Prescription Drug Advertising and Drug Utilization: The Role of Medicare Part D

Direct-to-consumer advertising (DTCA) of prescription drugs has increased dramatically in recent years from about $1.2 billion in 1998 to $4.5 billion in 2009 (Ventola, 2011).  There has been much debate about whether DTCA improves welfare.  On the one hand, DTCA may educate patients about available treatments, encourage individuals to seek care for underdiagnosed conditions, and improve communication between patients and physicians.  Advertisements may also serve to remind patients to take their existing medications and influence their perception of the benefits of treatment, promoting better drug adherence (Holmer, 2002; Donohue et al., 2004; Wosinska, 2005).  However, DTCA may also lead to unnecessary treatments and increased drug spending. 

In this paper, we examine the effect of DTCA on drug utilization and adherence among patients with five chronic conditions: depression, diabetes, hyperlipidemia, hypertension, and osteoporosis.  While previous studies often use time-series variation in advertising spending to identify the effect on utilization or adherence, this may suffer from endogeneity concerns if demand factors influence the timing of advertisements. We take an alternative approach, exploiting a large and plausibly exogenous shock to DTCA driven by the introduction of Medicare Part D. In previous work (Lakdawalla, Sood, and Gu, 2013), we find that Medicare Part D led to large relative increases in DTCA for drugs that are differentially used by Medicare beneficiaries. Assuming that there are spillover effects of advertising to non-elderly, non-Medicare eligible individuals, we examine the effects of this sudden increase in advertising on drug utilization and adherence for individuals under age 65.  This strategy hinges on the observation that non-elderly individuals are exposed to the increase in DTCA, but do not directly participate in Part D, which may independently impact drug utilization.

Specifically, we use an instrumental variable strategy which exploits variation across media markets in the share of the population that is covered by Medicare to predict changes in advertising expenditures across areas.  Non-elderly individuals living in areas with a high concentration of Medicare-covered individuals would likely be exposed to a larger increase in DTCA following Part D relative to individuals living in areas with a lower concentration. Using Nielsen data on DTCA expenditures for local media markets and pharmacy and medical claims from a database of large private employers, we examine how relative changes in DTCA across geographic areas impact drug utilization and adherence before and after Part D.