Potential Effects of a Ban on Direct-to-Consumer Advertising of New Prescription Drugs

May 26, 2011

Direct-to-consumer (DTC) advertising of prescription drugs has elicited various concerns. One concern is that DTC advertising may add to spending on drugs by consumers, insurers, and the federal government without providing enough benefits to justify that spending. Specifically, some observers worry that DTC advertising encourages broader use of certain drugs than their health benefits warrant. Another concern is that DTC advertising for newly approved drugs may lead people to use drugs whose potential risks were not fully discovered during the drug approval process.

Those concerns have spurred recent proposals for a moratorium on advertising brand-name prescription drugs to consumers during the first two years following a drug’s approval by the Food and Drug Administration. The Congress has considered, but has not adopted, several bills in recent years that would limit DTC advertising of prescription drugs.

The magnitude of any effects of a moratorium on direct-to-consumer advertising for newly approved drugs would probably be small because a small share of drugs would be affected. Nevertheless, a moratorium would affect other marketing strategies used by drug manufacturers and the quantities and prices of certain drugs sold.

To highlight some of those effects, a CBO issue brief released today draws on data documenting DTC advertising and other promotional activities used by pharmaceutical producers as well as academic analyses of how advertising has affected the market for drugs. The expected effects of a moratorium include these:

  • Drug manufacturers would probably expand their marketing to physicians to substitute for at least some of the banned advertising to consumers. 
  • The number of prescriptions filled would probably decrease for some drugs. For other drugs, the number of prescriptions might be little changed, owing both to the likely substitution of other types of promotions and to the various other factors that influence a drug’s reach in the prescription drug market.
  • Any change in prescription drug prices would depend on changes in demand; to the extent that the effects on demand are likely to be limited, so too are the effects on prices.

In addition, a moratorium could affect public health. Although it would allow more time for possible safety problems with some drugs to be uncovered and to become widely known, some individuals who would benefit from a new drug might be unaware of its availability and not seek treatment in the absence of consumer advertising. Thus, the health effects of a moratorium would depend on whether the benefits of fewer unexpected adverse events were larger than the health costs of possibly reduced use of new and effective drugs.

To learn more about promotional spending on prescription drugs, see our December 2009 brief on this topic.

This brief was prepared by Sheila Campbell of CBO’s Microeconomic Studies Division.