revenue. Yet the SNDAA does not directly advance any of these interests, nor does it make a careful cost-benefit calculation.
DTC advertising is said to raise prescription drug prices by raising supply cost, as implied by the "more than $4.7 billion" spent on DTC advertising in 2007.34 In fact, DTC advertising in 2007 amounted to $3.7 billion, 23% less than in 2006.35 Despite this significant decline, drug prices rose by 3.5% during the same period.36 More inconsistent still is the broader trend in drug advertising expenditure--which declined from 2004 to 2005, rose in 2006, and fell again in 2007, all while prices rose steadily.37 It is unclear, then, that disincentivizing DTC advertising will predictably lower drug prices as the SNDAA seeks.38
The ubiquity of DTC advertisements is also a criticism of such advertising's effect on informed choice, notably that 91% of Americans report reading or viewing an advertisement about a brand-name drug39 and that eight in ten doctors report patient inquiries about diseases and medications advertised on television.40 Yet 67% of the public also agree that "prescription drug advertisements educate people about available treatments and encourage them to get help for medical conditions they might not have been aware of."41 As for doctors, 76% remain unswayed by patient requests for advertised drugs, ultimately recommending a different--presumably more appropriate--prescription drug.42
DTC advertising is "highly targeted towards a minority of [prescription drug] products" and dwarfed by the "larger share of marketing budgets" commanded by traditional physician-oriented promotion.43 DTC advertising is itself only 10% price-elastic: "a 10% increase in DTC spending would result in an approximately 1% increase in sales, other things equal."44 It is unclear, then, that informed drug choice is presently impaired or that attacking DTC advertising would improve it.45
Moreover, though denying a deduction for DTC advertising would raise revenue, there is no indication of how much and no basis to calculate carefully--indeed, calculate at all--the SNDAA's costs and benefits.46 For each of its aims, therefore, the SNDAA fails to "demonstrate that the harms it recites are real and that its restriction will in fact alleviate them" meaningfully.47
Finally, as a law must directly advance its asserted interest, it must also be "no more extensive than is necessary" for those ends.48 Thus, the government must pursue means which do not restrict speech, or which restrict it less.49 In this, a less restrictive means is not only possible, but already in place: the FDA's mandatory advertising review process.50 As public health policy, then, the legislation is superfluous and seeks only to suppress commercial speech it deems undesirable.
Therefore, given the SNDAA's contradictory goals, dubious policy premises, unsound solutions, and broad, direct suppression of commercial speech, this proposal would be held unconstitutional if passed into law.
Saurabh Vishnubhakat is third year law student at Franklin Pierce Law Center and the winner of Washington Legal Foundation's 2009 Freedom and Justice Legal Writing Competition. Notes:1.
H.R. 2966, 111th Cong. (2009) (hereinafter "SNDAA").2. Va. State Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc.
, 425 U.S. 748, 762-63 (1976).3. Id.
at 765.4. Id.5. Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n
, 447 U.S. 557, 562 (1980).6. Id.
The Court's observation that monopoly power over a given product is not necessarily a competitive shield against substitute products squarely describes the present case of patented prescription drugs competing against generic substitutes, all the more so because the SNDAA explicitly promotes the latter. See
Press Release, Eighth Congressional District of New York, Nadler Moves to Lower the Cost of Prescription Drugs (June 19, 2009), http://www.house.gov/list/press/ny08_nadler/PrescripDrug061909.html [hereinafter Press Release].7.
Indeed, the SNDAA presumes that DTC advertising qua
speech is itself the undesirable cause of high drug prices and uninformed medical choices, so that neither of these perceived problems can be rectified without stifling the offensive speech itself. See
Press Release, supra
note 6.8. See National Endowment for the Arts v. Finley
, 524 U.S. 569, 587-88 (1998) (noting that "Congress has wide latitude to set spending priorities" when allocating competitive funding so long as "legislation does not infringe on other constitutionally protected rights").9. Rumsfeld v. Forum for Academic and Institutional Rights, Inc.
, 547 U.S. 47, 60 (2006).10. Davenport v. Washington Educ. Ass'n
, 551 U.S. 177, 188 (2007).11. Id.
at 188-89 (explaining that "the risk that content-based distinctions will impermissibly interfere with the marketplace of ideas is sometimes attenuated when the government is acting in a capacity other than as regulator," i.e. when the government is acting instead as patron) (emphasis added).12. Regan v. Taxation with Representation of Washington
, 461 U.S. 540, 544 (1983).13. See id.
at 544 n.5 (clarifying that "[i]n stating that exemptions and deductions, on one hand, are like cash subsidies, on the other, we of course do not mean to assert that they are in all respects identical"), and Perry v. Sinderman
, 408 U.S. 593, 597 (1972) (enunciating settled law that "even though a person has no ‘right' to a valuable governmental benefit and even though the government may deny him the benefit for any number of reasons, there are some reasons upon which the government may not rely," particularly those which infringe "his interest in freedom of speech").14. Compare Camps Newfound/Owatonna, Inc. v. Town of Harrison
, 520 U.S. 564, 589 (1997) (finding, in a dormant Commerce Clause context, that a discriminatory municipal tax exemption was not constitutional merely because it was economically similar to, and served similar ends as, a discriminatory subsidy which would have been constitutional), with Walz v. Tax Comm'n of New York
, 397 U.S. 664, 675 (1970) (finding, in an Establishment Clause context, that New York's tax exemption for church property was not unconstitutional even though a direct subsidy to the same effect would have been unconstitutional).15. See Speiser v. Randall
, 357 U.S. 513, 536 (1958) (explaining that "[i]f the Government may not impose a tax upon the expression of ideas in order to discourage them, it may not achieve the same end by reducing the individual who expresses his views to second-class citizenship by withholding tax benefits granted others").16. Thompson v. W. States Med. Ctr.
, 535 U.S. 357, 367 (2002).17. Id.18. See
Press Release, supra
note 6 (declaring that DTC advertisements "routinely tout the benefits of high-priced drugs while downplaying or inadequately explaining risks") (internal quotations omitted).19.
DTC advertising materials are submitted to FDA's Division of Drug Marketing, Advertising, and Communications (DDMAC). Trends in FDA's Oversight of Direct-to-Consumer Adver.: Hearing on Direct-to-Consumer Adver. Before the Subcomm. on Oversight and Investigations of the H. Comm. on Energy and Commerce
, 110th Cong. 1 (2008) [hereinafter Hearing
] (statement of Dr. Marcia Crosse, Director of Health Care, U.S. Government Accountability Office) (citing 21 C.F.R. sec. 314.81(b)(3)(i)(2009)).20.
U.S. Gov't Accountability Office, GAO-07-54, Improvements Needed in FDA's Oversight of Direct-to-Consumer Advertising 11 (2006) [hereinafter GAO 2006 Report].21. Id.
at 25.22. See Hearing
note 23, at 11 (testimony of Dr. Marcia Crosse).23.
Since January 31, 2002, regulatory letters drafted by the DDMAC have been required to be reviewed by FDA's Office of the Chief Counsel (OCC). Hearing
note 23, at 2-3, 9.24.
To the contrary, outside commentary made to FDA by the Federal Trade Commission's Bureau of Consumer Protection, Bureau of Economics, and Office of Policy Planning has indicated that significant FDA policy research, into consumer responses to drug risk information, is necessary to "provid[e] the agency with an empirical basis for selecting the best method of conveying such information to consumers." Comments of the Staff of the Bureau of Consumer Protection, the Bureau of Economics, and the Office of Policy Planning of the Federal Trade Commission in the Matter of Request for Comments on Agency Draft Guidance Documents Regarding Consumer-Directed Promotion
, Docket No. 2004D-0042 3-4 (2004) [hereinafter FTC 2004 Comments
]. This commentary affirms the GAO's independent recommendation that FDA determine its own supervisory efficiency by applying systematic review criteria and by tracking both its reviews of submitted DTC materials and its issuances of regulatory letters. Hearing
note 23, at 3 (testimony of Dr. Marcia Crosse).25. See
, IMS Health Inc. v. Ayotte
, 550 F.3d 42, 59 (1st Cir. 2008) (finding a substantial state interest in reducing overall health care costs); W. States Med. Ctr. v. Shalala
, 238 F.3d 1090, 1095 (9th Cir. 2001) (finding a substantial state interest in preserving the integrity of the drug approval process); Abramson v. Gonzalez
, 949 F.2d 1567 (11th Cir. 1992) (finding a substantial state interest in regulating providers of psychological health services).26. See
, 535 U.S. at 369.27. See
, WV Ass'n of Club Owners & Fraternal Servs., Inc. v. Musgrave
, 553 F.3d 292 (4th Cir. 2009) (finding a substantial state interest in regulating and implementing a lottery to raise revenues for education and infrastructure).28. See United States v. Edge Broadcasting Co.
, 509 U.S. 418, 428 (1993) (finding a substantial state interest on the part of Congress in balancing the interests of states with lotteries and those without).29. Shalala
, 238 F.3d at 1094 (emphasis added). Moreover, the government "cannot carry this burden by mere speculation or conjecture." Shalala
, 238 F.3d at 1094 (internal quotations omitted).30. Thompson
, 535 U.S. at 374.31. Musgrave
, 553 F.3d at 303 (quoting Edenfield v. Fane
, 507 U.S. 761, 770-71 (1993)).32. Id.
, 507 U.S. at 770-71).33. Bioganic Safety Brands, Inc. v. Ament
, 174 F.Supp.2d 1168, 1180 (D. Col. 2001) (citing Bd. of Trustees of State Univ. of N.Y. v. Fox
, 492 U.S., 469, 480 (1989)).34. See id.
(asserting that, "[i]n 2007 alone, the pharmaceutical industry spent more than $4.7 billion on direct-to-consumer advertising - six times more than the industry spent on these ads in 1996").35. Prescription Drug Trends
(The Henry J. Kaiser Family Found., Menlo Park, C.A.), Sept. 2008, at 2-3.36. Id.
at 2 (comparing the "average retail prescription price").37. Id.
Indeed, during 2004-05, a 5.0% rise in DTC advertising met with a 2.0% rise in prescription drug prices whereas during 2005-06, a 14% rise in DTC advertising met with a 5.2% rise in prescription drug prices--a negative
second-order correlation. See Prescription Drug Trends
(The Henry J. Kaiser Family Found., Menlo Park, C.A.), May 2005, at 2, and Prescription Drug Trends
(The Henry J. Kaiser Family Found., Menlo Park, C.A.), June 2006, at 2.39.
Press Release, supra
note 6.40. Id.41. Pub. and Physician Views of Direct-to-Consumer Prescription Drug Adver.
(The Henry J. Kaiser Family Found., Menlo Park, C.A.), Apr. 2008, at 1, available at http://kff.org/spotlight/rxdrugsconsumer/upload/Rx_Drugs_DTC_Ads.pdf
Meredith B. Rosenthal et al., The Henry J. Kaiser Family Found., Demand Effects of Recent Changes in Prescription Drug Promotion 1-2 (2003) ("In one recent study of 391 major branded drugs in 1999, only 18% had positive DTCA expenditures, whereas 95% of brands sent ‘detailers' to visit physicians' offices.")44. Id.
at 15.45. See id.
at 19 (concluding that DTC advertising "is important, but not the primary driver of recent growth").46.
The Congressional Budget Office has not performed any cost estimates on H.R. 2966 or on even more broadly drawn similar legislation, such as H.R. 2917, 111th Cong. (2009), or S. 1763, 111th Cong. (2009). Congressional Budget Office, Cost Estimates for the 111th Congress, http://www.cbo.gov/CEBrowse.cfm
(last visited Nov. 15, 2009).47. Musgrave
, 553 F.3d at 303.48. Thompson
, 535 U.S. at 371.49. Id.
at 371-72 (citing 44 Liquormart, Inc. v. Rhode Island
, 517 U.S. 484, 507 (1996) (plurality opinion)), and Rubin v. Coors Brewing Co.
, 514 U.S. 476, 490-91 (1995)).50. See supra
notes 23-30 and accompanying text.