High Healthcare Costs and DTC Ads: NPR's Loose Association

A brief history of the direct-to-consumer (DTC) ad biz for prescription drugs, provided today by NPR's "Morning Edition," requires the following contextual notes—largely because the piece falsely implies that DTC advertising is responsible for escalating healthcare costs.

1. While the estimated, annual spend on DTC advertising for prescription drugs is approximately $4 billion (according to most sources), the DTC spend has actually been decreasing since 2006 (from a peak of $5.4 billion). One pundit predicts that the total dollars dished out for DTC ads this year will shrink by 11%. The prevailing speculation for the trend: general economic constraints. Clearly decreases in DTC spending do not parallel steadily increasing healthcare costs, including costs for prescription drugs (see item 2).
2. While prescription drugs (along with "nondurables") are, in fact, the third most costly aspect of the US healthcare system, they account for only about 12% of the overall healthcare spend (and are arguably one of the most cost-effective aspects of healthcare). In 2006, the spend on outpatient care was $850 billion (~41% of overall costs), and that on inpatient care was $458 billion (~22%), according to the McKinsey Global Institute. From 2003 to 2006, the costs for outpatient care, inpatient care, and drugs grew annually at rates of 7.5%, 6%, and 6.9%, respectively. The rise in prescription drug costs is due "almost equally" to an increase in consumed drug volume and a rise in drug costs. These increases have been offset, however, by "a [small] trend toward a less expensive drug mix."
3. While it is generally quoted that Americans received an average of 12 prescriptions in 2008,* they use approximately 10% fewer drugs (on a per capita basis) than Europeans and Australians—again according to the McKinsey Global Institute. Prescription drug prices in the United States are about 50% higher than those for Europeans. (Notably branded drugs for Americans are about 77% more expensive, but US generic drugs are about 11% cheaper.) The higher cost of prescription drugs for Americans is due to the use of a more expensive "drug mix"** and higher drug prices. It is generally believed that higher US drug prices subsidize pharmaceutical R&D for the world; however, the R&D subsidy does not sufficiently explain the higher costs of branded drugs for Americans.

* Note that this statement does not indicate that Americans consume 12 prescription drugs simultaneously on a regular, daily basis.

** Although there is a small trend among Americans toward a less expensive drug mix (see item 2).

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