Direct-to-Consumer Pharmaceutical Advertising

Actuaries should consider DTCPA impact when developing cost projections and setting premium rates Sarah S. Hellems

Photo: Mitchell

From magazine and internet advertisements to television commercials targeted directly to consumers, pharmaceutical manufacturers use a variety of methods beyond simply persuading physicians to promote their products and gain market share. Legal only in the United States and New Zealand, direct-to-consumer pharmaceutical advertising (DTCPA) is a lucrative—and growing—business. In fact, it grew in value from $1.3 billion in 1997 to more than $6 billion in 2016 in the United States.1,2

Studies suggest that DTCPA encourages inappropriate prescribing and utilization of drugs.3 However, proponents of DTCPA claim it benefits patients by encouraging and empowering them to discuss symptoms and conditions with their health care providers.4,5 In 2019, the U.S. Department of Health and Human Services (HHS) proposed changes to the regulations governing DTCPA, but it ultimately blocked them from being implemented after receiving significant pushback from pharmaceutical manufacturers.6,7

Although health actuaries may not be working directly in the pharmaceutical advertising industry, the impact of DTCPA on health care spending is applicable to actuaries’ work. As spend on DTCPA continues to grow in the United States, the potential impact of DTCPA on utilization patterns should be considered when developing overall cost projections and setting premium rates.


DTCPA is defined as the promotion of prescription drug products directly to consumers rather than health care professionals.8 The U.S. Food and Drug Administration (FDA), which regulates prescription drug advertisements in the United States, has identified three types of DTCPA:

  • Product claim advertisements
  • Reminder advertisements
  • Help-seeking advertisements

Product claim advertisements are required to specifically identify a prescription drug and its approved indications, safety and efficacy. Reminder advertisements provide the name of the prescription drug; but, unlike product claim advertisements, they are not required to include approved indications and are prohibited from including information on safety and efficacy. Help-seeking advertisements do not identify or recommend specific drugs, but rather describe a disease or condition.9,10

Media used for DTCPA includes television, radio, newspaper, billboards, direct mailings and the internet.11,12 Brochures that pharmaceutical companies provide to physicians for them to distribute to patients can also be considered DTCPA. However, advertisements in medical journals are intended for health care professionals and thus are not considered to be DTCPA. Likewise, advertisements on pharmaceutical websites are considered to be solicited information and not DTCPA.13

History and Regulation

The FDA’s Office of Prescription Drug Promotion (OPDP) is responsible for overseeing and regulating DTCPA. Formerly known as the Division of Drug Marketing, Advertising and Communications, the OPDP reviews prescription drug advertisements to ensure the accuracy of the information presented.14 Regulations issued in 1969 mandated that DTCPA satisfy the four criteria:

  1. Advertisements must not be false or misleading.
  2. They must provide fair and balanced information on both the risks and benefits.
  3. They must include facts relevant to the product’s advertised uses.
  4. Advertisements must include a “brief summary” identifying every risk in the product’s labeling.15

Throughout the early 1990s, many of the direct-to-consumer advertisements were distributed through print, rather than TV or radio.16,17 Satisfying the FDA’s regulations was less cost-prohibitive with printed advertisements and, as a result, a large proportion of printed DTCPA were product claim ads.18 The advertisements on TV and radio were primarily help-seeking ads, which required less broadcast time because they did not need to include information regarding approved indications, safety and efficacy.19,20

In 1997, the FDA revised the regulations for broadcast ads.21 Rather than needing to include all known risks, pharmaceutical companies only had to include the major risks (major statement) and provide viewers with directions on where to find more detailed information (adequate provision).22,23 The number of broadcasted ads increased dramatically after this change in policy.24 The FDA revised DTCPA regulations once again in 2004 and eliminated the requirement of needing to include the complete prescribing information in printed product claim ads and permitted the inclusion of a “simplified brief summary” in easy-to-understand language.25,26,27

Growth and Impact of DTCPA

After the FDA revised DTCPA regulations in 1997, spending on DTCPA increased by $4.7 billion over 9 years. The number of commercials on TV increased by a factor of nine (72,000 commercials in 1997 compared to 663,000 commercials in 2016). As a whole (TV, internet, print and radio advertisements), the number of drug advertisements increased from 79,000 in 1997 to 4.6 million in 2016.28

With the exception of three therapeutic categories (cholesterol, allergy and osteoporosis), spending on DTCPA increased across all therapeutic categories from 1997 to 2016. Therapeutic categories experiencing the largest increase in DTCPA spending include diabetes/endocrine diseases, dermatology, pain/central nervous systems disorders, arthritis and cancer (see Figure 1). The decline in DTCPA spending for cholesterol, allergy and osteoporosis drugs was largely driven by the loss of patent protections and/or the availability of over-the-counter medications.29

Figure 1: DTCPA Spend by Therapeutic Category

U.S. Spending
Therapeutic Category 1997 2016
Diabetes/endocrine $23 million $725 million
Dermatology $67 million $605 million
Pain/central nervous system $56 million $542 million
Arthritis $27 million $484 million
Cancer $3 million $274 million

Source: Schwartz, Lisa, and Steven Woloshin. 2019. Medical Marketing in the United States, 1997-2016. Journal of the American Medical Association 321, no. 1:80–96.

The results of multiple studies suggest DTCPA contributes to increased prescribing of drugs requested by patients.30 In a national survey, sampled physicians reported that 56 percent of patients who discussed information from DTCPA requested a specific test, medication or specialist referral—49 percent of which were deemed inappropriate for the patient’s course of treatment. Of these inappropriate DTCPA-prompted requests, 69 percent of requests were filled by the physicians.31 The results of another study suggest that physicians were more likely to diagnose a patient with depression if the patient requested a specific medication. The prescribing rate of antidepressants among these physicians was 22 percent higher when patients made DCTPA-prompted requests for specific drugs than when no specific medication was requested.32

Arguments for and Against DTCPA

Proponents of DTCPA claim DTCPA educates and empowers patients, encouraging them to discuss symptoms and conditions with a health care provider. In addition, proponents argue that DTCPA removes the stigma associated with certain conditions and reduces the underdiagnosis and undertreatment of conditions.

On the flip side, opponents argue DTCPA misinforms patients by overemphasizing benefits of a drug and can lead to overutilization due to inappropriate prescribing of the advertised drug.33,34 Opponents also claim that DTCPA is not regulated rigorously enough and sometimes promotes new-to-market drugs before safety profiles are fully known.35

Future of DTCPA

The complete elimination of DTCPA, which is considered to be a form of “commercial speech,” is unlikely due to the protection of free speech by the First Amendment of the U.S. Constitution.36 In 1980, the U.S. Supreme Court developed the “Central Hudson test,” a set of four criteria used to determine whether government regulation of commercial speech is constitutional:

  1. The speech must concern lawful activity and not be misleading.
  2. The government’s interest in regulating the speech must be substantial.
  3. The regulation must advance the government’s interest.
  4. The regulation must be minimally restrictive.37,38

The Central Hudson test has been used to overturn bans on the advertising of alcohol, tobacco and medication.39

On May 10, 2019, HHS, which oversees the FDA, published a rule in the Federal Register requiring pharmaceutical manufacturers to include the list price of the drug in advertisements.40 Scheduled to go into effect 60 days after publication, the rule received significant pushback from pharmaceutical manufacturers. Several manufacturers filed a lawsuit in federal court arguing that the new rule violates their First Amendment rights and would present misleading cost information to patients since the list price of a drug often does not equate to what consumers ultimately pay.41 On July 8, 2019, a federal judge blocked the new rule from going into effect, stating that HHS did not have the authority to impose such a rule.42

Various parties have identified a number of potential changes to DTCPA, with the goal of maximizing benefits while reducing the risks. Some of these changes include:

  • Delaying advertising for new products
  • Banning product-specific ads
  • Requiring pre-approval by the FDA
  • Improving patient comprehension by presenting information at lower literacy levels43

Transparency, total cost of care, aligned incentives and competitiveness are attributes that should be embedded throughout the health care system. Although DTCPA creates awareness of drugs, the total cost to consumers and the health plan is not necessarily transparent, nor is the associated downstream impact on total cost of health care. Furthermore, the expenses associated with DTCPA may increase overall prescription drug costs if the advertised drug neither aligns with the health plan’s formulary nor gains the desired market share. This misalignment of incentives can be partially remediated through the use of online tools that direct consumers to alternatives drug that are available at a lower cost and/or on the health plan’s formulary.

As DCTPA regulations continue to evolve, pharmaceutical manufacturers will need to find ways to advertise their drugs to remain competitive while still benefiting consumers.

Sarah S. Hellems, FSA, CERA, MAAA, is a managing actuary with Optum Advisory Services.

Copyright © 2020 by the Society of Actuaries, Schaumburg, Illinois.