Bob Ehrlich - DTC Perspectives

We are likely to see a much freer market for health care under the new Trump administration. What does that really mean for consumers and providers? How might it affect drug companies? And to those of us in DTC marketing, does a free market help or hurt our business?

America is not currently a true free health care market and has not been for over 50 years. Our someone else pays health care system has made users of health care unaware of costs. Is my service or procedure covered is what we ask. What is my co-pay is what we care about. Our providers make more money when they do procedures and tests. Patients readily accept this extra care as long as it is paid by insurers.

“DTC advertising will need to deal with price/value issues.”
-Bob Ehrlich

Our government has made our system extremely complex with its variety of programs and regulations. Medicare, Medicaid, The VA, HIPPA, The ACA, the 50 different state requirements, and a myriad of other public and private agencies oversee the most opaque system in the world.

What if we went to a free market where what we spend is truly our money and costs matter? Assume the government gives you a stipend through a tax credit or a cash payment. That is what you have to spend on your healthcare subsidized by government. Anything beyond that you pay. Regulations are loosened to allow you to buy whatever insurance you want, anywhere from an approved company in the 50 states. Health care providers must compete on providing quality care at a price people can afford for services they really need.

Drug companies will need to justify price premiums because consumers are now deciding where to allocate their limited available funds. Insurance companies who are competing on offering low premiums will want to squeeze drug companies as much as possible. That means consumers will have many drug coverage options to choose from and they will not pay higher premiums for me-too drugs. DTC advertising will need to deal with price/value issues.

What about people with pre-existing conditions? This is a complex problem. After all, signing up for insurance generally assumes the negative event has not happened yet. None of us get to buy car insurance after we total our car. So what we need is some way to help people with pre-existing conditions to get help on their costs. This is not insurance, it is compassion from society that prevents people from going bankrupt or dying because they cannot afford care. Instead of calling it insurance and forcing companies to cover these folks, it makes sense to create a special high risk pool subsidized by government.

A true free market is a hard but a doable thing to implement over a decade or so. It means treating health care like other consumer products and shifting purchase decisions to the patient. If prices are transparent, and quality measures are readily available for providers, consumers will make rationale choices.

Free markets give consumers incentives to stay healthy as the cost of prevention are lower than costs of treatment. Many critics say health care is a right better managed by government. They may be right as some developed countries do it well. America can go either way but cannot continue its current system which is neither free market or single payer. Under a free market system we would unleash tremendous forces of innovation that could do great things for patients. It will be a hard road to truly get to a real free market but it is worth a try. After all, that “someone else” paying is really us through higher taxes and insurance premiums and deductibles. We are paying higher per capita for health care than anyone else in the world so we must consider real change.

Bob Ehrlich

President-Elect Trump nominated Georgia Congressman and physician Tom Price to head Health and Human Services. This move proves Trump is very serious in his goal of dismantling Obamacare. Dr. Price has offered a plan in the past very different from Obamacare. I think this is move in the right direction and will eventually improve quality at lower cost.

In Price’s plan Americans would have more free market options to shop for coverage. They would be able to buy insurance across state lines, increasing their choices and hopefully getting lower premiums. There would be tax credits for health insurance purchases differing by age. All the government mandates on what a policy must cover would go away.

Consumers could choose a bare bones catastrophic plan or pay for a comprehensive one. Health savings accounts would increase to shift health care decisions to consumers. In Dr. Price’s view consumers would still be able to purchase coverage with pre-existing conditions but at a premium if they currently do not have coverage. His goal is to encourage continuous coverage and not to have people buy insurance only after they are sick.

Dr. Price basically wants to take the Federal government out of the insurance business by creating more options using free markets. Medicare would stay but Dr. Price wants to allow participants some options to go outside of the system. Critics worry that any options to use money outside of Medicare approved providers would weaken the system. Any inkling that Medicare might be privatized scares Democrats greatly. Republicans want to look at options for younger people knowing that Medicare may not be sustainable long term.

Of course Dr. Price will need to alter his past proposals to whatever Mr. Trump and Congress will agree to. There is no evidence Mr. Trump wants to change Medicare. He also has said recently he likes certain provisions of Obamacare on pre-existing conditions and children up to 26 staying on their parent’s policy.

It is very clear that we will see Dr. Price be implementing a consensus plan that reduces Federal involvement and loosens requirements for policies. The Price philosophy is to give consumers more responsibility for their coverage and they will have more involvement in cost/benefit of care. The idea that someone else pays has created much unnecessary care. We have never really had a free market for health care in recent times. A true free market where consumers have transparency in what they are paying for and at what price will help control costs.

The fear that consumers will be without any coverage is overblown. People who currently have coverage on exchanges will likely have several years to convert to the free market system. While it is true that many Americans can now get subsidized coverage, we as taxpayers are footing a high bill that is rising rapidly. Those who buy on the exchanges who are not subsidized are seeing very large premium increases. Things need to change.

Whether the Trump plan is the answer to providing quality care at reasonable prices will be tested. I do know that the Obamacare plan needs to be dramatically changed as it is unaffordable. Trying free market solutions will get consumers to care much more about what medical services they need and at what cost. More involved consumers using their own money will hopefully lead to a wiser use of services and force providers to compete more on price/quality.

Bob Ehrlich

It is finally over. We have a new President elect. We have a relatively unchanged Senate and House. What does this mean for the DTC Industry? Both candidates were critical of the drug companies during their campaign. President-elect Trump has not said anything about DTC, but he has called for price negotiations with drug companies for Medicare. That would greatly affect drug company profit margins and result in R&D and marketing cuts.

My fear is that there will be lots of bi-partisan support for negotiating price. It may be too hard to say no from a Congress anxious to show its populist bent. The drug lobby may be able to convince Trump that cutting their prices through government negotiations has negative consequences on R&D investment. I doubt Mr. Trump has given the drug business much thought beyond his general comment that billions can be saved through tough negotiations.

The good news for drug companies is there will be a move towards less regulation. I also expect an FDA that is quicker to act on drug approvals. Clearly Trump will want both drug companies and device makers to get cost effective drugs out to the marketplace faster.

Now what about Obamacare? It has proven to be a difficult program to afford for many Americans. Despite the high cost, most of those insured under it will still want access to insurance. Trump will push for more free market options including opening up the insurance market nationally. He will likely have a subsidized program for Americans with pre-existing conditions.

DTC will survive any changes instituted by President Trump. While prices may be pressured to stay lower, I do not think Trump and his business advisors want to kill the drug industry through punitive regulations. Trump is not Bernie Sanders who wanted to punish “evil” drug companies. I am hopeful that a free market oriented approach to health care will be good for America. Opportunities will be plentiful for companies promoting evidence based approaches to delivering care more efficiently.

The Republican Senate and House should be relatively drug company friendly as long as they are not seeing sharply rising prices. The drug companies must exercise some restraint by keeping price increases related to inflation or other justifiable costs. A Trump presidency is highly unpredictable so I expect drug makers to face some uncertainty in the short term.

Bob Ehrlich

After years of unbranded ads for shingles, Merck is now promoting its vaccine by brand name. Why the change? Glaxo just filed for approval for its shingles vaccine and Merck now needs to build up the brand Zostavax. When doctors had one choice Merck did not need consumers to ask by brand name. Soon asking doctors about shingles will not necessarily mean getting Zostavax.

Merck’s Zostavax ad is very different from the Terry Bradshaw disease awareness ads. It shows an active senior aged woman swimming and a voice over describing a slower immune system can lead to shingles. The ad is using British accented actors to represent the virus and the vaccine. I guess there is something about a British accent that adds gravitas.

There are only a few vaccine ads using DTC. Theraflu, Fluzone, and Prevnar 13 are some that have used television. Vaccines are a tough area for DTC because of the relatively low revenue stream they provide. A shot annually, or every five to ten years, does not lend itself to easy payback. Prevnar 13, based on its ongoing spending, appears to be very successful in generating sales. Flu commercials are done only in season so they have a short burst media strategy which helps ROI metrics.

Shingles is a year round problem. It is relatively rare arising in 200,000 people annually. That is about 10 cases for every 1000 people age 60+. About only 28% of the senior population have been vaccinated so there is a lot of room to grow. Clearly Zostavax has the goal to get their brand awareness up in advance of a Glaxo entry. This new 75 second ad is well done as it illustrates what shingles is and how is occurs. Its tone is serious and informational. The swimmer never speaks as the audio track is a play between the voice of the virus saying it is lurking inside and the vaccine saying how it will help prevent outbreaks.

The disease ads previously had Bradshaw and others discuss the painful outbreaks they faced. This ad is more of an announcement type ad relying on the basic information of what shingles is and how Zostavax works. I liked the real people testimonials in the disease ads but understand why as an announcement ad for the brand Merck went this way.

My guess is Merck will shift back to testimonials after establishing strong brand awareness. Their priority now is to get the name Zostavax strongly remembered as the shingles solution. Once Glaxo is out there with its version, Merck will need to offer competitive differentiation. For now, this ad will get the job done.

Bob Ehrlich

In an attempt to mandate lower drug prices California is asking voters to mandate state agencies pay no higher than the Veterans Administration (VA) rate. The VA gets lower negotiated rates than most other payers by as much as 40%. The VA has a formulary and dictates the prices it will pay. Proponents of Prop 61 say it will lower drug prices because it says drug companies can only receive the lower VA price.

It sounds nice but price controls rarely work in practice. Drug companies do not have to sell to anyone. They may just decide the VA price is just too low to justify the sale. Californians may miss out on those newer drugs that drug companies refuse to sell them at the VA price. The VA because it negotiates these low prices does not provide veterans with many of the newest drugs.

Drug companies may face this type of bill in other states. That means they may decide not to sell to the VA at current prices because they know it is the new benchmark used by the states. Therefore, they may play hardball with the VA and thus veterans may not even get the drugs on the current formulary.

Drug price controls sound great but proponents think that they can dictate prices to drug companies and nothing will change. Drug companies will respond by refusing to sell at government mandated prices, or try to raise prices elsewhere to compensate. Anytime the government tries to mess with free market prices problems arise in supply. Liberals, who usually have never run a business, seem to think that the profit motive is ethically wrong. They feel they can decide what a company should make in profit.

Maybe some drug companies will sell California its drugs at VA prices. Many will just forgo the sale knowing the slippery slope they face in other states if they cave to California. Citizens have legitimate concerns over drug prices but price controls have unintended consequences that will reduce choice for those citizens. Prop 61 may pass but it will not be good for Californians when they see newer drugs are no longer sold to them at mandated bargain prices.

Bob Ehrlich

Everyone has an opinion on drug ads. From skits on Saturday Night Live, to the halls of Congress we hear critics mock DTC. Last week I criticized the 9/12 Ad Age story citing terror tactics used by drug marketers. The managing editor, Ken Wheaton, of Ad Age decided to write a follow up column telling pharmaceutical marketers to take a chill pill because he was surprised how they defended their ads in their “terror” story. Ad Age decided to double down in their criticism of drug marketers.

Mr. Wheaton says drug companies are jacking up ad prices to pay for the advertising. This is why these anecdotal stories are so off base. Mr. Wheaton has decided that it is obvious that DTC raises drug prices. Why? Because he says it must be so from his experience. He may be very knowledgeable about general advertising as his title would suggest. He is dead wrong that drug advertising causes high prices. The facts do not support his views. Drug marketers spent a bit over $5 billion on DTC in 2015. That is only about 1.5% of sales. Drug companies do not set their prices based on ad budgets. That might be true in advertising driven consumer brands where ad budgets make up 30% or higher of sales but not where multi billion dollar brands are spending a $50-100 million.

Mr. Wheaton makes some fair points that the drug industry has a reputation problem. He is certainly on point that drug makers must be aware of the negative impact high prices have on this industry image. They have not helped themselves with the recent EpiPen pricing hearings or Martin Shkreli smirking during his hearing day in Washington. Drug companies have the unenviable task of justifying higher prices in the United States versus price controlled developed countries. The American consumer does not like paying more but they also want drug innovation. While the media and political critics doubt the claim that cutting prices will reduce innovation, the economics of the drug business say otherwise. If drug prices were cut 30% to match Europe and Canada, that is coming right out of the bottom line. I challenge any business to reduce its profit in its biggest market by 30% and not affect R&D.

Advertising, however, is not the cause of the pricing issue. Drug companies have had this problem pre and post DTC advertising. Drug ads have become a convenient symbol for criticism of the entire industry. Drug companies do weigh the pros and cons of advertising in terms of causing criticism versus the projected sales increase. What is disturbing is Mr. Wheaton making the unsupported statement that only drug marketers and their marketing partners support their right to advertise. Where is his data that says that? Many consumers would be happy to see drug ads banned, and those folks may even be greater in number than those who want to see drug ads remain on air. Clearly it is not a unanimous view and I suspect many consumers against drug ads feel that way because they think that DTC ads raise their prices.

Mr. Wheaton recommends drug makers stop their ads. Does he feel the same about ads for other products often criticized? What about fast foods, violent video games, beer, explicit music, unproven health supplements, and many others often criticized for causing harm? Mr. Wheaton has taken drug marketers to task for lawfully trying to build awareness of their highly regulated products where every word in their ads is reviewed by FDA. There is no doubt that drug ads are meant to sell product. Drug makers are in the profit business. Profit leads to investment. Advertising allows new competitors to compete with the category leaders.

In a world of no DTC, drug makers will still price as high as the market will bear. That is the same strategy used by every business including what Ad Age charges their advertisers. Mr. Wheaton is very convinced in his anecdotal and observational argument. Ad Age’s Mr. Wheaton is wrong about the facts, however, and in his cynicism about the value of drug ads.

Bob Ehrlich

The latest critical DTC story just appeared in Ad Age on 9/12. It deserves comment because it seems off base. In the title it says big pharma is using terror tactics to scare up sales. The crux of the story is how drug companies are shifting to creative approaches using scare tactics in their ads.

The article cites several examples in the vaccine area for meningitis, whooping cough, anaphylactic shock, and HPV. I take issue with the tone of the article that drug companies are taking a new approach that scares people. These vaccines are meant to prevent life threatening illness and the consequences of not vaccinating can be deadly.

The reporter says that drug ads used to be more cheerful. I guess that is referring to beach scenes, mountains, wheat fields that many had used to show satisfied patients. There were such ads but the idea that drug ads have evolved from cheerful to scary is false. There were ads for drugs in the 90’s that showed wheat fields and others that showed more somber scenes meant to be scary. Ads today also vary greatly from cheery to somber.

Drug ads are meant to motivate discussion with doctors. A scary disease caused by failure to get a vaccine deserves a sober assessment of the situation. Showing a person dealing with a life threatening allergy shows reality. Meningitis can kill, and HPV can cause cancer. Advertising deadly consequences is meant to be scary. The ads referred to as cheerful were those for conditions that were bothersome, but not deadly, such as allergy ads.

The writer, citing industry experts, says that drug companies are using scare tactics as a way to justify high prices. While EpiPen may be high priced, no one can dispute that a child that cannot breathe from an allergic reaction needs a rapid solution. Price has nothing to do with the advertising showing the dire consequences of being without the EpiPen. Would Mylan make a cheerful ad if the drug cost $100 vs. $500?

Drug ads are meant to motivate action. Showing what can happen when not vaccinated is not fear mongering. I have been reviewing DTC ads for over 20 years and there is no new trend to using scare tactics.

Ads have always reflected the seriousness of the disease treated by the drug. Toe fungus and seasonal allergy commercials can have a lighter tone than HIV or heart failure ads. While it is true that many of the ads cited do scare people, there is no happy way to say Meningitis shots are needed. I do not support unjustified fear based ads. I do not agree that any of the current ads are fear mongering or falsely amplifying the consequences of non-treatment.

There are more vaccine ads on the air now than in the past. That could be why the author sees this as a trend in advertising fear. Today DTC ads reflect a wide variety of creative devices that run the gamut of emotions. Fear is one of those emotions used but is certainly not new or a tactic to justify premium prices. Of course advertising analysis is somewhat subjective so those experts who see a shift towards fear can find examples to make that case. I would like to see more evidence before I can begin to agree that any shift has taken place.

Bob Ehrlich

The drug companies made Hillary’s enemies list earlier this year along with Iran, the Republicans, and the NRA. She now has a plan to ensure drug prices do not rise higher than whatever she thinks is fair. The essence of her plan is to allow government to decide whether a drug price increase is justified. She had earlier announced her desire to end the tax deduction for drug marketing. I have included a good summary of the full plan from Street.com.

While some drug companies have had extraordinary price increases, it is a rare event. EpiPen has made the news recently for a 500% increase. They have responded to the criticism by offering extensive reductions for those people who cannot afford it and saying they will launch a generic. Free market criticism led to free market price reductions. We did not need a government overseer to decide what price is fair.

Ms. Clinton feels like her $250,000 per speech fee is a fair price for her wisdom. She charges public universities that price even though it is a canned presentation. Somehow she believes in free market pricing for herself but not for drug companies. Bill and Hillary both give that aww shucks answer that they just take what is offered them and how amazing it is that people are willing to pay them so much. Her cost of production for that 30 minute canned speech is $0 but she likes to get what the traffic will bear. A drug company that takes years and a billion dollars of R&D to find a winning drug must be made to justify its price to a group of bureaucrats in her new plan.

I admit some drug companies have had surprisingly large price increases on some drugs. The solution is obvious. Free markets will generate competition for alternatives to these drugs. EpiPen will see competition enter the market just because the market is so profitable. The real danger of Ms. Clinton’s “plan” is at what point do the price controls stop. Once the government is allowed to decide what is a justified price for a few selected drugs eventually we will evolve to full price controls for all branded drugs.

There are many politicians who want exactly that. They want drug full price controls and government run health care. As I have said on many occasions, higher U.S. drug prices provide incentives for innovation. Regulating prices will lead to less R&D. That means the next time a new virus or anti-biotic resistant bacteria emerge we will be fighting them with outdated drugs.

Maybe government will take over the R&D function but government innovation is usually an oxymoron. Our government data is hacked routinely, our VA health care is a mess, and our TSA often seems to have trouble spotting a pistol in a carry on bag. So I’ll trust private industry to innovate better than the government. I know Bernie Sanders and Michael Moore envy more advanced health care countries like Cuba where everything is regulated. After all, we know Havana is now the capital of new drug development and medical technology.

Hillary Clinton never misses an opportunity to take on the politically popular foe. I fully admit drug companies are ripe targets and often their own worst enemy. Drug companies must do more to have a consumer oriented pricing strategy. Her “plan”, however, is nothing more than political pandering and will do much more harm than good. She or Bill could of course buy 1000 EpiPens for each $250,000 speech and donate those to needy Americans. Now that sounds like a good plan.

Bob Ehrlich

Restasis, the dry eye drug from Allergan will soon see major competition. Shire’s drug Xiidra was recently approved and now widely available. Their unbranded DTC campaign just began with A list star Jennifer Aniston as its spokesperson. This huge market of 16 million sufferers will now have two brands battling it out on the DTC front.

Analysts say Xiidra has potential to be a billion dollar drug. Restasis has sales of around one billion so this should be a category with significant branded DTC presence. Restasis spent over $16 million in 1Q this year and they should be investing heavily to defend against Xiidra in 4Q.

Shire enlisting Jennifer Aniston is a big get. Getting a movie star to promote the dry eye condition must have cost Shire a lot in talent fees. Obviously they think she is worth it. Her ad just went on air under the “myeyelove” title. They have a website myeyelove.com which tells her story of dry eye and has the commercial currently airing. The site has the usual education component with symptoms, causes, prevention and treatment options.

Jennifer Aniston is getting lots of commercial endorsements these days. She is touting skin care brand Aveeno and plugging the comforts of Emirate Airways. I am sure Shire considered whether we at a Jennifer saturation point. My feeling is we can take a couple more campaigns before she gets overused.

The commercial is very well executed with Jennifer telling her story of how dry eye interfered with her life. The 60 second spot uses the Beatle’s song “All You Need Is Love” the classic Lennon-McCartney song recorded in 1967 as background. I do not know if Jennifer will do any branded DTC, and my guess is no. Having her remain non-branded is probably a better use of her celebrity. She can tell a friendly story advising sufferers to consult their eye doctors without needing to deal with fair balance.
I expect a heavy branded component to appear late this year or early next year. Just doing non-branded ads will help Restasis as well, so expect Xiidra to tout its efficacy profile versus Restasis. The Jennifer campaign will help get attention to the launch from both providers and patients. Long term, however, this will be a brand to brand fight and likely a boon to DTC media sellers who love a multi brand battle.

Bob Ehrlich

The FDA has done a mixed job overseeing patient side effect education. Consumers have a right to know what the possible side effects are for any medication. They also need to know the real odds of getting them. The FDA has regulated the first well. Patients do get to see and hear the litany of side effects on DTC ads under fair balance requirements. What the FDA has regulated less effectively is educating the public on how often risks and side effects are really likely to occur. Side effect and risk discussion, improperly communicated can scare people away from taking their medication.

Consumers are inundated with side effect information from inserts with their prescriptions, DTC ads, web site chat rooms and online drug sites, and their doctors. Lawyers advertise for clients touting drug side effects. So how is a consumer to know when a prescribed drug might be dangerous? After all everyone has a different risk tolerance. It is also disease dependent in terms of the seriousness of the disease and risk a patient may be willing to accept for a cure or relief of symptoms.

The FDA is exploring requiring less risk disclosure in DTC ads in order for consumers to hear the most important. That is a good first step. What really matters, however, is that consumers make a rational data driven decision on drug use. What are the odds I might die or be permanently injured? A cancer patient may think a 1/100 fatality rate is acceptable while someone considering a statin may find 1/10,000 a risk worth taking.

If you watch DTC ads you do not know how often those serious side effects might occur. Sometimes the package insert has that data, but often that is in medical terms and hard to decipher. The FDA needs to find a reasonable, quantifiable method of telling consumers what might happen. Just lessening the advertised number of risks and side effects is not enough. Our media outlets love to run stories highlighting risks of drugs. They also rarely put these risk in context, thus scaring current and prospective users off. “Deadly drug in your medicine cabinet” is a better headline than “new drug kills one in every 20,000 seriously ill patients.”

So how about a clear system listing the numerical odds of getting the serious side effect? Maybe list only the numerical odds of life threatening side effects to make it easier to communicate. Accurate data exists to provide such odds. Using vague terms like “rare case of fatality” just confuses consumers. My definition of rare might be 1/100 but the real data may show 1/100,000. Therefore, it is time to rework the fair balance in a way that is fair to the public.

Bob Ehrlich

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