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Contact Us Fall 2001; Volume 2, Number 2
Health Highlights

TV, Drugs, and Health Care: Evaluating and Combating the Influence of Direct-to-Consumer Advertising on the Prescription Drug Market

Gwyneth Card

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The recent increase in direct-to-con-sumer advertising of prescription drugs is something of a controversy amongst physicians, managed care organizations, and consumer groups. The skepticism of these groups is compounded by the fact that prescription drug costs are skyrocketing, and evidence suggests that the marketing of brand-name drugs to consumers is playing a large role in this increase in drug spending.

Whether or not prescription medication should become a market commodity is a question that it may be too late to address. But what policies and market structure will be established to ensure that the correct medicines are taken by patients at an affordable price still remain to be determined. This paper examines the role of direct-to-consumer (DTC) advertising in the current crisis of rising healthcare costs. While many are clamoring for federal intervention with price controls, an equally important mechanism for lowering drug prices and providing patients with the best medical treatment is providing consumers and physicians with more comprehensive and digestible information on the wares of the emerging drug market. If we are going to treat patients as consumers, as many insurance companies and HMOs already do, we must help them to be empowered and informed consumers.

Rising Costs

There is no denying the economic truth that healthcare costs are on the rise. A 1999 report from the Health Insurance Association of America (HIAA) estimated that, while 1999 healthcare expenditures would exceed $1.1 trillion, almost 14% of the gross domestic product (GDP), by 2008 healthcare expenditures would double to $2.2 trillion, or 16.2% of the GDP.1 No other country spends this much on health care. Furthermore, studies by the Health Care Financing Administration (HCFA), Blue Cross Blue Shield Association (BCBSA), the National Institute for Health Care Management (NIHCM), the Access and Affordability Monitoring Project (AAMP), and the Pharmaceutical Researchers and Manufacturers of America (PhRMA) are all in agreement as to where to place much of the blame for these rising costs: the escalating costs of prescription drugs.2,3,4,5

Data from the Health Care Financing Administration (Table 1) indicate that spending on prescription drugs nearly doubled from 1993 to 1998 (from $50.6 billion to $93.4 billion spent), and that drug spending continues to increase rapidly. A September 1999 HIAA statement reported that this increase in drug spending was out of proportion with other health costs such as hospital and physician services, which increased only 3-5% annually (1995 through 1999) while prescription drug expenditures increased 10-14% per year.6 More recent estimates from reports just a year later indicate that pharmaceutical spending will continue to have double-digit percent growth over the next decade.7 By 2008, HIAA predicts prescription drug expenditures could reach $243 billion and represent 12.6% of total national health expenditures in this country—more than double the 6.1% represented a decade ago in 1990.

Year 1993 1994 1995 1996 1997 1998
Prescription Drug Expenditures ($B) $50.6 $55.2 $61.1 $69.1 $78.9 $93.4
Percent Increase Over Previous Year 8.7% 9.0% 10.6% 13.2% 14.1% 18.4%

Table 1. Growth in Prescription Drug Expenditures, 1992-1998. Source: HCFA, 1997 National Health Expenditure estimates (for 1993-19997); *Estimate from 1998 Scott-Levin Source Prescription Audit; table is as presented in NIHCM, July 1999 report.


Why are the costs of prescription drugs rising so rapidly? High costs are likely indicative of the “value” placed on new medicines. Pharmaceutical companies argue that high pricing is necessary to recover expensive research and development costs, and to provide incentive for further innovation. PhRMA reports that it currently takes 12-15 years to bring a new drug to market, at an average cost of $500 million dollars.8 However, the cost of research is more than matched by the dollars that the drug industry spends on marketing and administration. Public Citizen, a not profit consumer advocacy group, found that in 1997 two of the top 10 drug firms, Merck and Pfizer, put an average of 11% of revenue into R&D, and 29% into marketing and administration. Most studies that have examined marketing find that increasing spending on direct-to-consumer (DTC) advertising is one of the primary causes of escalating drug costs. Causes of increasing drug costs The following reasons are often cited as causes of increasing expenditure on prescription drugs:

New medicines. PhRMA reports that 40 new treatments were introduced to market in 1999 alone. Moreover, the FDA has lowered drug approval times significantly over the past decade. It is possible that rather than merely increasing healthcare expenses, new drug treatments may actually reduce overall expenditures on health care by reducing or eliminating need for lengthy hospital stays or invasive surgery. However, at least one study by NIHCM has indicated that physician and hospital costs continue to rise along with drug costs.9

Increased drug prices. New medicines are also frequently more expensive. NICHM (1999) reported that “new” drugs introduced after 1992 cost, on average, twice as much as older drugs.10 The retail price of these new drugs was also increasing at a higher annual rate than old drug prices, contributing to the trend of increasing drug expenditure.

Increased utilization. As medication becomes available to treat a wider variety of medical conditions, prescription drugs are increasingly becoming the treatment of choice, reflecting a shift away from hospitals and other services. Thus, while there were 1.9 billion prescriptions filled in 1993, there were a startling 2.5 billion prescriptions filled in 1998. In some therapeutic categories, such as antidepressants, cholesterol reducers, and oral antihistimines, the number of prescriptions more than doubled in this 5-year span.11 The demographic trend toward an older population is also seen as a cause of increased drug utilization, as the elderly are more at risk for conditions requiring prescription medication.

Distanced consumers. The shift to managed care structures with low co-payments for doctors visits and medication, has insulated many patients from the actual costs of care. Therefore, patients are more likely to accrue large costs by making frequent physician visits or choosing costlier drugs that are not necessarily more effective. The introduction of multi-tier pricing schemes which charge patients a higher co-payment for brand name or non-formulary drugs is a recent and growing effort to make consumers more price sensitive when choosing drugs.

Intellectual property rights. Patents on new brand-name drugs give pharmaceutical companies a temporary monopoly on their product for the first few years after FDA market approval.

Direct-to-consumer advertising. The introduction of direct-to-consumer (DTC) advertising in the mid-eighties and its rapid growth in the late nineties, of course, have intensified the dramatic increases in almost all of these factors.

DTC Advertising

A brief history

Before the 1980s, direct-to-consumer advertising of prescription pharmaceuticals was basically non-existent and drug companies invested in detailed promotion of their products to physicians and healthcare professionals instead of patients. Under the 1938 Federal Food, Drug, & Cosmetic Act, the Food and Drug Administration (FDA), a federal agency under the Department of Health and Human Services, regulated labeling of prescription products, including all packaging, inserts, brochures, and toll-free hotline information. In 1962, new legislation called the “Drug Amendments,” gave the FDA jurisdiction over advertising of prescription drugs as well (over-the-counter advertising still remained under the scrutiny of the Federal Trade Commission (FTC)). Under these early FDA regulations, drug labeling was considered inappropriate if it was “false or misleading” and was required to include a “brief summary” of drug side effects, contra-indications, and effectiveness as approved by the FDA during clinical testing.

Under these rules, “product-claim” ads that advertised both a brand-name drug and the medical condition for which it was appropriate were required to include all labeling information, including a “brief summary” in which a “fair balance” of drug benefits and risks had to be presented. Pharmaceutical companies could get around the cumbersome requirement of including lengthy fine print “summaries” by advertising either their brand name alone, with no connection to the condition it treated, or the medical condition alone, without mention of their brand-name. Needless to say, these measures heavily discouraged DTC advertising since including “brief summary” information added costly pages to print ads and was virtually impossible to present in a 30 second TV or radio promotion, and advertising either brand name or medical condition alone left consumers confused.

Still, early direct-to-consumer print advertising in the early 1980s proved to be so successful that the FDA was forced to call a voluntary moratorium on the growing number of DTC ads in 1983 until the effect on consumers could be studied. The consumer surveys conducted by the FDA found that most consumers were eager for more drug information and would regard DTC ads from pharmaceutical companies favorably.12 In 1985 the moratorium was lifted and DTC ads proliferated but were still limited mostly to print since regulations made advertising in other media troublesome.

In August of 1997, in response to growing complaints from drug advertisers and the generally positive response of the public to DTC ads, the FDA drafted new guidelines for direct-to-consumer broadcast advertisements. Finalized in August 1999, these new guidelines significantly relaxed the old restrictions by allowing advertisers to satisfy the “brief summary” requirement with a “major statement” of the most important risks involved in taking their product along with “adequate provision” for conveyance of approved product labeling, usually fulfilled with a toll-free phone number or web address.

The explosion in DTC advertising was immediate. The NIHCM reports that after the relaxed FDA regulations, spending on DTC ads had increased from $55.3 million in 1991 to $1.3 billion in 1998, a 20-fold change.13 A Blue Cross and Blue Shield Association report adds that DTC spending increased another 40% in 1999, reaching $1.8 billion in total advertising costs.14 The increase in direct-to-consumer advertising is a direct result of FDA regulation relaxation allowing DTC ads to move into television media. In 1996, for example, right before the new guidelines, TV ads constituted 11.2% of the pharmaceutical industry DTC spending. By 1999, TV ads had increased to 61% of total DTC costs.

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