Requires manufacturers and labelers of prescription drugs dispensed in this state to annually report marketing expenses to the department of health

Summary of provisions

Section 1 sets forth the legislative intent of the bill.

Section 2 of the bill amends section 206 of the public health law by adding a now subdivision 29.

-Requiring the commissioner to collect marketing data and information from prescription drug manufacturers marketing their products in New York.

-Sets forth definitions of terms used in the bill and sets forth the rules and requirements for reporting and establishes the different marketing activities that must be reported.

-Requires the commissioner to biannually submit a report on prescription drug marketing costs to the Governor, speaker of the Assembly, and Temporary President of the Senate.

-Sets forth the confidentiality of information collected pursuant to this law and sets forth the penalties for failure of compliance with this law.

Sections 3 and 4 of the bill amend the to law to prohibit tax deductions by manufacturers or distributors of drugs to be distributed to consumers for costs incurred for the advertising of such drugs.

Justification

Over the past few years, Americans have been exposed to skyrocketing prescription drug costs. In no small part, the rise in health care has been driven by the constantly escalating prices of prescription drugs. While prescription drugs do not make up the largest category of health care spending, they do represent the category with the fastest increasing costs. Between 1995 and 2000, the growth in prescription drug costs was two to five times faster than the cost growth in either hospital care or physician services. In 2000 alone, prescription drug spending increased by 17 percent.

In a recent joint public hearing, the Senate Committees on Investigations and Government Operations, and the Senate Committee on Aging, probed the factors behind the rising costs of prescription drugs. Two significant factors contributing to the increase in prescription drug costs are the large annual profits of drug companies and the dramatic increase in promotional spending by pharmaceutical

manufacturers. Drug companies, however, argue that prices are high due to the high cost of research and development (R&D). Although estimates place investment in R&D by drug companies at only 2 percent of industry revenue. Promotional advertising by drug manufacturers is a driving factor behind the rising costs of pharmaceutical drugs.

While there is no question that R&D is important, the industry's constantly stellar profitability indicates that prescription drug prices more than cover the costs of research and development and its associated risks. Additionally, R&D costs are partly paid by taxpayers through tax credits and government sponsored research through organizations such as the National Institute or Health (NIH).

In addition to profits, promotional spending by drug manufacturers plays a major role in keeping drug costs high. According to the Raiser Family Foundation, since 1996 promotional spending by drug manufacturers has increased by 63 percent. Promotional spending by drug manufacturers includes paying for television commercials, giving free drug samples to physicians, and taking physicians and their staffs on expensive trips.

It is in the best interest of Now York State, in its role as a purchaser of prescription drugs and an administrator of prescription drug programs, to determine the scope of prescription drug marketing costs and their effect on the cost, utilization, and delivery of health care services.

In 1997, the FDA relaxed its guidelines for direct to customer advertisements of pharmaceuticals, since that time, there has been an onslaught of marketing in an attempt to influence a patient's choice of a drug. These efforts have become an essential part of manufacturer's marketing plans, resulting in an increase from $843 million in 1997 to annual costs in the billions for print and broadcast advertising. This change has also resulted in an increase in the number of prescriptions written: fifteen months into the relaxation of the guidelines, one heavily marketed drug saw an increase in sales of more than one hundred times that of prescriptions written prior to advertisement.

This controversial new marketing technique, opposed by the American Medical Association, undermines the patient-physician relationship by encouraging consumers to ask for advertised products by name. As "patient choice" becomes an increasingly popular concept, physicians are being relegated to a passive role where, upon demand, the patient receives a prescription for the advertised drug 73% of the time. The benefits DTC advertising provides to the public are questionable at best, as misconceptions about this type of advertising appear to be extensive. A recent survey reveals that 43% of the individuals polled believed that only "completely safe" drugs could be advertised directly to consumers, while 21% thought only "extremely effective" drugs could by marketed in this way. An AARP Executive Summary notes that most persons fail to take away key information from the advertising and that consumers age GO and over appear to obtain less information from the ads than others.

Historically, with regard to prescription drugs, our courts have created an exception to the traditional duty of manufacturers to warn

consumers directly of risks associated with their products because they warned health care providers of those risks. This made sense in an era of "doctor knows best," when pharmaceutical manufacturers directed all of their sales efforts at physicians and never at consumers.

In light of the recent, and expensive, mass marketing of prescription drugs, manufacturers should no longer be relieved or the duty to properly warn their advertising targets about the dangers of their products. Just as the manufacturers can make direct claims about the efficacy of its products, so should that manufacturer warn of its risks. By advertising directly to the patient, manufacturers make the patient an active participant in the decision to use the drug and cannot, therefore, claim the potential adverse effects of using the drug are so complex that they can only be communicated to physicians.

Advertising prescription drugs is effective. If it were not, manufacturers would not continue to pursue their annual multi-billion dollar efforts to peddle their wares. It is shameful enough that pharmaceutical manufacturers continually pass these costs on to customers, one effect of which is an annual increase in the cost of drug benefits of more than 20%.

Therefore, the state-provided incentive allowing tax deductions for this type of advertising by pharmaceutical manufacturers should be prohibited.

Fiscal implications

Minimal administrative costs associated with data collection, enforcement, and reporting but an unknown increase revenue is also expected from the elimination of deductibility.

Effective date

This act shall take effect 180 days after it shall have become law, except for any rules which may be necessary for its implementation.