Pharmaceutical companies’ efforts to promote prescription drugs have attracted the attention of policymakers because such activities may affect the rate at which different drugs are prescribed and consumed, the total amount spent on health care, and, ultimately, health outcomes. Yesterday CBO released a brief highlighting trends in promotional spending for prescription drugs and market characteristics that influence promotional strategies. CBO examined data on promotional strategies from 1989 to 2008 for drugs in the classes of medication that include most outpatient drugs that were produced in tablets or capsules and were among the top-selling drugs in 2003. Of the more than 2,000 drugs in CBO’s data set, 700 to 800 have some promotional spending reported in any given year.
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, the Food and Drug Administration changed its advertising guidelines and drugmakers began marketing directly to consumers—a practice known as direct-to-consumer (DTC) advertising. Since then, the manufacturers of many prescription drugs have increased their purchases of air time on television and of advertising space in newspapers and magazines.
Recognizing that both consumers and physicians take part in the decision to purchase a drug, pharmaceutical manufacturers spent at least $20.5 billion on promotional activities aimed at those groups in 2008. For a practice called detailing, which involves sales representatives meeting with physicians, nurse practitioners, and physicians’ assistants, pharmaceutical companies spent $12 billion, accounting for more than half of that promotional spending. Companies spent another $3.4 billion sponsoring professional meetings and events and about $0.4 billion placing advertisements in professional journals. Pharmaceutical manufacturers spent the rest of their promotional budgets, $4.7 billion in 2008, on DTC advertising. To place those figures in context, in 2008, promotional expenditures equaled 10.8 percent of the U.S. sales reported by the Pharmaceutical Research and Manufacturers of America, in line with most years since the early 1990s, during which time that share has remained between 10 percent and 12 percent.
Though pharmaceutical manufacturers use DTC advertising for only a small set of drugs, they spend heavily on DTC advertising for those drugs. Among the drugs in CBO’s dataset, the 10 with the highest DTC expenditures in 2008 accounted for 30 percent of expenditures for DTC advertising industry-wide. That concentration is nearly twice what was observed for detailing, where the drugs with the highest expenditures totaled 16 percent of the industry’s detailing expenditures. Drugs promoted using DTC advertising are, on average, newer to the market than drugs promoted through detailing, but the difference in the average expenditures for DTC advertising and detailing seems largely a result of the distribution of the two types of spending.
According to CBO’s analysis, when pharmaceutical manufacturers promoted drugs to consumers, they also spent more, on average, promoting those drugs to physicians. For those drugs in CBO’s dataset with reported spending on DTC advertising, their manufacturers spent an average of $40.5 million per drug in 2008 on promotional activities directed to physicians—14 times the average amount they spent when promoting drugs exclusively to physicians. That difference may indicate that manufacturers use promotional activities directed to physicians and DTC advertising to reinforce each other.
A pharmaceutical manufacturer’s decision to use DTC advertising or other types of marketing tools depends on the potential size of the market for a given prescription drug, the current competition in that market, and the amount of time that has elapsed since the drug received FDA approval. If a drug has both a large potential market and is approved to treat chronic or long-term conditions, its manufacturer may be even more likely to embrace DTC advertising. DTC advertising is less common for drugs (such as antibiotics) that address acute conditions (such as an infection)—perhaps because individuals are more likely to seek care for an acute condition without being prompted by an advertisement or because such drugs are typically prescribed only for a short time. Further, the data analyzed by CBO show that average spending per drug on DTC advertising declines as the number of competitors in the same class increases.
This issue brief was prepared by Sheila Campbell of CBO’s Microeconomic Studies Division.
Congressman Dennis Kucinich after voting against H.R. 3962 addresses why he voted NO, stating:
"We have been led to believe that we must make our health care choices only within the current structure of a predatory, for-profit insurance system which makes money not providing health care. We cannot fault the insurance companies for being what they are. But we can fault legislation in which the government incentivizes the perpetuation, indeed the strengthening, of the for-profit health insurance industry, the very source of the problem. When health insurance companies deny care or raise premiums, co-pays and deductibles they are simply trying to make a profit. That is our system."
"Clearly, the insurance companies are the problem, not the solution. They are driving up the cost of health care. Because their massive bureaucracy avoids paying bills so effectively, they force hospitals and doctors to hire their own bureaucracy to fight the insurance companies to avoid getting stuck with an unfair share of the bills. The result is that since 1970, the number of physicians has increased by less than 200% while the number of administrators has increased by 3000%. It is no wonder that 31 cents of every health care dollar goes to administrative costs, not toward providing care. Even those with insurance are at risk. The single biggest cause of bankruptcies in the U.S. is health insurance policies that do not cover you when you get sick."
"But instead of working toward the elimination of for-profit insurance, H.R. 3962 would put the government in the role of accelerating the privatization of health care. In H.R. 3962, the government is requiring at least 21 million Americans to buy private health insurance from the very industry that causes costs to be so high, which will result in at least $70 billion in new annual revenue, much of which is coming from taxpayers. This inevitably will lead to even more costs, more subsidies, and higher profits for insurance companies - a bailout under a blue cross."
"By incurring only a new requirement to cover pre-existing conditions, a weakened public option, and a few other important but limited concessions, the health insurance companies are getting quite a deal. The Center for American Progress' blog, Think Progress, states, 'since the President signaled that he is backing away from the public option, health insurance stocks have been on the rise.' Similarly, healthcare stocks rallied when Senator Max Baucus introduced a bill without a public option. Bloomberg reports that Curtis Lane, a prominent health industry investor, predicted a few weeks ago that 'money will start flowing in again' to health insurance stocks after passage of the legislation. Investors.com last month reported that pharmacy benefit managers share prices are hitting all-time highs, with the only industry worry that the Administration would reverse its decision not to negotiate Medicare Part D drug prices, leaving in place a Bush Administration policy."
"During the debate, when the interests of insurance companies would have been effectively challenged, that challenge was turned back. The 'robust public option' which would have offered a modicum of competition to a monopolistic industry was whittled down from an initial potential enrollment of 129 million Americans to 6 million. An amendment which would have protected the rights of states to pursue single-payer health care was stripped from the bill at the request of the Administration. Looking ahead, we cringe at the prospect of even greater favors for insurance companies."
"Recent rises in unemployment indicate a widening separation between the finance economy and the real economy. The finance economy considers the health of Wall Street, rising corporate profits, and banks' hoarding of cash, much of it from taxpayers, as sign of an economic recovery. However in the real economy - in which most Americans live - the recession is not over. Rising unemployment, business failures, bankruptcies and foreclosures are still hammering Main Street."
"This health care bill continues the redistribution of wealth to Wall Street at the expense of America's manufacturing and service economies which suffer from costs other countries do not have to bear, especially the cost of health care. America continues to stand out among all industrialized nations for its privatized health care system. As a result, we are less competitive in steel, automotive, aerospace and shipping while other countries subsidize their exports in these areas through socializing the cost of health care."
"Notwithstanding the fate of H.R. 3962, America will someday come to recognize the broad social and economic benefits of a not-for-profit, single-payer health care system, which is good for the American people and good for America's businesses, with of course the notable exceptions being insurance and pharmaceuticals."