Spillover Effects From Direct-to-Consumer Advertising of Prescription Drugs

Background: U.S. consumers are being exposed to high levels of direct-to-consumer advertising (DTCA), reaching $5.63 billion spent on prescription drug DTCA in 2015. While prior research establishes a business case for DTCA (i.e. advertising increases sales), its effects on public health remain unclear and controversial. For example, the American Medical Association recently called for a ban on DTCA for prescription drugs. They argued that DTCA encourages consumers to try prescription drugs first rather than making lifestyle changes (such as increased exercise, healthier diets, and smoking cessation), and promotes inappropriate drug prescribing behavior (such as patients pressuring physicians to prescribe drugs even when the drug is not medically indicated). Those in favor of DTCA argue that it provides important information to consumers, increases disease awareness and diagnosis, and increases initiation of both treatments and healthy lifestyles.

Objective: To examine the effect of prescription drug DTCA on office visits and outpatient utilization for five common chronic conditions (hypertension, hyperlipidemia, diabetes, depression, and osteoporosis).

Data: We combine data on pharmaceutical advertising from Nielsen (Nielsen Ad*Views) and pharmaceutical and insurance claims data from 40 large national employers, covering 18 million person-years (2004-2010). We collapse data on outpatient utilization to the three-digit ZIP code level and merge this to the Nielsen Ad data to create a three-digit by quarter dataset (N=7,705) for those aged 40-60.

Methods: Building on prior research, we examine how DTCA impacts office visit and outpatient utilization by exploiting a large and plausibly exogenous shock to DTCA driven by the introduction of Medicare Part D. Specifically, we use an instrumental variable strategy which exploits variation across geographic areas in the population share that is covered by Medicare (aged 65+) to predict changes in advertising exposure across areas.

Our analysis focuses on those aged 40-60. Since advertising cannot be perfectly targeted to the elderly, we exploit the sudden differential increase in advertising exposure for non-elderly (under age 65) that live in elderly-dominated areas to estimate the effect of DTCA.

Results: Our preliminary intent-to-treat (ITT) analysis finds significant effects. When comparing those living in elderly-dominated areas to those who do not, before and after the introduction of Medicare Part D, we find that individuals were 7.43% more likely to have any office visit and total outpatient claims increased by 14.21%. These results were driven by individuals with diabetes (19.83% increase in claims), hypertension (15.23% increase in claims), hyperlipidemia (14.30% increase in claims), and osteoporosis (9.66% increase in claims).

Conclusions: In the context of a rapidly changing policy environment (e.g. AMA proposed ban, the President’s proposed regulation to mandate price transparency in television advertising), understanding the total effect of DTCA is crucial. While prior studies answer the business question of whether DTCA increases product sales, this study sheds light on the policy-relevant question of how DTCA effects a broader range of health care inputs. Indirect or spillover effects must be taken into consideration when analyzing the full costs and benefits of proposed regulations.