Bitter pill for taxpayers: Drug ads do nothing but boost drug prices

Melly Alazraki Nov 24th 2009 at 4:40PM

A new study published in the Archives of Internal Medicine found that direct-to-consumer drug advertising may be associated with increased drug prices -- and little else. Specifically, researchers looked at blood-thinner (anti-clotting) drug Plavix, which is commonly prescribed for heart conditions. They found that advertising aimed at consumers did not actually increase the use of the drug. However, because of the increased expenditure for advertising, the price of the drug increased, and so did the reimbursement cost of Plavix for Medicaid patients.

"The cost of drugs to public and private health insurance programs has been a long-standing source of concern among policy markers," wrote the study's authors, Michael Law of the University of British Columbia and his colleagues. Indeed, several members of Congress have asked the GAO recently to examine allegations of price gouging on drugs, especially in light of the ongoing debate over health-care reform legislation.

Prescription drug prices are cited as one of the three top reasons for Medicaid expenditure growth, and prescription drug costs have increased by an average of 15.4% per year between 1994 and 2004. Meanwhile, spending for direct-to-consumer drug advertising has increased more than 330% in the last 10 years, the authors write.

Bristol-Myers Squibb (BMY) and Sanofi-Aventis's (SNY) Plavix has annual sales of $9.5 billion last year. The researchers chose Plavix because there was no consumer advertising for the drug from 1999 to 2000. Then, from 2001 to 2005, U.S. spending on consumer advertising for Plavix exceeded $350 million, an average of $70 million per year.

The researchers examined data from Medicaid programs in 27 states. Despite all of that advertising, the use of Plavix by patients in those states' programs did not change. More precisely, since Plavix sales were growing, the ad campaign did not accelerate that growth. However, the price of a Plavix pill increased by 40 cents, or 12%, after the ad campaign began. "Overall, this change resulted in an additional $207 million in total pharmacy expenditures," the authors wrote. Add in the additional revenues from the rest of the states' Medicaid programs, and the cost to taxpayers would be much higher. (Perhaps sufficient to cover the cost of the ad campaign?) This latest research builds on results of an older study which also showed drug advertising to consumers had only minimal impact on sales.

Those who are in favor of direct-to-consumer advertising of brand-name drugs argue that advertising makes patients more knowledgeable, allowing them to ask for treatments from their doctors. The opponents of this practice claim that more often, such advertising misleads consumers about the benefits and risks of many drugs. Neither side ever questioned whether ads would increase medication use or not.

Most countries in the world do not allow advertising of prescription medications directly to patients. Meanwhile, Americans spend most than other nations on health-care -- 16% of U.S. GDP in 2007. It seems that both sides in the direct-to-consumer advertising debate are wrong in their estimates of the effect of drug advertising on use. But the research does support what both sides agree on -- that consumer advertising costs contribute to that higher American health-care bill, as the Los Angeles Times wrote.

Not everybody fully agrees with the study's methodology and findings; some suggest, as the authors of the study themselves do, that there need to be more studies done on the matter.