ECONOMIC AND BUDGET ISSUE BRIEF

Potential Effects of a Ban on Direct-to-Consumer 

Advertising of New Prescription Drugs

Summary and Introduction

Direct-to-consumer (DTC) advertising of prescription 

drugs has elicited various concerns. One concern is that 

DTC advertising may add to spending on drugs by 

consumers, insurers, and the federal government without 

providing enough benefits to justify that spending; 

specifically, some observers worry that DTC advertising 

encourages broader use of certain drugs than their health 

benefits warrant. Another concern is that DTC advertising for newly approved drugs may lead people to use 

drugs whose potential risks were not fully discovered 

during the drug approval process. Those concerns have 

spurred recent proposals for a moratorium on advertising 

brand-name prescription drugs to consumers during the 

first two years following a drug’s approval by the Food 

and Drug Administration (FDA). Although such a 

moratorium would allow more time for safety concerns 

about a new drug to be revealed, it would entail health 

risks of its own, because some individuals who would 

benefit from a new drug might be unaware of its availability in the absence of consumer advertising.

A moratorium on direct-to-consumer advertising 

might affect other marketing strategies used by drug 

manufacturers and the quantities and prices of drugs 

sold. To highlight some of those effects, this Congressional Budget Office (CBO) issue brief draws on data 

documenting DTC advertising and other promotional 

activities used by pharmaceutical producers as well as academic analyses of how advertising has affected the market 

for drugs. The expected effects of a moratorium include 

the following: 

B Drug manufacturers would probably expand their 

marketing to physicians to substitute for at least some 

of the banned advertising to consumers. 

B The number of prescriptions filled would probably 

decrease for some drugs. For other drugs, the number 

of prescriptions might be little changed, owing both to 

the likely substitution of other types of promotions 

and to the various other factors that influence a drug’s 

reach in the prescription drug market.

B Any change in prescription drug prices would depend 

on changes in demand; to the extent that the effects 

on demand are likely to be limited, so too are the 

effects on prices.

In addition, a moratorium could affect public health. 

That impact is uncertain, depending on whether the 

benefits of fewer unexpected adverse health events were 

larger than the health costs of possibly reduced use of new 

and effective drugs.

Use of and Concerns About DTC 

Advertising

Consumer advertising of prescription drugs and the economic and health concerns that surround it have been an 

issue since at least the late 1990s, when pharmaceutical 

manufacturers intensified their efforts to promote prescription drugs directly to consumers. Until then, drug 

makers had focused their marketing efforts on physicians 

and other health care providers. 

That change came about as a result of new guidelines 

issued by the FDA. In 1997, the agency issued draft regulatory guidance (which was finalized two years later) that 

clarified the rules about the way DTC advertisements in 

the broadcast media present drug information. Since 

then, many prescription drug manufacturers have 

increased their purchases of television and radio air time, 

as well as newspaper and magazine advertising space, to 

make consumers aware of drug makers’ products and 

to encourage consumers to visit their doctors for more 

information. 

In 2008, spending on DTC advertising totaled $4.7 billion, nearly one-fourth of pharmaceutical manufacturers’ 

expenditures for all promotional activities (see Figure 1). 

CBO A series of issue summaries from

the Congressional Budget Office

MAY 2011
2 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

Figure 1.

Marketing Expenditures, by Type, for 

Prescription Drugs

(Billions of 2008 dollars)

Source: Congressional Budget Office based on data from SDI’s 

promotional audits.

Note: Detailing refers to the practice in which pharmaceutical 

representatives make sales calls to physicians and other 

health care professionals to discuss the uses of a particular 

prescription drug and its benefits for patients.

The rest of the $20.5 billion that pharmaceutical manufacturers spent on promotional activities in 2008 was 

directed at physicians and other health care professionals.1

 In a practice called “detailing,” drug makers send 

representatives to visit physicians, nurse practitioners, 

and physicians’ assistants to discuss their products and to 

provide samples and reprints of academic literature on 

their company’s products. Pharmaceutical manufacturers 

also target physicians by advertising their drugs in medical journals and by sponsoring professional meetings and 

events, both in person and online. Except in rare cases, 

promotional spending directed at either consumers or 

physicians is on behalf of brand-name drugs that do not 

yet face competition from generic drugs.

Policymakers have expressed concerns about pharmaceutical manufacturers’ efforts and expenditures to promote 

their prescription drugs. One set of concerns centers 

around whether those promotions may lead to higher 

prices for prescription drugs or to expanded use of advertised prescription drugs—in particular, expanded use of 

drugs that may provide relatively little benefit from that 

additional use. Another set of concerns centers around 

public health and whether expanded use of new drugs 

might expose consumers to unnecessary risk.

Concerns about manufacturers’ efforts to market their 

drugs led an Institute of Medicine committee to recommend in 2007 that the FDA require pharmaceutical manufacturers to refrain from advertising drugs to consumers 

during the first two years following a drug’s approval.2

Although all prescription drugs must undergo testing for 

safety and efficacy before receiving approval from the 

FDA, the expanded patient population that consumes a 

drug once it is released on the market may bring to light 

safety problems that smaller, preapproval clinical trials 

did not reveal. The newest drugs on the market tend to 

be among the most heavily promoted, raising the risk 

that more people will be adversely affected before steps 

can be taken to identify and address such potential safety 

problems.

The Congress has considered, but has not adopted, several bills in recent years that would limit DTC advertising 

of prescription drugs. Some bills would grant the FDA 

the authority to prohibit DTC advertising of a prescription drug for the first two or three years after the drug is 

approved for sale.3

A moratorium on DTC advertising for newly approved 

drugs could have various effects on the marketing of 

prescription drugs, their demand and supply, and public 

health. To study the potential effects of such a ban, CBO 

analyzed data from SDI and IMS Health (two companies 

that collect and sell information on the pharmaceutical 

industry) and reviewed academic research on advertising 

in prescription drug markets. CBO examined data from 

1. Congressional Budget Office, Promotional Spending for 

Prescription Drugs, Issue Brief (December 2009).

1999 2002 2005 2008

0

2

4

6

8

10

12

14

Detailing

Direct to Consumer

Journal Advertisements

Meetings and Events

2. The committee also recommended that the FDA require manufacturers to mark the packaging of new drugs with a special symbol that would alert patients that the product is new and may have 

unknown health risks. See Institute of Medicine, Committee on 

the Assessment of the US Drug Safety System, The Future of Drug 

Safety: Promoting and Protecting the Health of the Public (2007), 

p. 171.

3. See Responsibility in Drug and Device Advertising Act of 2008, 

H.R. 6151, 110th Cong., 2nd sess. (2008); and Food and Drug 

Administration Revitalization Act, S. 1082, 110th Cong., 1st sess. 

(2007). Other proposed legislation would change the effective 

price of DTC promotions for pharmaceutical companies by 

denying them the ability to deduct their spending on DTC advertising as a business expense on their tax returns. See Say No to 

Drug Ads Act, H.R. 722, 112th Cong., 1st sess. (2011); Protecting Americans from Drug Marketing Act, S. 1763, 111th Cong., 

1st sess. (2009); and Fair Balance Prescription Drug Advertisement Act of 2007, H.R. 2823, 110th Cong., 1st sess. (2007).
ECONOMIC AND BUDGET ISSUE BRIEF

POTENTIAL EFFECTS OF A BAN ON DIRECT-TO-CONSUMER ADVERTISING OF NEW PRESCRIPTION DRUGS 3

SDI on promotional activities from 1999 to 2008 and on 

prescription drug sales from 2004 to 2008. 

From IMS Health, CBO received data on prescription 

drug sales from 1999 to 2004. All of the data cover 

brand-name and generic drugs in the classes of medications that include most outpatient drugs that were 

produced in tablet or capsule form and were among the 

top-selling drugs in 2003.4

The Role of Prescription Drug 

Promotion

Selling a prescription drug is a multistage process. The 

first step in that process is typically for a person to 

perceive that there is some benefit in visiting a doctor to 

seek treatment for a health problem. Then, following an 

examination to diagnose the patient’s condition, the 

doctor must determine an appropriate treatment and, 

when warranted, write a prescription. Finally, the consumer must fill that prescription. (In many cases, the 

individual’s insurer can influence prescription drug purchases by determining whether to include a drug on the 

formulary—or list of drugs it covers—and by deciding 

how large a copayment to assign to it.)5

Advertising for most products is intended to make consumers aware that such a product exists, inform them of 

its purpose, and, in some cases, persuade them that the 

advertised product is better than its rivals. The ultimate 

aim of the advertising is to encourage a consumer to 

choose a product and purchase it through whatever retail 

channel is available (typically in a store, by telephone, or 

through a Web site).

Prescription drug advertising cannot prompt consumers 

to take such independent action because they must 

receive a prescription before obtaining a drug; however, 

that advertising can lead them to consult a doctor about 

their condition and to ask about the advertised medication as a treatment option. Only physicians and other 

Table 1.

Promotional Spending for Newly 

Approved Drugs, 1999 to 2008

Source: Congressional Budget Office based on data from SDI’s 

promotional audits.

Notes: Drugs included in one type of spending may also be included 

in other types. For example, the drugs with direct-toconsumer advertising expenditures in their first two years 

also had detailing expenditures in those years, so the 

spending on detailing for those drugs in their first two 

years is included in the calculation of per-drug detailing 

expenditures.

For this analysis, drugs are considered newly approved 

during the first two years following approval by the Food and 

Drug Administration.

health care professionals can write prescriptions, which 

explains why drug manufacturers target them with most 

of their promotional spending. 

Although pharmaceutical manufacturers use DTC advertising to promote only a small set of specific drugs, they 

spend heavily on such advertising for those drugs. From 

1999 to 2008, CBO’s data set included 366 brand-name 

drugs that were promoted to physicians and other health 

care professionals—through detailing, journal advertisements, professional meetings, or some combination of 

the three approaches—during the first two years following approval by the FDA. Of those 366 drugs, 73 were 

also advertised directly to consumers. For those 73 drugs, 

pharmaceutical manufacturers spent an average of 

$71 million per drug on DTC advertising during the 

two-year period that would correspond to a moratorium 

(see Table 1). To promote the larger set of drugs to physicians, manufacturers spent an average of $54 million per 

drug over the two-year period, of which $46 million was 

for detailing. Thus, the average amount spent on advertising to physicians was less than the average amount 

spent on advertising to consumers for those drugs for 

which advertising to consumers occurred. 

4. CBO’s data set includes promotional and sales data for 93 drug 

classes as defined by the IMS Uniform System of Classification. It 

covers a majority of the top 200 (in dollar sales) outpatient brandname drugs sold in solid form (for oral administration) in 2003 

and their closely related therapeutic substitutes. 

5. Pharmaceutical manufacturers promote their products to health 

insurers and pharmacy benefit managers to encourage them to 

include their products on plans’ formularies and to assign those 

products a low copayment. See, for example, SDI, “SDI Reports: 

Takeda Touts New Drugs to Managed Care” (press release, 

Plymouth Meeting, Pa., August 31, 2009).

Type of 

Promotional

Spending

Direct to Consumer 71 73

Detailing 46 335

Meetings and Events 14 242

Journal Advertisements 3 260

Any Type 68 366

2008 dollars) Drugs

per Drug

Two-Year 

Spending

(Millions of Number of
4 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

Figure 2.

DTC Advertising Expenditures for 

Newly Approved Drugs as a Share of 

All Promotional Expenditures for 

Those Drugs

(Percent)

Source: Congressional Budget Office based on data from SDI’s 

promotional audits.

Notes: For this analysis, drugs are considered newly approved 

during the first two years following approval by the Food and 

Drug Administration.

DTC = direct to consumer.

Over the 1999–2008 period, manufacturers varied their 

emphasis on consumers in their promotional spending 

for drugs during their first two years on the market (see 

Figure 2). That variation may have resulted in part from 

the relative newness of DTC advertising in the early part 

of that period because the FDA did not finalize its regulatory guidance on broadcast advertising for prescription 

drugs until August 1999.6

 The changing characteristics of 

the new drugs approved by the FDA over the decade 

probably also contributed to the variation in the emphasis on DTC advertising over time. Between 2004 and 

2006, when DTC advertising peaked as a share of promotional spending for new drugs, a large portion of the 

drugs in CBO’s data set that were less than two years old 

were counted among the top-selling drugs in the country. 

DTC advertising’s share of promotional spending for new 

drugs has declined since then because drugs approved 

more recently have not had such broad potential markets.

Advertising to consumers is frequently used to make the 

public familiar with treatments for common conditions 

that affect a large portion of the population (such as high 

cholesterol, insomnia, or depression), for drugs that 

address chronic conditions, and for medications for 

widely untreated diseases. The top-selling drugs in any 

given year are frequently among the drugs with the largest 

expenditures for DTC advertising.7

 The total dollar value 

of retail sales and the total number of retail prescriptions 

filled for drugs in CBO’s data set that were advertised 

to consumers generally exceeded the retail sales and 

prescriptions for brand-name drugs without such advertising. Between 2004 and 2008, the average annual 

number of prescriptions for brand-name drugs in CBO’s 

data set with DTC advertising was nearly 14 times the 

average annual number of prescriptions for brand-name 

drugs without such advertising. Distinguishing cause and 

effect between advertising and sales is difficult, however. 

For drugs that have large potential markets, pharmaceutical manufacturers may be more likely to spend more on 

advertising to consumers because a substantial share 

of the advertising audience may be candidates to take 

the drug.

In 2007 and 2008, there were fewer newly approved 

drugs in CBO’s data set than in the preceding few years, 

and an even smaller number that were top sellers. Manufacturers submitted and the FDA approved fewer applications for new brand-name drugs than they had a decade 

earlier, and fewer still with large potential markets like a 

number of the drugs that obtained FDA approval in the 

1990s.8

 As a result, among the drug classes in CBO’s data 

set, new brand-name drugs made up a small and shrinking share of all retail sales of brand-name drugs, falling 

from nearly 10 percent in 1999 to less than 2 percent in 

2008.9

The share of brand-name prescriptions attributed to 

drugs within their first two years after FDA approval 

exhibited a similar pattern, suggesting that lower sales, 

rather than declining drug prices, caused the drop in the 

6. Department of Health and Human Services, Food and Drug 

Administration, Guidance for Industry: Consumer-Directed 

Broadcast Advertisements (August 1999).

1999 2002 2005 2008

0

5

10

15

20

25

30

35

40

7. For a more detailed discussion of drugs’ characteristics and promotional spending, see Congressional Budget Office, Promotional 

Spending for Prescription Drugs. 

8. Congressional Budget Office, Pharmaceutical R&D and the 

Evolving Market for Drugs, Issue Brief (October 2009).

9. Over the same period, a qualitatively similar decline in the sales 

of new brand-name drugs as a share of all brand-name drugs 

occurred for drugs purchased through the Medicaid program, 

which includes a broader set of drugs than those in CBO’s data 

set.
ECONOMIC AND BUDGET ISSUE BRIEF

POTENTIAL EFFECTS OF A BAN ON DIRECT-TO-CONSUMER ADVERTISING OF NEW PRESCRIPTION DRUGS 5

share of retail sales for new drugs. New drugs accounted 

for 7 percent of brand-name prescriptions in 2004, but 

that share fell to less than 2 percent in 2008. The total 

number of brand-name prescriptions in CBO’s data set 

was dropping at the same time, from roughly 1 billion in 

2004 to roughly 700 million in 2008, while the total 

number of prescriptions for generic drugs increased at a 

double-digit pace; during that period, patents expired 

for a number of older brand-name drugs, and prescriptions shifted to new generic versions of those drugs. 

The combination of a declining number of brand-name 

prescriptions and a declining share of those prescriptions 

representing new drugs meant that the number of 

prescriptions for new brand-name drugs plummeted. The 

number of prescriptions for newly approved brand-name 

drugs without DTC advertising fell from 19 million in 

2004 to 5 million in 2008, and the number of prescriptions for newly approved brand-name drugs with DTC 

advertising dropped from 61 million in 2004 to 7 million 

in 2008 (see Figure 3). 

Potential Effects of a Moratorium on 

DTC Advertising in a Drug’s First Two 

Years 

In the context of overall sales and use of prescription 

drugs, the magnitude of any effects of limiting direct-toconsumer advertising for newly approved drugs would 

probably be small because such a small share of drugs 

would be affected. Nevertheless, the impact on sales and 

use of individual drugs could be substantial because a 

number of changes could occur in response to a 

moratorium on advertising to consumers.

Promotional Spending Patterns

A moratorium that forced pharmaceutical manufacturers 

to discontinue DTC advertising for drugs in their first 

two years following FDA approval would probably alter 

the timing and the amount of promotional spending in 

general, and would certainly alter spending on DTC 

advertising in particular, for some drugs. Pharmaceutical 

manufacturers’ promotional spending patterns—their 

choices about how much to advertise a drug and how to 

balance those advertisements between consumers and 

physicians—depend on a number of different factors, 

including the drug’s characteristics, the intended population of patients, the competitive environment in which 

that drug is sold, and the drug’s historical sales. Moreover, 

once a drug has been on the market for a time, its sales 

history may yield further information about how well 

known it is to patients and physicians, the brand loyalty 

Figure 3.

Number of Retail Prescriptions of 

Brand-Name Drugs, by DTC 

Advertising Use and Age of Drug

(Millions)

Source: Congressional Budget Office based on data from SDI’s 

promotional audits.

Notes: For this analysis, drugs are considered newly approved 

during the first two years following approval by the Food and 

Drug Administration.

DTC = direct to consumer.

of the patients taking it, and whether it is preferred over 

its therapeutic substitutes. In light of all of the factors 

that affect promotional spending and all of the alternative 

options for that spending, a moratorium on DTC advertising for the first two years following FDA approval 

could have a variety of effects on the timing, amount, and 

patterns of drug makers’ spending on marketing. 

Pharmaceutical manufacturers faced with a moratorium 

on DTC advertisements for new drugs could substitute 

other types of promotion for the banned activities while 

the moratorium was in effect. In many cases, drug makers 

would probably expand their promotions to physicians 

by spending more on detailing, professional meetings, 

and journal advertisements. An expanded effort to market the drugs affected by a DTC moratorium to physicians would be a reasonable, but not perfect, substitute 

for DTC advertising for many drugs. For some drugs, 

however, a moratorium might so significantly reduce the 

ability of physician-oriented marketing to increase sales 

that drug companies would spend less on marketing 

those drugs to physicians under such a moratorium. 

2004 2005 2006 2007 2008

0

100

200

300

400

500

600

DTC, Not

Newly Approved

No DTC, Not

Newly Approved

DTC, Newly

Approved No DTC, Newly

Approved
6 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

Substituting promotions to physicians for banned advertising to consumers could be especially important for 

brand-name drugs that have close competitors. Physicians consider competing drugs when determining which 

to prescribe to patients, so they could be an important 

audience for manufacturers trying to improve—or at least 

maintain—their competitive positions. Alternatively, if a 

ban on DTC advertising addressed only product-specific 

advertising, drug makers might shift their efforts toward 

disease advertising to consumers that omitted any mention of a specific product and instead described the condition a drug is approved to treat and encouraged patients 

to contact their doctors to discuss treatment options.10

That strategy would be likely to work best for drugs without close competitors, because they have no clear substitutes that could benefit from any increase in demand 

from the advertisement.

When the period of the moratorium expired for a drug, 

its manufacturer could compare the drug’s sales to the size 

of the market for that drug. If there was a substantial gap, 

the drug company might look to DTC advertising to 

help close it in the years remaining before generic competitors entered the market. To quickly improve sales 

before patent protection expires, drug makers could 

even spend more on DTC advertising over the life of a 

drug than they would have spent in the absence of a 

moratorium. 

On the other hand, the literature on the effects of DTC 

advertising on drug sales suggests that sales of some drugs 

that pharmaceutical manufacturers would otherwise 

advertise to consumers might not be substantially 

affected by a moratorium on advertising in the first two 

years of a drug’s life. For those drugs, the sales volume 

during the moratorium might lead a pharmaceutical firm 

to advertise at a lower level than it would have without 

the moratorium or to forgo DTC advertising altogether 

in later years.

Demand, Supply, Prescriptions, and Prices

Pharmaceutical manufacturers advertise their products 

directly to consumers in an attempt to boost demand for 

their products and thereby raise the price that consumers 

are willing to pay, increase the quantity of drugs sold, or 

achieve some combination of the two. For prescription 

drugs, that task may be more difficult than for other 

products because the decision to purchase a prescription 

drug is not entirely the individual’s; rather, it depends 

also on his or her physician’s decisions about what to 

prescribe and, in many cases, his or her health insurer’s 

choices about what to cover. As a result, even if an advertisement increases an individual’s demand for a drug, it 

may not translate into more prescriptions or higher prices 

for the advertised drug.

Although the expense of DTC advertising may contribute significantly to the total cost to produce and sell a 

drug, that expense does not vary automatically with the 

amount of a drug that the manufacturer produces or distributes.11 DTC advertising is therefore not likely to be a 

factor in determining a firm’s supply of a drug in the 

short term, but it may have an effect on long-run decisions about new drug development. 

Prescriptions. Among the drugs in CBO’s data set, the 

average number of prescriptions written for newly 

approved brand-name drugs with DTC advertising was 

nine times greater than the average number of prescriptions written for newly approved brand-name drugs without DTC advertising. However, the drugs that pharmaceutical manufacturers advertise to consumers are not 

generally equivalent to the drugs that they do not advertise. Treatments for common conditions that affect a 

large portion of the population are a primary focus of 

DTC advertising. Drug makers are less likely to heavily 

advertise products that treat rare illnesses because they 

would have to spend considerable amounts to reach the 

relatively few individuals who have those conditions.12

That factor and others make it difficult to attribute differences in the average number of prescriptions written to 

the DTC advertising itself: Doctors are likely to write 

10. Neither the Institute of Medicine nor the legislation the Congress 

has considered specifies whether the intended moratorium would 

affect all advertisements for a newly approved drug equally or 

whether advertising that mentions diseases and symptoms without 

naming a particular drug would be permitted.

11. Ernst R. Berndt, “Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price,” Journal of Economic Perspectives, 

vol. 16, no. 4 (Fall 2002), pp. 45–66.

12. Although drugs that address rare conditions are not likely to be 

the subject of television or print advertising that reaches a broad 

audience, they may be promoted in a more targeted way online 

through search and banner advertisements or social networking 

sites such as Facebook or Twitter. Data on Internet advertising 

expenditures do not extend beyond banner advertising, however, 

making analysis difficult. The FDA has issued warnings about 

the incompleteness of risk information in pharmaceutical advertising in online searches and is studying advertising in social 

media platforms.
ECONOMIC AND BUDGET ISSUE BRIEF

POTENTIAL EFFECTS OF A BAN ON DIRECT-TO-CONSUMER ADVERTISING OF NEW PRESCRIPTION DRUGS 7

more prescriptions for drugs that can treat a large number 

of patients than they are for drugs with a much more 

limited patient population, regardless of the types of 

promotional efforts for each drug.

A moratorium on DTC advertising in the first two years 

would probably result in a smaller number of prescriptions for some drugs that would have been advertised. 

Several studies have found that DTC advertising spurs 

individuals to visit their doctors, although physicians do 

not always prescribe the drug whose advertisement 

prompted the visit.13 Another study of drugs in five therapeutic classes showed that DTC advertising for a drug 

increased sales of that drug and other drugs in the same 

therapeutic class but did not change each drug’s share of 

the market.14 In two other studies, researchers limited 

their investigations to two or three drugs and found that 

DTC advertising increased prescriptions for some advertised drugs but not for others.15

Another drug characteristic that may factor into the effect 

of DTC advertising on prescriptions is whether a drug 

is a first-in-class treatment or a new competitor in an 

established market. Without the possibility of DTC 

advertising, pharmaceutical manufacturers may see their 

opportunity to create a market for a first-in-class drug 

and to benefit from its monopoly status delayed or 

diminished. That outcome could, in turn, reduce their 

incentive to research and develop new breakthrough therapies. (However, if permitted, the use of advertisements 

that mention diseases and symptoms but do not mention 

a product name could mitigate some or all of the effects 

of a moratorium on DTC advertising for drugs without 

close competitors.) 

For new drugs entering an established market, the 

number of prescriptions written may be relatively 

unaffected by a moratorium on advertising new drugs to 

consumers because drug manufacturers could expand 

their promotions to physicians in that case. Pharmaceutical companies already spend less, on average, on 

consumer advertising for drugs in classes with more 

competitors because patients for those drugs already 

know that treatments are available for their condition.16

Gaining sales for a new entrant in those cases may 

depend more on physicians’ deciding to switch patients 

to the new drug than on patients’ being made aware that 

a new medication exists and seeking treatment they otherwise would not have looked for. 

For older drugs, the moratorium on advertising to 

consumers for their newly approved competitors would 

probably have two competing effects on the number of 

prescriptions for the older drugs. To the extent that the 

DTC advertising for a new drug would have drawn new 

patients to seek treatment and doctors would have prescribed the older drugs to some of those new patients, 

fewer prescriptions would be written for those older 

drugs than would have been written in the absence of 

the moratorium. However, those older drugs could also 

benefit from a moratorium on advertising new drugs to 

the extent that it caused them to lose fewer sales to the 

new entrant than they would have otherwise. That latter 

effect would be more likely to dominate the former effect 

if drug companies’ expanded marketing to physicians 

was less successful in boosting market share than DTC 

advertising would have been.

Prices. Analysis of pricing practices in the pharmaceutical 

industry suggests that a moratorium on DTC advertising 

for new drugs would affect the prices of prescription 

drugs for which it changed the demand. For example, the 

price of a drug that would have been advertised to consumers in the absence of the moratorium would generally 

be lower than it would have been if demand was smaller 

as a result of the moratorium. In many cases, however, 

13. Toshiaki Iizuka and Ginger Zhe Jin, “The Effect of Prescription 

Drug Advertising on Doctor Visits,” Journal of Economics & 

Management Strategy, vol. 14, no. 3 (September 2005), pp. 701–

727; John E. Calfee, Clifford Winston, and Randolph Stempski, 

“Direct-to-Consumer Advertising and the Demand for 

Cholesterol-Reducing Drugs,” Journal of Law and Economics, 

vol. 45, no. S2, pt. 2 (October 2002), pp. 673–690; W. David 

Bradford and others, “How Direct-to-Consumer Television 

Advertising for Osteoarthritis Drugs Affects Physicians’ Prescribing Behavior,” Health Affairs, vol. 25, no. 5 (September/October 

2006), pp. 1371–1377; and Joel S. Weissman and others, 

“Physicians Report on Patient Encounters Involving Direct-toConsumer Advertising,” Health Affairs, Web exclusive (April 28, 

2004).

14. Meredith B. Rosenthal and others, Demand Effects of Recent 

Changes in Prescription Drug Promotion (Menlo Park, Calif.: 

Henry J. Kaiser Family Foundation, June 2003).

15. Michael R. Law, Sumit R. Majumdar, and Stephen B. Soumerai, 

“Effect of Illicit Direct to Consumer Advertising on Use of 

Etanercept, Mometasone, and Tegaserod in Canada: Controlled 

Longitudinal Study,” British Medical Journal, vol. 337, no. 7669 

(September 6, 2008); and Bradford and others, “How Direct-toConsumer Television Advertising for Osteoarthritis Drugs Affects 

Physicians’ Prescribing Behavior.”

16. For more details, see Congressional Budget Office, Promotional 

Spending for Prescription Drugs.
8 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

pharmaceutical manufacturers would probably respond 

to a moratorium on DTC advertising by substituting 

other types of promotional activities that would mitigate 

the drop in demand, so a ban on advertising new drugs 

could have little effect on the prices of some drugs subject 

to the ban.

Insurance coverage for prescription drugs may also limit 

the effect that a moratorium on consumer advertising of 

new drugs has on demand for those drugs and therefore 

on drug prices. Insurers decide which drugs to include on 

their formularies (the lists of prescription drugs whose 

purchase is covered, at least to some extent, by the insurance) partly on the basis of the prices, rebates, and 

discounts they are able to negotiate with drug manufacturers.17 To encourage their subscribers to choose certain 

drugs, insurers set lower copayment or coinsurance 

amounts for those drugs. As a result, individuals’ demand 

for certain drugs can depend as much on insurers’ actions 

as on drug makers’ promotional activities, including 

DTC advertising.

Older drugs not directly subject to a moratorium on consumer advertising could still see their prices affected by a 

ban on DTC advertising for newly approved drugs. To 

the extent that those older drugs would have benefited 

from new competitors’ advertising pushing up demand 

for all the products in the market, a moratorium on that 

advertising would result in lower demand and thus lower 

prices for those incumbent drugs. However, to the extent 

that advertising for the new drug would have drawn 

demand away from older drugs, drug makers might face 

higher demand and be able to charge higher prices for the 

older drugs than they would have in the absence of a 

moratorium.

Public Health

Concerns about large numbers of patients taking drugs 

whose safety and possible side effects might not be fully 

understood underpin proposals to impose a two-year 

moratorium on DTC advertising for newly approved 

prescription drugs. Indeed, researchers have found a link 

between the promotional activities that pharmaceutical 

manufacturers use to expand the market for their drugs 

and increased reporting to the FDA of adverse events 

from a greater number of people taking those drugs.18

A moratorium on consumer advertising would provide 

more time for possible safety problems with some drugs 

to be uncovered and to become widely known. 

However, a moratorium on DTC advertising that delayed 

the widespread use of new drugs could also worsen—

rather than enhance—public health in some ways. 

Positive effects on health from DTC advertising could 

be lost or delayed: Some studies have found that DTC 

advertising spurs individuals to seek treatment when they 

otherwise might not and improves patients’ compliance 

with prescribed drug regimens.19 Therefore, for drugs 

whose health benefits outweigh their safety and other 

concerns, a moratorium might reduce their use by a portion of the population who would benefit from the drugs. 

Moreover, in some cases, a moratorium on consumer 

advertising could postpone the realization of a drug’s true 

risks—if, for example, the number of people taking the 

drug was reduced enough by a moratorium that the full 

risks were not discovered as quickly. 

18. Guy David, Sara Markowitz, and Seth Richards, The Effects of 

Pharmaceutical Marketing and Promotion on Adverse Drug Events 

and Regulation, Working Paper 14634 (Cambridge, Mass.: 

National Bureau of Economic Research, January 2009).

19. Iizuka and Jin, “The Effect of Prescription Drug Advertising on 

Doctor Visits”; and Marta Wosinska, “Direct-to-Consumer 

Advertising and Drug Therapy Compliance,” Journal of Marketing 

Research, vol. 42, no. 3 (August 2005).

17. For more details, see Congressional Budget Office, Prescription 

Drug Pricing in the Private Sector (January 2007).

This brief was prepared by Sheila Campbell. It and 

other CBO publications are available at the agency’s 

Web site (www.cbo.gov).

Douglas W. Elmendorf

Director