Working Paper: NBER ID: w21714
Authors: 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.
Keywords: Direct-to-consumer advertising; Medicare Part D; Drug utilization; Pharmaceutical advertising
JEL Codes: H51; I10; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| drug utilization increase (H51) | increased take-up of treatments (I12) |
| drug utilization increase (H51) | improved adherence among existing patients (I11) |
| DTCA increase (O39) | non-advertised drug utilization increase (L49) |
| Medicare Part D introduction (H51) | DTCA increase (O39) |
| DTCA increase (O39) | drug utilization increase (H51) |