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Bentley University Professor Dhaval Dave Examines How a Rise in Advertising Expenditures by Pharmaceutical Companies Affects Consumer Drug Prices

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Bentley University Professor Dhaval Dave Examines How a Rise in Advertising Expenditures by Pharmaceutical Companies Affects Consumer Drug Prices

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Research, News

Changes in federal regulation in the late 1990s spurred spending on direct-to-consumer advertising (DTCA) of pharmaceutical drugs in the U.S. from $150 million in 1993 to $4.24 billion in 2005. It's a policy that remains controversial today, according to Bentley University Associate Professor of Economics Dhaval Dave, whose research, "The Impact of Direct-to-Consumer Advertising on Pharmaceutical Prices and Demand," found that broadcast advertising was responsible for an 18 percent overall increase in prescription drug expenditures in the United States during that period.

"The pharmaceutical industry maintains that such advertising promotes education and health -- opening up lines of communication between the patient and physician, informing patients of potential treatment options, and even increasing patient-physician contact or expanding appropriate treatment for under-treated conditions," says Dave. "Congressional leaders and consumer groups, on the other hand, contend that DTCA raises prescription drug costs and have requested that the policy be revisited."

Dave's study demonstrates that DTCA can have both positive and negative welfare and health effects. In particular, it examines how DTCA impacts prescription drug prices - an often overlooked area but one that is important for determining the extent to which the higher levels of DTCA during the past decade are responsible for rising Rx drug expenditures. 

"Since the public sector bears a large part of these costs, it's important to monitor how DTCA affects the demand and costs of new drugs, and how DTCA may potentially be used to benefit population health by expanding treatment in under-served areas," Dave notes. "Accounting for the drivers of higher health spending is important for informing public policy and health care reform."

The study was cited on the highly-popular economics blog (MarginalRevolution) and a popular pharmaceutical blog (PharmaLot). Findings were also featured in a special column by Professor Dave that appeared in the prominent European Union newsletter/policy analysis site VOX, maintained by the Center for Economic Policy Research.

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