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Promotional Spending for Prescription Drugs 1 (December 2, 2009)

handle is hein.congrec/cbo1080 and id is 1 raw text is: A series of issue summariesfrom the Congressional Budget Office DECEMBER 2, 2009 Promotional Spending for Prescription Drugs Pharmaceutical companies' efforts to promote prescrip- tion drugs have attracted the attention of policymakers because such activities may affect the rate at which differ- ent drugs are prescribed and consumed, the total amount spent on health care, and, ultimately, health outcomes. Those promotional activities-usually undertaken on behalf of brand-name, rather than generic, drugs-may influence consumers and health care professionals through a variety of channels. For example, advertisements for pre- scription drugs that are aimed at consumers may prompt individuals to seek medical treatment they might other- wise have delayed. Such advertisements may also influence individuals to request a specific drug that is higher or lower in price or that is more or less effective than one they had previously used. Promotional efforts aimed at physicians may help them keep abreast of the latest drug therapies and improve their ability to treat patients. Those efforts may also lead doctors to prescribe brand-name medications that are more expensive than alternatives. The way that pharmaceutical manufacturers promote prescription drugs has changed significantly in the past decade. Until the late 1990s, pharmaceutical manu- facturers confined their marketing efforts largely to physicians and other health care providers. In the late 1990s, however, drugmakers began marketing directly to consumers-a practice known as direct-to-consumer (DTC) advertising. The Food and Drug Administration (FDA) issued draft regulatory guidance in 1997 (which was finalized two years later) that clarified the agency's expectations about the way information in DTC adver- tisements should be presented in the broadcast media. 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 in an effort to make consumers aware of their products and to encourage them to visit their doctors to request a pre- scription. In 2008, spending on DTC advertising totaled $4.7 billion, nearly one-fourth of pharmaceutical manu- facturers' expenditures for all promotional activities. Those developments may be having an impact on the functioning, cost, and effectiveness of the nation's health care system. Marketing to Physicians and Consumers Drug companies use advertising and promotions in much the same way that producers of other goods do: to inform consumers about an advertised product's existence and uses and, if alternatives are available, to persuade consum- ers that the advertised product is better than competing products. If successful, advertising can spur demand for the good and therefore boost its producer's sales and prof- its. Pharmaceutical manufacturers incur most of the costs of producing a drug during the research and development phases and during the process of gaining the FDA's approval to put the drug on the market. Any additional sales that advertising generates can be highly profitable because the prices that manufacturers receive for their products generally exceed the cost to manufacture and distribute those additional units. Drug companies face a different task in making sales than do the producers of most consumer goods, however, because several separate actors must be persuaded that a prescription drug merits purchasing. First, a consumer must perceive that visiting a doctor to seek diagnosis and treatment offers a benefit. Then, following an examina- tion to diagnose the patient's condition, the doctor must determine an appropriate treatment and, when warranted, write a prescription. Finally, the consumer must fill that prescription for the manufacturer to make a sale. (In many cases, the individual's insurer can also influence prescrip- tion drug purchases by determining whether or not to include a drug on the formulary of drugs it covers and by deciding how large a copayment to assign to it. 1) Recognizing that both consumers and physicians take part in the decision to purchase a drug, pharmaceutical manu- facturers adopt different marketing strategies for reaching 1. Pharmaceutical manufacturers promote their products to health insurers and pharmacy benefit managers (PBMs) to encourage them to include their products on plans' formularies and to assign those products a low copayment. See, for example, SDI, SDI Reports: Takeda Touts New Drugs to Managed Care (press release, Plymouth Meeting, Pa., August 31, 2009). CB

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