Minnesota Gov. Tim Pawlenty’s call for a federal ban on advertising prescription drugs raises an intriguing question that sharply divides economists.
Would society be better off if pharmaceutical companies were barred from placing commercials and ads that extol the benefits of various sleep, cholesterol, blood-pressure, impotence and baldness potions? Would such a ban make our economy more efficient, i.e. satisfying more of people’s needs and wants with the same use of resources, or would people be worse off?
Pawlenty’s proposal is not original. The United States effectively banned such advertising before 1997. Since then, many in the medical community, especially doctors, have argued that the ads entice patients to pressure providers for expensive and often unnecessary prescriptions. They argue the advertising drives up the cost of medical care without improving health. Some consumer groups and health policy analysts echo these charges.
Many economists’ first take on the question would be to oppose any advertising ban. Economists across the political spectrum believe that consumer choice in markets is essential for an economy to use resources effectively in meeting people’s needs. The thinking is that advertising provides information, more information leads to better-informed consumer choices, and better choices result in greater satisfaction of the needs of individuals and families.
Some economists would cling to this argument even on second and third examination. If information is considered a good thing when consumers buy food or automobiles or choose schools for their children, why would it be considered bad in health care? Indeed, many analysts argue that giving consumers better information about the costs, benefits and effectiveness of different providers and treatments is essential in reforming U.S. health care.
Other economists, including many who generally agree on the importance of consumer choice and the value of information, would think advertising limits are a good idea. Again, the role of information is the key variable.
Markets work best when individual decision makers — especially consumers — have good information about the choices they face. Information is good as long as it is complete, accurate or symmetric. Critics assert that retail pharmaceutical advertisements usually are incomplete, asymmetric and often inaccurate or misleading.
Drug ads emphasize benefits from one proprietary drug. They don’t examine alternative treatments. They don’t list competing products, including generic or off-patent alternatives that might be just as safe and effective. They do list possible side effects, but in such a way that consumers have little basis for accurately assessing risk.
When information is bad, economists agree that unregulated market outcomes are not always optimal. That does not mean that any old regulation, including advertising bans, necessarily improves the situation. But it might.
Moreover, markets for prescription drugs, like those of almost all other health care products or services, are far from economists’ ideals of free markets. Many consumers are in private or public health plans that insulate them from the marginal cost of any treatment. If the co-pay is the same for a new, highly advertised drug and for an equally effective older remedy, the consumer has no monetary incentive to consider alternative costs.
When employers or government pick up most of the tab, any scrupulous patient who stints or weighs cost effectiveness does not gain any direct benefit.
The consensus worldwide is that advertising limits represent good policy. Only the United States and New Zealand allow broad advertising of prescription drugs. In both countries, such freedom to advertise is a relatively recent break from a long history of advertising bans.
A majority of economists, including the applied and pragmatic types, probably are sympathetic to the kinds of limits proposed by Pawlenty, a Republican. But a significant minority, including most free-market fundamentalists, would see limits as harmful.
On a practical policy note, Democrat Mike Hatch, Pawlenty’s challenger for the governorship, is entirely correct that advertising bans on prescription drugs are a federal issue over which Pawlenty has no control. There is not the chance of a snowball in hell that the current Republican-controlled Congress would pass such a ban. The Republican Party is as deeply in the pocket of the pharmaceutical industry as the Democratic Party is in the pocket of trial lawyers.
The question of why a state governor chose to issue a proposal on a federal matter is a political one. The governor’s supporters will see reasoned participation in a national policy debate. State and local officials speaking out on national issues is a time-honored tradition in both parties. Pawlenty’s detractors will call it election-year opportunism. Voters will need to choose between the two views.
© 2006 Edward Lotterman
Chanarambie Consulting, Inc.