As the cost of prescription drugs continues to escalate and increasingly burden federal and state budgets, pharmaceutical marketing practices are attracting more public attention as one source of the problem.
According to estimates by IMS Health, the leading provider of business intelligence for the pharmaceutical and health care industries, in 2003 the pharmaceutical industry in the United States spent more than $25.3 billion to promote prescription medications (by comparison, the industry spent about $33 billion on R&D) Direct-to-physician (DTP) activities accounted for the bulk of this spending: $5.3 billion was spent on detailing—pharmaceutical sales representatives (PSRs) visiting physicians in offices and hospitals to promote their firm’s drugs—and the retail value of the free drug samples distributed during these visits is estimated at $16.4 billion. Prescription drugs are projected to remain the fastest-growing portion of health care expenditures; by 2012, they are expected to account for 14.5 percent of $3.1 trillion in total health care expenditures, compared with approximately 10 percent of $1.4 trillion in 2001. No wonder the impact of pharmaceutical industry marketing practices is of keen interest to policymakers, the business community and the general public.
Heated debate surrounds DTP activities and their effect on physicians’ prescribing behavior. Many public policy organizations and consumer advocacy groups contend that PSRs compromise physicians’ integrity and significantly influence their prescribing decisions and that this influence has a negative impact on patients’ welfare. Those who hold this view say that PSRs induce physicians to prescribe more expensive branded drugs needlessly, even when generic medications are available.
For its part, the pharmaceutical industry does not dispute that PSRs significantly influence physicians’ decisions on prescriptions. But it argues that the representatives’ influence benefits patients because physicians are provided with valuable information about drugs and, as a result, can make better choices for their patients.
While both sides differ as to whether the influence of PSRs is socially beneficial or harmful, they agree that physicians are significantly influenced by detailing. But is this so? Are physicians “easy marks” for PSRs?
An Empirical Assessment
The controversy surrounding pharmaceutical marketing practices and the ongoing debate about the impact of PSRs’ influence motivated my colleague Professor Robert L. Jacobson of the University of Washington and me to undertake a study to assess the effectiveness of DTP activities. Despite the substantial resources pharmaceutical companies invest in promoting their products and the public attention to the issue, surprisingly little is known about the magnitude of the impact that detailing and sampling have on physicians’ prescribing decisions.
Before our study, much of the evidence about PSRs’ effectiveness was anecdotal. We, however, were able to obtain access to a large database that allowed us to assess the impact that PSRs’ interactions with physicians have on the number of new prescriptions issued by them.
The data were provided by a large U.S. drug manufacturer on one condition: that we ensure the anonymity of the company and the drugs in the study. The study sample involved 74,075 U.S. physicians and three drugs over 24 months, for a total of more than four million PSR interactions with physicians. The three drugs came from different therapeutic areas, had been on the market from less than 1 year to 11 years and had annual sales ranging from less than $500 million to more than $1 billion
For each drug, we empirically assessed the effect that changes in the amount of detailing and sampling had on the number of additional new prescriptions the physician issued. Our results show that physicians are “tough sells,” not “easy marks,” because DTP activities have only a modest influence on prescribing decisions. For the three drugs in our study, the empirical results indicate that it would take an additional 0.64, 3.13 and 6.54 PSR visits, respectively, to induce one additional new prescription, and it would take 6.44, 25.64 and 73.04 additional free drug samples, respectively, to induce one new prescription.
The Research Findings
The graph below shows average effects across the three drugs over time and serves to highlight three main findings. First, the effect of both detailing and sampling is small; for example, a detailing visit generates only 0.05 new prescriptions for the month that visit occurs. Second, the effect persists for a number of months but dissipates over time; at 12 months after the visit, the effect is almost fully dissipated. Third, detailing has a greater effect than sampling.
Finally, we used our results to estimate the total financial returns for detailing and found that for two of the three drugs the returns were negative. In other words, the spending on detailing for two drugs was not recouped by the increases in prescribing. The third drug had positive returns for detailing, which probably stemmed from both the larger physician response to detailing of this drug and the drug’s high price.
Influences on Prescribing Decisions
Several factors can explain why physicians’ decisions on prescriptions are affected, albeit modestly, by interactions with PSRs. First, PSRs provide physicians with information about new and existing drugs and can induce trials of new drugs or new indications. The use of samples makes this easier. Further, PSRs are trained to persuade physicians by effectively presenting—and, sometimes, misrepresenting—facts about the drug.
There are, however, other factors at work that tend to minimize or even neutralize PSRs’ influence. The most important one, perhaps, is that PSRs are are not physicians’ only source of information; scientific papers, advice from colleagues and physicians’ own training and experience also affect prescribing decisions. Indeed, most physicians regard these influences as far more important than that of PSRs.
In addition, many physicians view PSRs skeptically or even negatively and recognize that the information PSRs present is biased toward the promoted drug. Thus, physicians often discount information received from PSRs.
The minimal effect of DTP activities might also be tied to the PSR “arms race” undertaken by pharmaceutical companies: expenditures on detailing doubled between 1996 and 2002. Companies were sending out more representatives to promote the same drugs, often with nothing new to say. Recently, pharmaceutical companies may have realized that this escalation was not fully warranted; in sharp contrast to the previous years, detailing expenditures in 2003 decreased by 17 percent from those in 2002. While the decrease in detailing expenditures was a step in the right direction, pharmaceutical firms need to acknowledge that the returns on detailing for some drugs are negative and consider a more radical change to their sales model.
The concern that pharmaceutical marketing practices compromise physicians’ integrity and have exacerbated increases in public health costs has prompted government action at both the federal and state levels. In 2002, the federal government issued a warning to the drug industry to curtail some of its marketing practices. A number of states have undertaken counterdetailing initiatives in which state employees visit physicians in hopes of persuading them to switch from prescribing branded drugs to lower-cost generic drugs. The results of our study suggest that such costly counterdetailing initiatives are unlikely to be effective and that states’ resources would be better spent elsewhere.
While our study shows that physicians’ prescribing decisions are only moderately affected by DTP activities, we are not implying that this aspect of pharmaceutical marketing practices should not be viewed as a public policy concern. The rationale that is given for high prescription drug prices and against efforts to reduce them—whether through importing lower-priced drugs or allowing the government to negotiate prices—is that pharmaceutical companies need high prices and profits to enable them to undertake the R&D necessary to develop new drugs. Our analysis suggests that the added costs incurred through wasteful detailing either take away from R&D or result in unwarranted costs that are passed along in the form of higher prices.”
Natalie Mizik is an assistant professor of marketing. In addition to direct-to-physician pharmaceutical marketing activities, her research interests include the valuation of firms’ intangible marketing assets.
For further detail on this research, see “Are Physicians ‘Easy Marks’? Quantifying the Effects of Detailing and Sampling on New Prescriptions” (from the December 2004 issue of Management Science) by visiting Columbia Ideas at Work.