Monday, November 23, 2009

Did State Medicaid Programs Finance Plavix Direct-to-Consumer Advertising?

When the November 15, 2009, AARP Rx Watchdog Report revealed that manufacturer prices for widely used brand name drugs have climbed dramatically over the last year, despite a negative general inflation rate, many people -- including several Congressmen -- suspected “price gouging” in anticipation of future cost containment under new healthcare legislation.

But there may be another type of drug "price gouging" going on -- deliberately raising drug prices to cover the cost of Direct-to-Consumer advertising (DTCA)!

A new study published in today's issue of the Archives of Internal Medicine (“Costs and Consequences of Direct-to-Consumer Advertising for Clopidogrel in Medicaid”; Arch Intern Med. 2009;169[21]:1969-1974) offers evidence that drug price increases are engineered to cover the costs of DTCA.

The authors of the paper examined pharmacy data from 27 Medicaid programs from 1999 through 2005. They analyzed changes in the number of units of clopidogrel (Plavix) dispensed, cost per unit dispensed, and total pharmacy expenditures.

What’s interesting about this study is that it was able to compare volume and costs before and after DTCA initiation. Plavix has been marketed extensively using DTCA starting in 2001, several years after it was initially released. There was no DTCA for Plavix from 1999 to 2000. From 2001 to 2005, U.S. spending on DTCA for Plavix exceeded $350 million, an average of $70 million per year. “This preliminary analysis of an ideal case study,” said the authors, “allowed us to estimate changes in prescribing after the initiation of DTCA, while controlling for existing pre-DTCA trends.”

“One could surmise that DTCA might lead to increased expenditures via 3 mechanisms,” noted the authors. These are:
  1. Increased use as a result of marketing directed to patients would lead to increased total pharmacy costs.
  2. Regardless of increased use itself, pharmaceutical companies might try to offset the expense of DTCA—more than $5 billion in 2006—by increasing the price of the advertised drug.
  3. If manufacturers expect or receive an expanded indication for a particular product, they may both increase price and initiate DTCA.
According to DTC expert, Bob Ehrlich, “DTC is a tactic to improve sales not the fundamental driver of sales. For blockbuster drugs like Lipitor DTC may account for an incremental 1-2% of sales. The best DTC campaigns may provide a higher boost to sales, maybe up to 10% of the total for lifestyle drugs” (see "Business Week on DTC").

In other words, experts like Ehrlich support mechanism #1 above and contend that DTCA boosts sales volume and use of the advertised drug. Therefore, drug prices are not linked to DTCA according to these experts.

The authors of the Plavix/Medicaid study, however, did not find a spike in sales after initiation of Plavix DTCA. What they did find was a spike in unit cost, which supports mechanism #2. In essence, the drug companies that market and sell Plavix – sanofi-aventis and BMS – may have raised the price it charges Medicaid for Plavix in order to cover the costs of direct-to-consumer advertising! This is an interesting finding, especially if it can be generalized for all DTC-promoted drugs. It certainly should be of interest to the federal and state governments that pay for Medicaid drug benefits!

Here are the "smoking gun" data charts published by the authors:


The number of clopidogrel units per 1000 enrollees per quarter in 27 Medicaid programs from 1999 through 2005. The vertical line and the gray bar indicate the start of network news advertising in the fourth quarter of 2001. The solid lines represent the fitted interrupted time series analysis, and the dashed line represents the expected use rate based on the pre–direct-to-consumer advertising (DTCA) trend. The analysis indicated no statistically significant change in either the level (P=.18) or the trend (P=.10) after DTCA initiation. Copyright © (2009) American Medical Association. All rights reserved.

Pharmacy reimbursement per unit of clopidogrel per quarter in 27 Medicaid programs from 1999 through 2005. The vertical line and the gray bar indicate the start of network news advertising in the fourth quarter of 2001. The solid lines represent the fitted interrupted time series analysis, and the dashed line represents the expectation based on the pre–direct-to-consumer advertising (DTCA) trend. The analysis indicated a significant increase in level of $0.40 per unit after DTCA initiation (95% confidence interval, $0.31-$0.49; P<.001). It indicated no statistically significant change in the existing trend (P=.66). Copyright © (2009) American Medical Association. All rights reserved.

An interesting factoid:

The authors estimate the overall increase the 27 state Medicaid programs paid for Plavix amounted to $207 million. These 27 programs account for 67% of all Medicaid enrollment. If we expand the estimate to cover the other 33% of Medicaid enrollees, then Medicaid may have paid over $300 million in increased costs, which covers practically all of the $350 million spent on Plavix DTC during the period studied!


  1. I'm new to the field so forgive my ignorance. But does anyone believe the pharma claims that DTC marketing only increases sales by 1-2%? Would that be enough to justify the huge marketing budget?

  2. Sarah:

    First of all, that 1-2% figure can amount to $20 million dollars for a blockbuster drug that sells a billion dollars per year, so it's not as benign a figure as it sounds! Also, blockbuster drugs generally sell well regardless of DTC advertising for several reasons, but mostly because the clinical evidence is so compelling that they are already listed on formulary with major health insurers. Once a drug is on formulary it is reimbursed, and as such tends to sell in greater numbers. However, the figure can increase to about 10 percent, for example, where a drug is not a blockbuster and not listed on formulary because a good DTC campaign can help the drug get listed due to pressure from plan members for new drugs. An extreme example but one that I think answers your question.

  3. John
    Sorry, but I'm not sure that I understand your link here...DTC and money spent against the consumer/patient in general (DTC in its broadest sense) is a VERY small part of overall pharma budgets. The physician has always received the lion share of mktg budgets and still does for the most part... I never heard of a pharma brand raising its price to cover DTC advertising costs. Pricing always comes under much scrutiny in any pharma company, with many brand teams often the last to know what price increase is planned, but raising price just for DTCA seems like a stretch and not something that comes into the equation that I've ever seen...

    You may feel that DTC A is not a good use of marketing dollars, but I'm not sure that we can make a broad leap that pharma raises its price to cover DTC A...its the smallest part of their budgets to worry about!:-) Enjoy your turkey...Ellen

    ps full disclosure: I did work on the orginal Plavix DTC strategy and campaign development many, many moons ago that included branded and educational strategies...

  4. Ellen,

    It seems to me, in this case, that there was a direct link between raise in unit cost of Plavix and onset of DTC. I did not do this study. If you are questioning the authors' methodology or conclusions, then you should address that rather than cite anecdotal evidence to the contrary.

  5. Anonymous5:55 PM

    On the eve of Thanksgiving, I will shed some lite on this Plavix DTC marketing Turkey. As a former agency insider who was privy to how Plavix allocates spending - there is no accountability for demonstrating ROI. In fact, anyone who even brings up the subject is politely told to drop the subject for their own self preservation.

    DTC ad spending comes annually regardless of tangible results on sales.

    Its basically a sanctioned transferral of taxpayer money to ad agencies with a dont ask, don't tell philosophy.


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