The Impact of Direct-to-Consumer Advertising on Health Insurance Markets
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Direct-to-consumer advertising (DTCA) for drugs has increased from US$200 million in 1997 to US$4 billion in 2011. While studies show that DTCA impacts the patient-physician relationship, little is known of the effect of DTCA on health insurance markets. We test whether DTCA raises the costs in these markets or makes the markets more efficient in drug pricing. Across 212 markets, we examine the impact of DTCA on insurers’ negotiated prices for 166 drugs. Controlling for unobserved pharmacy and pharmacy benefit manager attributes, as well as manufacturer advertising market selection effects, we find that an increase in a manufacturer’s DTCA spending lowers insurer prices and reduces insurance market price dispersion. These competitive effects intensify as DTCA competition increases between drug manufacturers.
Keywordshealth insurance direct-to-consumer advertising pharmaceuticals prices
We are thankful for comments from David Bradford and from participants at the Federal Trade Commission’s Roundtable on Pharmaceutical Economics, the Annual Health Economics Conference at the University of Chicago and the American Society of Health Economists Meetings at Duke University. We thank also Tamer Abdelgawad of Pfizer, Inc., for insightful comments. The views expressed in this paper are those of the authors, and no official endorsement by AHRQ or DHHS is intended or should be inferred.
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