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Drug Industry Ads, Promotions Drive Up Drug Costs

Are pharmaceutical advertising costs driving prescription drug demand and prices higher?

Year after year older Americans have to pay more for prescription drugs—at the pharmacy or in higher insurance premiums—and are feeling the pinch as insurers cut back on their benefits. Why, they ask, are these things happening?

It is a significant question, because what drives up drug costs now for individuals could also drive up the price tag of an eventual Medicare benefit, now being debated in Congress. (See Bush's Drug Plan Targets Low-Income Enrollees.)

The broad answer is that prescription drug spending—galloping up by around 17 percent a year—is the fastest-growing item in health care inflation. Rising drug prices are part of that growth. They are the highest in the world, because Congress has rejected the controls that other Western countries use to limit prices.

The biggest driver behind the growth in drug spending, though, is the fact that more people are using more medicines, often the newest and most expensive kinds.

There are many reasons for this surging demand—an aging population, for example, new drugs for old conditions, and a shift from surgery to drugs as preferred treatment.

But a major question is to what extent the drug industry itself adds to the demand by aggressively promoting drugs to consumers and doctors. In 2000 the industry spent close to $16 billion doing that.

The High Price of Advertising

Advertising directly to consumers is one of the most controversial practices the drug industry uses to market its products.

Supporters of this kind of advertising, which is banned in nearly all other Western countries, say it provides a real service to consumers, informing them of new drugs and alerting them to health problems they may be unaware of.

Critics say the ads promote only the most expensive new blockbuster drugs, when older and cheaper ones might be just as effective, thus driving up overall health costs.

In 2000 the drug industry spent almost $2.5 billion on mass media advertising. This was a 35 percent increase over the previous year and more than three times as much as the $791 million it spent in 1996. (See How the Pharmaceutical Industry Promotes Prescription Drugs.)

This rapid growth dates from 1997, when the Food and Drug Administration relaxed its rules on television advertising. And the trend has set off alarms. Rep. Bill Thomas, R-Calif., chairman of the House Ways and Means Committee, wants Congress to examine more closely the impact of consumer ads on drug spending, his aides say. As co-architect of a leading proposal for a Medicare benefit, Thomas sees such advertising, they say, as potentially "a big driver of cost growth . . . and he wants to look at it further."

Sales increases of the 50 most advertised drugs made up almost half of the $21 billion growth in retail spending on prescription drugs from 1999 to 2000, NIHCM found. The 9,850 other drugs on the market accounted for the rest of the 12-month rise. Prescriptions for these 50 drugs rose by 25 percent in the same period, compared with a 4.3 percent increase for all other drugs combined.

The seven most heavily advertised drugs in 2000 included six that are among the drugs most prescribed to older Americans for chronic conditions: Vioxx and Celebrex (both for arthritis), Prilosec (ulcers), Claritin (allergies), Paxil (depression) and Zocor (cholesterol).

Aggressive promotion can pay off big time. Merck, maker of Vioxx, the most promoted drug, spent $161 million advertising it in 2000, and sales of Vioxx quadrupled to $1.5 billion.

In fact, Merck spent more advertising Vioxx, according to NIHCM, than the $125 million spent promoting Pepsi or the $146 million spent on Budweiser beer ads. It even came close to the $169 million spent promoting GM's Saturn, the nation's most advertised car.

The drug industry says its ads not only educate consumers but also prompt people who might otherwise go undiagnosed to see their doctors. Many doctors agree. [For these reasons, AARP publications accept such ads.]

Some economists, though, see the ads as a big driver of consumer demand, known as "utilization." "Drug prices are rising at more than twice the rate of inflation, and utilization is going up even faster," says Steven Schondelmeyer, head of the University of Minnesota's PRIME Institute, which tracks prescription drug trends. "And advertising is a major part of that growth in utilization."

Courting Doctors

Consumer advertising made up the smaller part, 16 percent, of the industry's entire $16 billion promotional bill in 2000. The rest included the $8 billion worth of drugs that companies give doctors as free samples and the $4.8 billion spent on "detailing"—that is, sending representatives to doctors' offices, hospitals, medical schools, and conferences to talk up the drugs they're selling.

The industry employed more than 87,000 marketing reps in 2000, a jump of 59 percent from 1995, according to Boston University researchers.

Again, the industry argues that this kind of promotion provides a valuable educational service, this time to doctors. And indeed drug companies now sponsor so many conferences, meetings, and seminars that it is hard to see where alternative funding might come from if this rich industry didn't foot the bills.

But the companies' generosity in this direction has generated bad publicity in the past year or so, as details have emerged in the press of the way reps woo doctors with free lunches, dinners, tickets to ballgames, skiing trips, and fees for giving talks that promote specific drugs.

Within the medical profession, too, there is a growing backlash against such blandishments. Some doctors refuse to meet drug reps personally, and some medical teaching hospitals have banned free samples.

Three years ago Robert Goodman, M.D., an assistant professor of clinical medicine at Columbia University in New York, felt so strongly that doctors "should not allow themselves to be bought by the pharmaceutical industry," that he created a website called www.nofreelunch.org. That has grown, he says, into a group of 200 like-minded medical professionals.

Goodman says he opposes all free gifts, samples, and sponsorships by drugmakers. "But I fault the profession more than the industry," he says. "The industry is supposed to be making profits and increasing the value of stocks for their shareholders. Doctors have sworn to be committed to their patients. I'd like to change this whole culture of accepting gifts, which has really gone out of control."

Detailed documentation of questionable behavior is cited in a new report on physician-industry relations published this month by the American College of Physicians (ACP).

"Physicians frequently do not recognize that their decisions have been affected by commercial gifts and services and in fact deny industry's influence even when such enticements as all-expenses-paid trips to luxury resorts are provided," writes the report's author, Susan L. Coyle of the ACP's Ethics and Human Rights Committee. "Research, however, shows a strong correlation between receiving industry benefits and favoring their products."

Coyle is equally forthright about drug samples. "The sample mainly serves to encourage physicians to prescribe the new product," she writes. "Because few samples are for older or less expensive products, higher patient costs generally result."

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