Michael Sinkinson and Amanda Starc on the AMA's Call for a Ban on Drug Ads

Direct-to-consumer (DTC) advertising in the U.S. of prescription drugs and medical devices is in the spotlight, with the American Medical Association (AMA) calling for a ban on it. The Chicago-based physicians group issued a statement last month that it has adopted a policy to block such advertising.

The AMA’s chief argument is that the “growing proliferation of ads is driving demand for expensive treatments despite the clinical effectiveness of less costly alternatives.” Patrice A. Harris, chair-elect of the AMA, added: “Direct-to-consumer advertising also inflates demand for new and more expensive drugs, even when these drugs may not be appropriate.” The AMA noted that the U.S. and New Zealand are the only two countries that allow DTC advertising of prescription drugs. It cited research by Kantar Media that tracked a 30% increase in ad spending by drug makers in the past two years, totaling $4.5 billion.

Much of the advertising for prescription drugs is actually directed at doctors, according to Wharton professor of health care management Amanda Starc. Only a tenth of the advertising budgets at pharmaceutical companies is spent on TV ads, she said. “The AMA is targeting a relatively small proportion of ads that potentially provide information to consumers or potentially steer consumers from one drug to another within a category,” she added.

While it would be “good to have a more educated patient population, it is not so good to have them fighting with their doctor to get a prescription for a specific drug.” –Michael Sinkinson

“You might think these ads could be good,” said Michael Sinkinson, Wharton professor of business economics and public policy. “They could actually encourage people to talk to their doctor and get their cholesterol checked. The worry, though, is: What if these ads are not about getting you to talk to your doctor [but] getting you to ask for a specific drug?” He noted that the AMA’s concern is precisely that “these ads are having more of a bad effect.”

Starc and Sinkinson discussed the likely implications of a ban on DTC advertising of prescription drugs on the Knowledge at Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

DTC advertising of pharmaceutical drugs was tightly regulated until 1997, when the Food and Drug Administration relaxed rules. Over time, advertising of drugs increased, Starc noted. Other changes that have occurred in recent years include the aging of baby boomers and their emergence as a market for anti-cholesterol drugs. The expansion of prescription drug coverage in the Medicare program will also create a bigger market for pharmaceuticals, and consequently more and more advertising, she added.

Pros and Cons

Starc and Sinkinson recently published a paper that looked precisely at the impact of DTC advertising of pharmaceutical drugs. The paper, titled “Ask Your Doctor? Direct-to-Consumer Advertising of Pharmaceuticals,” found that advertisements for branded, patented pharmaceutical drugs often have effects that go beyond providing information to patients, according to a recent Knowledge at Wharton report.

The DTC ads are also about “business-stealing,” i.e., convincing consumers to buy one firm’s drug over that of a rival, the researchers found. In a positive spillover, the ads encourage patients to visit their doctors to check on different medical conditions, but potentially drive them to cheaper, generic equivalents of the branded drugs that are advertised, the authors wrote.

The paper looked at the effectiveness of TV advertising for anti-cholesterol drugs such as Pfizer’s Lipitor and Astra Zeneca’s Crestor during the election cycle of 2007 and 2008, and the impact of political ads on drug ads in that period.

Sinkinson said the study found that many consumers do go to their doctors to talk about Lipitor, but end up walking away with a prescription for another drug in the same class, potentially a lower-priced one. “That is a positive effect of this advertising,” he added.

The Pharmaceutical Research and Manufacturers of America (PhRMA), the largest U.S. trade group for the pharmaceutical industry, defended DTC advertising of prescription drugs. In a response to the AMA call for a ban, it said the ads increase consumer awareness of available treatments for diseases, including undiagnosed conditions, according to a Reuters report. A series of court decisions has determined the ads cannot be banned outright because they are a form of commercial speech protected by the U.S. Constitution, the report added.

The Profit Connection

Starc saw a clear connection between drug advertising and pharmaceutical company profits. She said pharmaceutical companies spent those advertising dollars targeted largely at doctors only because they steer patients towards specific drugs. “Let’s not forget that these are profit-maximizing firms doing this advertising,” she said. “They’re not doing it for the good of your health; they’re doing it to improve their bottom line.”

Patients today could look up public data records to check where their physician is receiving payments from. That is thanks to the Physician Payments Sunshine Act that was enacted in 2010, Starc said.

According to Sinkinson, the AMA’s call for a ban brings up a crucial regulatory question: “Are the benefits of these ads worth potentially the cost of these ads to the system?” he asked. He said pharmaceutical companies tend to stop advertising their branded drugs once they go off-patent. Lipitor’s patent expired in November 2011, while that of Crestor is set to expire in 2016. “If there are no more ads to encourage patients to do their cholesterol check, that could be bad,” he said.

Starc noted that although generics alternatives might also be available, insurance companies often put structures in place that attempt to steer consumers towards one product or another in a class. “For example, your insurance company may want you to take generic statins that are similar to Lipitor but at a fraction of the cost,” she said. “Direct-to-consumer advertising is just one of the many mechanisms used to funnel consumers towards certain products within a category.”

Starc said advertising could be justifiable in cases where a certain drug is seen to be cost-effective. “[If] the benefits far outweigh what we are paying for it, then, from a public policy perspective, you want more people taking it — and there is where we think the advertising might have a positive effect,” she added.

“Let’s not forget that these are profit-maximizing firms doing this advertising. They’re not doing it for the good of your health; they’re doing it to improve their bottom line.” –Amanda Starc

Who decides if the cost-benefit ratio justifies the advertising? “The doctor is like the gatekeeper here,” said Sinkinson. “You can’t just go and buy a prescription drug. You have to get a prescription first.”

What if the AMA Wins?

If the AMA is successful in its call for a ban on DTC advertising of prescription drugs, pharmaceutical companies would have to rethink their marketing strategies overall, said Starc. “They would also have to rethink their relationships with insurers and their pricing strategies,” she added. According to Sinkinson, while it would be “good to have a more educated patient population, it is not so good to have them fighting with their doctor to get a prescription for a specific drug.”

Starc backed DTC advertising in situations where it makes drugs that target a smaller population more profitable. “It we think there is an underdevelopment of R&D in that area, that could be a very big thing,” she said.

Sinkinson saw millennials as “the next markets” for pharmaceutical advertising. “The fact that they can be reached and are going to be more engaged with the Internet where they could be targeted more effectively might make [drug development] more profitable,” he said. The digital age presents “a huge growth area” for pharmaceutical companies in “getting the right ad to the right person,” he added.

Here, Starc expected pharmaceutical companies to target millennials with drugs such as oral contraceptives and others for anxiety and depression. “This is going to be an ongoing issue as various cohorts move through the life cycle.”