DTC Ads Not Biggest Driver Of Drug Spending: Study

If you enjoy discussions of price elasticity, do we have a paper for you. Economic simulations suggest that the expansion in broadcast DTC ads may have been responsible for 19 percent of the overall growth in prescription drug spending from 1994 to 2005, with over two-thirds driven by increased demand due to expanded advertising and the remainder due to higher prices. All this is according to a new paper published by the National Bureau of Economic Research .

But while DTC advertising was deemed significant, the authors conclude “it has not been the primary force driving the growth in overall prescription drug expenditures.” [UPDATE: Curiously, the conclusion seems to contradict the bottom-line findings.] The study examined the separate effects of broadcast and non-broadcast DTC ads on price and demand, using an “extended time series of monthly records” for all advertised and non-advertised drugs in four major therapeutic classes - painkillers, cholesterol, heartburn and insomnia - spanning 1994 to 2005. This period encompassed notable shifts in FDA guidelines and expanded DTC advertising.

Those classes were chosen since they include one or more drugs with relatively high DTC spending and others with little or no DTC, according to the paper. The four therapeutic classes had combined sales of $48.9 billion in 2005, or 24 percent of total drug spending for US DTC advertising. DTC ads in these classes amounted to $1.04 billion in 2005, about 25 percent of total DTC ads run for all drugs.nberdtcstudy
The data show that 69 percent of cholesterol fighters have been advertised to consumers. In comparison, about 50 percent of the insomnia drugs have been advertised, 39 percent of gastrointestinal drugs have been advertised, and only about 23 percent of antiarthritic meds have been advertised over the sample period.

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