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

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  • Abby Alpert
  • Darius Lakdawalla
  • Neeraj Sood

Abstract

Pharmaceutical firms currently spend over $4 billion on direct-to-consumer advertising (DTCA) of prescription drugs, a nearly 30-fold increase since 1993 that has led to much debate about its value to patients. We examine how DTCA influences drug utilization along the extensive and intensive margins by exploiting a large and plausibly exogenous shock to DTCA driven by the introduction of Medicare Part D in 2006. Using data on advertising for local media markets from Nielsen, we show that Part D led to large relative increases in DTCA in geographic areas with a high concentration of Medicare beneficiaries compared to areas with a low concentration. We examine the effects of this sudden differential increase in advertising on non-elderly individuals to isolate the effects of advertising on drug utilization from the direct effects of Part D. Using data from pharmacy claims, we find substantial differential increases in drug utilization that mirror the increases in DTCA after Part D. These effects are driven both by increased take-up of treatment and improved drug adherence. Our results imply significant spillovers from Medicare Part D onto the under-65 population and an important role for non-price factors in influencing prescription drug utilization.

Suggested Citation

  • Abby Alpert & Darius Lakdawalla & Neeraj Sood, 2015. "Prescription Drug Advertising and Drug Utilization: The Role of Medicare Part D," NBER Working Papers 21714, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21714
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    7. Robert Nathenson & Michael R. Richards, 2018. "Do coverage mandates affect direct-to-consumer advertising for pharmaceuticals? Evidence from parity laws," International Journal of Health Economics and Management, Springer, vol. 18(3), pages 321-336, September.

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    More about this item

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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