DTC prescription drug advertising

John Pickering at SciBlogs' Kidney Punch recommends banning direct-to-consumer drug advertising in New Zealand. He writes:

New Zealand is one of the few countries in the world where pharmaceutical companies are allowed to advertise to consumers directly.  I believe this is detrimental to our health and I call on the government to ban the practice immediately.

I expect that the case against DTC advertising is weakest in New Zealand, precisely because of Pharmac. But let's walk through it.

Let's begin with the best case against DTC advertising. Brekke and Kuhn, 2006, argue in the Journal of Health Economics that DTC encourages manufacturers to provide greater detailing (lobbying physicians about their drug's particularistic benefits) and so better to segment the market; this allows manufacturers to increase the price of their drug with less harm to their drug's relative demand. Where consumers are not price sensitive, this can lower consumer welfare - if somebody else is paying for the drug, and the one on the ad seems shiny, why worry about the price?

Now let's think about the New Zealand pharmaceutical market. Pharmac is the government's drug-buying agency. They develop a schedule of drugs worthy of funding based on clinical effectiveness and cost; people can buy non-funded drugs, but it comes out of their own pocket unless they have private health insurance that covers non-funded medications. The cost jump in moving from scheduled to non-scheduled pharmaceuticals then is substantial.

And, physicians seem reluctant even to mention treatments that could be off-schedule. Based here on personal experience, we almost had to pry out of our physician a list of non-funded vaccinations that she thought worthwhile but that weren't on the funded schedule. Had we seen ads for a chicken pox vaccine, we would have been made (expectationally) better off; we didn't know one existed until we heard about it from friends in the States.

Consumers here will not be price sensitive among scheduled drugs, but they should be when going off-schedule. And all the drugs on the schedule have already been vetted for cost-effectiveness. Maybe there could be some second-order distortions where DTC could lead a consumer to ask for a scheduled drug for an off-label use for which it's less effective than some other scheduled drug. If we expect doctors here would fail to provide alternative advice, either because the kinds of patients who do all their research online before coming to the visit are a hassle to deal with, or because they've been lobbied by the manufacturers of DTC-advertised products already, then this could yield some losses. And maybe this could hold for some on-schedule drugs still here under patent, but losses will remain lower than in regimes without the kind of price controls that New Zealand has.

So, if there is a case for banning DTC advertising, it would seem weaker here than elsewhere.

It's also not completely clear that DTC advertising is all that bad. Calfee, Winston and Stempski (2002) find that DTC advertising of statins did not result in any increase in statin prescriptions but seemed instead to have increased the proportion of those on statins whose treatment was successful; they interpret this as that patients on statins were more likely to comply with doctor's orders on their statin prescriptions due to all the happy statin people on the ads. Further, de Frutos, Ornaghi and Siotis (2013) find that better drugs are advertised more heavily; likelihood of flipping to lower-quality drugs then is lower. Jayawardhana (2012) finds that DTC advertising, at least in cholesterol drugs, increases consumer welfare through its informative role: patients who hadn't realised that they ought to see a doctor about a condition turn up at the doctor's office.

In short, there's a pretty big literature on the actual effects of direct-to-consumer advertising of drugs. It's far from obvious that banning it is a good idea, and, in particular, that it would be a good idea here given the structure of our pharmaceutical market. A post on SciBlogs calling for such a ban could profit from some interaction with the literature; one online ad for a drug that could be less effective than some alternatives hardly seems sufficient basis for calls for such a broad policy change.