November 28, 2023 Reading Time: 3 minutes

According to the Harvard Medical School, only the United States (since 1997) and New Zealand allow pharmaceutical manufacturers to advertise prescription-only nostrums directly to potential customers. Americans and Kiwis will be bombarded with drugs ads again this holiday season, while readers elsewhere won’t. Although most drug ads make my skin crawl, I don’t call for America or New Zealand to join the rest of the world in banning or limiting them; I call on Americans and Kiwis to protect themselves by not asking their doctors for drugs by name.

The “red pill” (reality) of pill ads is that they are a form of tax-exempt legal bribery that hurts uninformed consumers. The Food and Drug Administration (FDA) monitors direct-to-consumer advertising (DTCA) to ensure that drug ads do not make false or misleading claims. It has, however, done a notoriously bad job at this; Many dangerous drugs remained on the market for years, and some for decades, before the FDA figured out that they were not “safe and effective.” Many were widely advertised before being yanked.

A subtle hint that Big Pharma has influenced, or at least partially captured the FDA is the fact that drug ads reference “side effects,” a euphemism that downplays the importance or severity of the undesirable effects many drugs can cause. The common “dry mouth” effect, for example, sounds innocuous, but according to the Mayo Clinic, it can lead to tooth decay, gum disease, mouth sores, thrush (an oral yeast infection that can spread to the bloodstream with usually deadly results), and inadequate nutrition, which can cause a host of other health problems. Sometimes, a drug will cause the very problem, like depression, that it purportedly reduces! 

Harvard doctors claim that ads raise drug prices by increasing manufacturers’ costs but that doesn’t quite ring true. Pharmaceutical companies must benefit from DTCA in some way or they wouldn’t bother spending over $6 billion a year on it. Even if, as quasi-monopolists, they can pass most of the costs onto consumers and their insurers, Big Pharma’s execs could just pay themselves more instead. Unlike most products, consumers cannot order drugs themselves. A doctor has to agree that the consumer (patient) needs it. Pharmaceutical marketing dollars are directed at both clinicians and consumers.

A study out of Johns Hopkins claims that patients request, and doctors prescribe, advertised drugs more often than drugs that are not advertised. That makes sense, as doctors want to keep their patients happy and possibly get a second office visit fee for treating one or more undesirable “side” effects. 

The biggest boost in sales from DTCA, though, comes from drugs with the lowest efficacy. Such an adverse selection problem is unsurprising as doctors and patients naturally spread the good word about efficacious drugs. It’s the not-so-hot drugs that need the repetition, songs, and other usually emotion-based advertising ploys used in most DTCA. Drugs are costly to develop, so it’s essential to squeeze every possible sale out of them.

That noted, it isn’t clear that DTCA pays for itself. Legal kickbacks to doctors, which take the form of both cash and in-kind payments, must be more cost-efficient than DTCA because such incentives directly influence the ultimate decision-makers: the doctors. Between 2015 and 2017, two in three US doctors received pharmaceutical company kickbacks, over $2 billion worth per year, to promote specific drugs.

So what does Big Pharma gain from DTCA? Tax write-offs, of course, and influence with media companies reliant on their ad spends. Pharmaceutical ads constitute the second-largest source of the media industry’s ad revenue, and as much as three-quarters of the revenue of some outlets. It’s enough to get even big-name news anchors fired if they criticize a pharma company or product. Imagine the chilling effect the power of the pill purse has on mere minions!

About 15 years ago, I suffered from alopecia areata (the loss of a patch of head hair). On my doctor’s advice, I reduced the root cause, stress, and applied some goop to the affected area. The treatment worked and I don’t even recall the goop’s name. If I relapse, I will again seek medical advice on the matter but I will not request the drug treatment that I recently saw advertised. If the doctor prescribes it, I will ask if she is certain that it is the best medicine. It is, after all, advertised DTC, which is a contraindication (doc speak for a reason not to prescribe it). 

Suppose all Americans and Kiwis look to their own self-interest by avoiding DTCA drugs whenever possible. In that case, drug manufacturers would have an incentive to stop DTCA of their own accord, especially if tax authorities and/or members of Congress began to question the validity of the deductions, once it became clear that more advertising leads to fewer sales. Consumer education and the elimination of government subsidies can do the same work as a ban, without costing taxpayers or feeding the administrative state.

Robert E. Wright

Robert E. Wright

Robert E. Wright is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019). He has also (co)authored numerous articles for important journals, including the American Economic ReviewBusiness History ReviewIndependent ReviewJournal of Private EnterpriseReview of Finance, and Southern Economic Review. Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997. Robert E. Wright was formerly a Senior Research Faculty at the American Institute for Economic Research.

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