Pharmaceutical advertising and Medicare Part D

We explore how and to what extent prescription drug insurance expansions affect incentives for pharmaceutical advertising. When insurance expansions make markets more profitable, firms respond by boosting advertising. Theory suggests this effect will be magnified in the least competitive drug classe...

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Bibliographic Details
Published in:Journal of health economics 2013-12, Vol.32 (6), p.1356-1367
Main Authors: Lakdawalla, Darius, Sood, Neeraj, Gu, Qian
Format: Article
Language:English
Subjects:
Advertising
Advertising as Topic
Advertising expenditures
Drug formularies
Drug Industry
Economic Competition - statistics & numerical data
Empirical Research
Expansion
Humans
Insurance
Insurance Coverage - statistics & numerical data
Medicare
Medicare Part D
Pharmaceuticals
Prescription drug plans
Prescription Drugs
Studies
United States
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Summary:We explore how and to what extent prescription drug insurance expansions affect incentives for pharmaceutical advertising. When insurance expansions make markets more profitable, firms respond by boosting advertising. Theory suggests this effect will be magnified in the least competitive drug classes, where firms internalize a larger share of the benefits from advertising. Empirically, we find that the implementation of Part D coincides with a 14–19% increase in total advertising expenditures. This effect is indeed concentrated in the least competitive drug classes. The additional advertising raised utilization among non-elderly patients outside the Part D program by about 3.6%. This is roughly half of the direct utilization effect of Part D on elderly beneficiaries. The results suggest the presence of considerable spillover effects from publicly subsidized prescription drug insurance on the utilization and welfare of consumers outside the program.
ISSN:0167-6296
1879-1646
DOI:10.1016/j.jhealeco.2013.01.001