Pharmaceutical advertising has exploded across print, digital and television media in the last decade, accounting for billions of dollars. But what is the effect of seeing a commercial for the latest diabetes medication or cholesterol drug? Wharton health care management professor Abby Alpert examined that question in her latest research, and she found some informative results that could reshape the market. The paper, “Prescription Drug Advertising and Drug Utilization: The Role of Medicare Part D,” was co-authored with University of Southern California professors Darius Lakdawalla and Neeraj Sood. Advertising does bring about an increase in the number of prescriptions, she says, but that doesn’t necessarily translate into health benefits. Alpert sat down with Knowledge at Wharton to explain her findings in greater detail.
An edited transcript of the conversation follows.
Knowledge at Wharton: Give us a brief summary of what you studied.
Abby Alpert: My research is on health economics and public finance, and my recent work has focused on the pharmaceutical market. In a recent project, I’ve studied the impacts of direct-to-consumer advertising for prescription drugs on drug utilization and drug adherence. We’ve seen a very dramatic increase in the number of pharmaceutical ads on TV in the last two decades. Pharmaceuticals are now one of the largest categories of advertising on TV, and over $4 billion is spent on this type of advertising.
Economists have been interested for a long time in understanding the extent to which advertising is informative versus persuasive, and pharmaceutical advertising is particularly controversial in this respect. There has been a lot of debate about its potential effects on patient welfare. On the one hand, advertising may have informational value if it educates patients about available treatments and encourages people to seek care, especially for under-diagnosed conditions, or it may even improve communication between patients and their doctors. For people who are already taking advertised medications, seeing an ad on TV for your drug could serve as a reminder to take your medication, or it may even enhance your perception of the benefits of treatment, potentially leading to better drug adherence. On the other hand, drug advertising may also lead to unnecessary overuse of prescription drugs and increased drug spending.
“Pharmaceuticals are now one of the largest categories of advertising on TV.”
In this project, we are trying to quantify the extent to which advertising impacts drug utilization, and we also explore some of the mechanisms underlying advertising’s impacts. This helps us to try to understand some of the health and welfare implications of advertising. To do this, we use a natural experiment design, which helps us get at the causal effects of advertising. Our natural experiment is the introduction of Medicare Part D in 2006. Using data from the Nielsen Corporation, we find that there was a sharp increase in pharmaceutical advertising immediately following the introduction of Part D. We also find that this advertising was targeted to markets with the highest concentration of elderly — places like West Palm Beach, Florida, for example.
We also find that this advertising spilled over onto younger consumers in these markets, even though it was targeted to the older consumers, and that they also experienced increased exposure to drug ads after Part D. This sets the stage for our research design, because what we do is compare drug advertising before and after Part D across geographic areas with a higher or lower concentration of elderly. Then we use this change in advertising exposure due to Part D to estimate its effects on drug utilization for the non-elderly — people who are under age 65 and not eligible for Medicare. We focus on the non-elderly population in order to isolate the effects of advertising on drug utilization from the direct effects of the Part D program.
To give a simple example, our strategy boils down to a comparison across areas such as West Palm Beach, Florida, with a large elderly population, and Denver, Colorado, with a much younger population. Young people living in West Palm Beach are going to be exposed to a larger increase in drug advertising after Part D relative to their peers living in Denver. We then test whether this also leads to a differential increase in drug use. Our data on drug utilization comes from a very large database of insurance claims, which covers a wide variety of geographic areas.
Knowledge at Wharton: After looking at this, what were some of your key takeaways?
“We find substantial effects of advertising on drug utilization.”
Alpert: We find substantial effects of advertising on drug utilization. We estimate that a 10% increase in advertising exposure increased the number of prescriptions purchased by about 5%. About 70% of this effect is driven by increased new initiation, and the other 30% is due to increased drug adherence among existing patients.
Specifically, we find that a 10% increase in advertising would increase the rate of drug adherence by about 1% to 2%. While advertising increases drug adherence among existing patients, we also find that among people who initiate treatment because of advertising, their compliance with treatment is actually lower on average. This is a concern if advertising is capturing people for whom treatment is marginally less appropriate or for people who are simply less attached to treatment. This is because initiating a treatment without complying with it will lead to increased drug spending without very many gains to health.
Another finding we have is that there was a large spillover effect of advertising on non-advertised drugs within the same drug classes. These non-advertised drugs are typically generics or off-patent brands. The idea is that someone sees an ad on TV for Lipitor, asks their doctor for Lipitor, but then gets prescribed another statin or a generic drug. What we’re finding is that advertising expands utilization for entire classes of drugs.
Knowledge at Wharton: Could you talk about the practical implications of this paper?
Alpert: Pharmaceutical advertising has been in the news a lot lately because the American Medical Association recently called for a ban on all direct-to-consumer advertising for prescription drugs. The United States is actually only one of two countries in the world that allows this type of advertising. The AMA argues that drug advertising leads people to substitute away from low-cost generic drugs towards more expensive brands, even when they’re not appropriate. Our research can help to inform this debate.
While our findings show that advertising does indeed increase drug spending, we also find that advertising may have health benefits because it increases drug adherence and the take-up of important drugs for treatments like high cholesterol, hypertension, depression and others. However, we can’t exactly fully tease out appropriate versus inappropriate use in our study.
More concerning, though, is that we find that people who initiate drug treatment because of advertising are, on average, less compliant with treatment. So, this could mitigate some of these health gains. We also find that a significant share of the increase in drug utilization driven by advertising is actually for non-advertised drugs, which tend to be lower-cost generics and off-patent brands.
Another implication of this research is that we find there were very large spillover effects of Medicare Part D on the non-elderly population outside of the Medicare program. These effects are large and important on their own and may warrant some consideration by policymakers.
“Initiating a treatment without complying with it will lead to increased drug spending without very many gains to health.”
Knowledge at Wharton: What implications does this have for how physicians should treat patients who have come to them because of an ad?
Alpert: We find that people who are initiating treatment because of advertising are less adherent. So, doctors should be potentially aware that people who are coming in and asking for a treatment may not be as eligible for that treatment or as likely to comply with it, and they may require more monitoring and assessment of whether the treatment is appropriate for them. This is compared to someone the doctor decides is in need of this treatment.
Knowledge at Wharton: What are you going to look at next?
Alpert: Our current findings show a very detailed picture of the utilization responses to advertising. The next thing that I would be interested in pursuing is to use our research design to analyze the effects of advertising on health more directly, as well as isolating appropriate versus inappropriate use. To do this requires detailed data and health outcomes, data on mortality and also data on more intermediate outcomes like hospitalizations or other clinical outcomes. But I think that the ultimate test of whether pharmaceutical advertising improves welfare is its effects on health directly. Currently, there’s very little evidence on advertising’s effect on health, and I think this is an important area for future research.
