Off-Label Use of Pharmaceuticals: Trends and Drivers

Since 1962, the US Food and Drug Administration (FDA) has restricted the marketing of a drug to just the set of 'on label' indications for which the drug is approved. However, physicians may prescribe any approved drug for any indication. In the market for pharmaceuticals, which accounted for $321.3 billion in sales in the United States in 2010 (2.2\% of US GDP), off label use is common and potentially desirable. On one hand, the best treatment for a patient's particular indication may require using a drug off-label. In addition, applying FDA-approved drugs to new uses may be a particularly cost-effective type of innovation because these drugs have already passed safety benchmarks in clinical trials. On the other hand, ineffective off-label use is socially wasteful. In a few cases, off-label use has also led to patients being physically harmed.  Not surprisingly, off-label use is enormously controversial in the clinical and policy communities and among federal regulators. And yet, no prior research supports broad, systematic, and trend-based analysis of off-label use. Indeed, few economics papers analyze it empirically, and virtually nothing is known about its welfare consequences. In this paper, we begin filling these gaps.

We apply Detection Controlled Estimation (Feinstein 1990) to a comprehensive data set of patient prescriptions from the National Ambulatory Medical Care Survey (NAMCS) during 1993-2008 to identify the incidence of off-label use and to test for what drives it. We find that in the most recent years, more than one in three prescriptions are written for off-label uses. This rate is lowest in the earliest years, and rises from 30.2% in 1993 to 39.1% in 2008, a 29.6% increase. The three years with the highest frequency are 2006, 2007, and 2008.  Additionally, physicians are more likely to prescribe off-label when there are fewer FDA-approved alternatives and when a patient's insurance has less restrictive formularies.  These substitution patterns suggest that off-label prescribing by physicians may enhance the welfare of patients