Are FDA Enforcement Letters the Cure for Misleading Pharma Ads? An Empirical Investigation of Prescription Claims Data

US prescription drug spending exceeded $407 billion in 2019, outstripping all other OECD countries while simultaneously grappling with dire issues related to chronic diseases, maternal mortality, and the lowest life expectancy of any OECD nation. At the same time, the US is one of the only jurisdictions which permits direct-to-consumer pharmaceutical advertising. This is concerning, because such marketing can negatively affect health outcomes, and increase costs, if it drives utilization that is not clinically appropriate. To police against inappropriate efforts, the Food and Drug Administration (FDA) issues both Untitled Letters and Warning Letters to firms. Yet, the efficacy of such letters in deterring marketing malfeasance is unclear. We evaluate firm reactions to such letters using a comprehensive database of US pharmaceutical claims and a single group interrupted time series analysis. Findings suggest that FDA letters slow future growth in drug utilization. However, and strikingly, they yield no drop in utilization, suggesting: i) such letters have limited deterrence effects and ii) pharmaceutical providers are able to retain rents accrued through misleading marketing efforts to consumers. We further find no evidence that markets punish firms for receiving FDA letters (i.e., there is no significant decline in stock after issuance) or impact physician payments from pharma firms (i.e., firms do not change their payments to physicians). Finally, results suggest civil legal suits filed by competing firms for misleading advertising do not prompt competitors to adopt truthful messaging, highlighting limitations of relying on private rights of legal action to protect the public. Taken in sum, these findings suggest that patients are under-protected from false marketing claims and policy makers should evaluate alternate options to deter and punish violative marketing