NY Times on direct to consumer advertising (DCA)

5

Category : Medical Rants, Pharma

Questions on the $3.8 Billion Drug Ad Business

Frequent readers know my disdain for direct to consumer advertising of pharmaceuticals. While this is not the only factor in our increasing drug costs, it does contribute.

The amount of money that the pharmaceutical industry spends on DCA represents a small percentage of their budget, nonetheless it is important. Let me outline the problem.

DCA influences patient expectations. When patients receive a diagnosis, they now sometimes request a name brand drug.

When Emily Martin was hospitalized for emergency gallbladder surgery last summer, her doctors found that she also had acid reflux, causing erosion of her esophagus.

“My stomach was very unsettled,” said Ms. Martin, a 26-year-old mother in Oradell, N.J. So she asked her doctor for Nexium, the “purple pill” that is the nation’s most widely advertised prescription drug. “I saw the commercial and they showed people talking about immediate and miracle relief,” she said.

It has worked, without side effects, said Ms. Martin, who pays only a $30 monthly insurance co-payment for Nexium, which can cost $200 a month or more.

So free market proponents (and frequent readers know that I am a free market advocate) would applaud this. However, I would argue that because most patients are dissociated from drug pricing, we do not have a free market model here.

Nexium is a good PPI, but no better, and more expensive than its predecessors. I have ranted extensively on this issue in the past – thus let me link these “golden oldies”:

Why I’ve lost respect for the pharmaceutical industry

Thoughts on pharmaceutical developments

Just say no to Nexium

The problem with Nexium is that the advertising actually works. Rather than buy a less expensive generic, patients “demand” Nexium. And most physicians take the easy way out and prescribe it.

Nexium is typical of the brand-building trend. No one is arguing that the drug poses serious health risks, beyond a slight chance of side effects like headaches and flatulence. Despite clear beneficiaries like Emily Martin, though, many medical experts say most patients would do just as well with various cheaper over-the-counter remedies for indigestion and heartburn, including AstraZeneca’s own Prilosec – a chemically similar predecessor that no longer requires a prescription and sells for $40 a month or less.

“Nexium is no more effective than Prilosec,” said Dr. Sharon Levine, an executive with Kaiser Permanente, the nation’s largest health maintenance organization. “I’m surprised anyone has ever written a prescription for Nexium.”

AstraZeneca, a British-based company, says that it is unfazed by the critics and that the Vioxx backlash would have no effect on its own consumer advertising for Nexium or other drugs. “We’re moving forward undeterred,” said Jim Coyne, a spokesman for the company, whose American division has its headquarters in Wilmington, Del. “We’ve got adequate support for what we say in the ads.”

Currently we have too much DCA (ask almost any physician) but the current administration may allow even more. And DCA leads to increased use of more expensive drug options.

Dr. David A. Kessler, who was the F.D.A. commissioner from late 1990 through 1996 and left before the agency relaxed the advertising rules, said that consumer-directed drug advertising “works best if the benefits of use outweigh the risks of overuse.”

But too many of the campaigns aimed at consumers are “about increasing use, which is about increasing sales,” said Dr. Kessler, who is now dean of the school of medicine at the University of California, San Francisco. “In certain instances, like drugs lowering cholesterol or vaccines, that may be in the public’s interest,” while in others, like drugs for pain, stomach ailments or allergies, “it may not be,” he said, declining to mention any specific drugs.

Many doctors are unlikely to say no to patients who come to them requesting a certain prescription drug by name, as long as it does not seem wholly inappropriate for the condition. Doctors either do not want to alienate patients who can take their business elsewhere, or are often too pressed for time under insurance payment rules to explore fully the alternative treatments.

So even if a patient with frequent indigestion might benefit from an off-the-shelf product – or by better eating and drinking habits – if that patient asks for Nexium, he is likely to get it.

“Patients say, I have a prescription benefit on my insurance, why should I pay for it over the counter?” said Dr. Mary Frank, a family physician in Rohnert Park, Calif. “Until we address that with the public, we are never going to answer the Nexium-versus-Prilosec question.”

Other than in quotes, I have not even mentioned Vioxx. The Vioxx legal battles will eventually influence DCA.

The current administration is on the right side of the malpractice debate, but the wrong side on this issue. Neither party is getting it right, because both sides rely on vested interests for campaign contributions.

I doubt that we can revoke DCA, but I would certainly be willing to testify on behalf of any bill requiring the end of DCA. It distorts patient opinion, physician prescribing and health care costs.

If you have not read my old link on my loss of respect for the pharmaceutical industry, please go back and read it. It provides all the necessary information on the Nexium lunacy.

So remember:

Just say No to Nexium!!!!!!!!!!!!!

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Comments (5)

News Roundup
The Public Health Press has updates on the battle of drug re-importation. While DB takes a whack at the big pharmaceuticals for their huge expenditures on advertising instead of research. The Health Care Blog has an interesting look at the…

I have to argue your point about DCA beefing up the price of drugs. Advertising has the ability to offset the price of development via extended sales.

First, let me point out that every dollar spent on advertising is spent with the understanding that it will bring in more than one dollar in profit. This is a cold hard economic fact. You dont spend more money advertising than you recoup from increased profits.

Second, pricing of a product. You have two main factors that go into a product’s price: the overhead (that which you would spend regardless of how many you sell – ex: R&D) and marginal cost (materials, shipping, etc.). Marginal cost is going to be consistent in pricing, while the overhead is reflected in quantity of the product you expect to sell. The more product sold, the more overhead cost can be distributed. Fewer products sold = higher overhead (dollar amount) incorporated into the cost of each unit.

Third, advertising increases the sales base. More consumers reached leads to more units sold. Pretty much expected, no explanation needed.

So, if advertising widens the sales base and more units are sold, the inherent overhead cost can be spread over more consumers, effectively lowering the ‘overhead factor’ that is added into each unit. Depending on the absolute dollar amounts for overhead versus advertising, this could lead to anywhere between a decrease in price to a slight increase…most likely the former however.

I’ll throw an example in. None of these numbers are real, just used in the effort for simple math. Lets say the overhead cost for a drug is $500, and per unit is $1. Without advertising, a company expects to sell 100 units. They price the drug for zero profit, figuring anything above their target will result in profits. The price per unit is $6 (500 + 1(100) = 600, 600/(100 units) = 6$/unit)

Now, lets say the company spends $100 on advertising and expects to reach an additional 500 consumers. Now we’re looking at 600 consumers, and the break-even price is down to $2 (500 + 100 + 1(600) = 1200, 1200/(600) = $2/unit).

This is an extremely simplified model. There are many other factors that influence drug pricing, advertising, profits, etc. But I just wanted to use it to point out that advertising does not force prices up exorbitant amounts.

If anybody can dig up some statistics I’d really be interested in seeing a real-life scenario. I have a feeling though that it is more complicated than a non-economist such as myself could understand.

**It should also be noted (I didn’t point it out earlier) that overhead includes recouping cost for drugs which do not come to market, fail to turn profit, etc. The WSJ had a piece pointing out that only 1 in 5000 compounds make it to market, and then only 5 of the last 45 (not sure on that stat) drugs on market actually turned a large profit. Anyway, in my rambling I’m just pointing out that there is much more to recoup than the $800M pricetag for just that one drug.

Sorry DB, I know that wasn’t the main point of your post, it was more directed to offset the perception of the intial trackback.

Re: Chris’ example:(price vs expeditures)
On a individual level people care about price per unit so the $2/ unit is nice and the second scenario looks better. But on a macro level some of us are worried about drug expenditures. In the first scenario only $600 is spent on drugs, while $1,200 goes out in the second scenario. (with no obvious benefit for the 500 additional consumers)

My Grand daughter has acid reflux. Any info on this is great. This is great info!

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