The US Congressional Budget Office (CBO) yeseterday released an 8-page report on how pharmaceutical companies promote prescription drugs.
The way that pharmaceutical manufacturers promote prescription drugs has changed significantly in the past decade. Until the late 1990s, pharmaceutical manufacturers confined their marketing efforts largely to physicians and other health care providers. In the late 1990s, however, drugmakers began marketing directly to consumers—a practice known as direct-to-consumer (DTC) advertising. …. In 2008, spending on DTC advertising totaled $4.7 billion, nearly one-fourth of pharmaceutical manufacturers’ expenditures for all promotional activities. Those developments may be having an impact on the functioning, cost, and effectiveness of the nation’s health care system.
Sheila Campbell, “Promotional Spending for Prescription Drugs”, Economic and Budget Issue Brief, Congressional Budget Office (CBO), 2 December 2009.
Here is some detail, shown in a chart taken from the report:
The CBO’s data set includes more than 2,000 prescription drugs, only 700 to 800 of which are promoted in any given year. Promotional expenditure almost always includes detailing, but DTC advertising is limited to fewer than 100 drugs in a typical year, and is inevitably accompanied by unusually heavy expenditures on detailing. “Although DTC advertising might spur a consumer to visit his or her doctor, the physician must prescribe the drug; therefore, manufacturers would seek to ensure that physicians were also informed about the drugs they advertised to consumers.”
The report contains much of interest. Especially interesting, to me, was the fact that DTC advertising is heaviest for drugs that have no direct competitors. At first glance, this seems strange. Why should a monopolist want to advertise its product? Two reasons are given. First, a monopolist can set its price above cost, earning monopoly profits on each additional unit sold. Second, if there are few (or no) competing drugs, there is little (or no) risk that advertising will spur demand for a competing product, rather than the advertised drug itself.
A tip of the hat to Catherine Rampell for today’s TdJ.
Tags: pharma
