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The Impact of Direct-to-Consumer Advertising on Health Insurance Markets

William Encinosa (), Chad Meyerhoefer, Samuel Zuvekas () and Dongyi Du ()
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William Encinosa: 1] McCourt School of Public Policy, Georgetown University, 37th Street NW and O Street NW, Old North #100, Washington, DC 20057, U.S.A.
Samuel Zuvekas: Agency for Healthcare Research and Quality, 540 Gaither Road, Rockville, MD 20850, U.S.A.
Dongyi Du: Food and Drug Administration, Center for Devices and Radiological Health, 10903 New Hampshire Avenue, Silver Spring, MD 20993.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2014, vol. 39, issue 4, 749-767

Abstract: Direct-to-consumer advertising (DTCA) for drugs has increased from US$200 million in 1997 to US$4 billion in 2011. While studies show that DTCA impacts the patient-physician relationship, little is known of the effect of DTCA on health insurance markets. We test whether DTCA raises the costs in these markets or makes the markets more efficient in drug pricing. Across 212 markets, we examine the impact of DTCA on insurers’ negotiated prices for 166 drugs. Controlling for unobserved pharmacy and pharmacy benefit manager attributes, as well as manufacturer advertising market selection effects, we find that an increase in a manufacturer’s DTCA spending lowers insurer prices and reduces insurance market price dispersion. These competitive effects intensify as DTCA competition increases between drug manufacturers.

Date: 2014
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