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Direct-to-Consumer Advertising and Health Spending

By January 2, 2023Commentary

Thanks to a truly dumb Supreme Court decision, drug companies and other health care firms are free to push their wares on us without limit, as long as they don’t lie too much about the benefits or risks.  We all are constantly bombarded with ads for drugs, telling us how much better our lives will be if we take them, and many pimping their use for diseases we didn’t even know existed.  Pancreatic exocrine insufficiency?  Really?  You might wonder why we see all these ads, since we can’t go buy the product without a prescription.  Ahhh, there’s the rub, the ads are designed to make us bug the piss out of our doctors to prescribe the drug for us.  At the same time, drug companies spend billions barraging physicians with every kind of marketing.  The end result is grotesque overuse of minimally effective but highly over-priced and profitable medications.  Hence, I own a lot of drug company stocks.  They sure know how to make money.

But as a new paper shows, it isn’t just added drug spending that all this advertising creates; when we go to the doctor to ask for that prescription, he charges someone for the visit and then of course, he or she needs repeat visits to check up on how the meds are doing.  So doctors aren’t actually very upset about all that drug company advertising; it helps them make more money as well.  The paper documents through examination of claims data just how many more visits this advertising creates.  (NBER Paper)

Join the discussion 2 Comments

  • joseph d sabol says:

    For years, I thought the problem with the cost of drugs was the impact of direct to consumer advertising. Anyone who watches TV is bombarded by these adds. However a few years ago I came to find out that the biggest driver, by far, of excessive drug spending, is the PBM formulary. Often putting the newest, most expensive drugs on formulary and providing the highest rebates. To the consumer, they are happy as their OOP is lower for formulary and they think they are getting a better drug because its newer. Turns out, newer does not equal better. To the insurance company, they often get to keep the rebates and the rebates fall outside the Minimum Loss ratio requirement calculation. So the big insurers get to keep the rebates without the consequence of having too low of a loss ratio.

    • Kevin Roche says:

      while there is some role of PBMs in regard to drug pricing, they are not responsible for the high list prices, which drug companies simply refuse to negotiate. rebates are not outside the MLR calculation

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