Mandatory Disclosure: Theory and Evidence from Industry-Physician Relationships

Abstract

We present and test a model of mandatory disclosure. The effects of disclosure laws on what is being disclosed are typically unknown since data on disclosed activity rarely exist in the absence of disclosure laws. We exploit data from legal settlements disclosing $316 million in pharmaceutical company payments to 316,622 physicians across the U.S. from 2009-2011. States were classified as having strong, weak, or no disclosure based on whether the data was reported only to state authorities (weak) or were publicly available (strong). Strong disclosure law was associated with reduced payments among doctors accepting less than $100 and increased payments among doctors accepting greater than $100. Weak disclosure states, despite imposing administrative compliance costs to industry, were indistinguishable from no disclosure states. This result suggests that the mechanism for fewer small payments in strong disclosure states was physicians' reduced willingness to accept payments rather than the imposition of significant administrative costs on industry. We conduct additional analysis holding fixed the cost for pharmaceutical companies of disclosing data, which was possible because Massachusetts began releasing payment data online during our sample period. Differences-indifferences analyses and multiple regression yield similar estimates for each payment category: Mandatory disclosure reduced payments for speaking and for meals but increased payments for consulting activities. Significant disclosure aversion reducing conflicts of interest is consistent with the policy goals of mandatory disclosure, though the increased payments among those receiving large payments may have been unintended.

Impact of the Affordable Care Act's Physician Payments Sunshine Act on branded statin prescribing

“…Second, Conflict of Interest disclosure may prompt drug companies to reduce payments to physicians or render physicians less willing to accept these payments. Reduced exposure to industry payments might then reduce any undesirable effects of such payment on prescribing especially of branded drugs 27–29 . Third, physicians may not obtain the most up‐to‐date information on drug efficacy and quality if the PPSA decreases physician contact with the pharmaceutical companies, affecting prescribing of the newest drugs.…”

“…Reduced exposure to industry payments might then reduce any undesirable effects of such payment on prescribing especially of branded drugs. [27][28][29] Third, physicians may not obtain the most up-todate information on drug efficacy and quality if the PPSA decreases physician contact with the pharmaceutical companies, affecting prescribing of the newest drugs. Fourth, regardless of their financial relationship with the drug companies, physicians may reduce prescribing of branded drugs for reasons other than reduced financial payments, such as an enhanced awareness of the need to curb unnecessary prescribing and contain drug spending.…”

The Effect of Information Disclosure on Industry Payments to Physicians

“…First, the main motivation behind the disclosure law was that increased transparency will be beneficial in reducing questionable financial relationships between the pharmaceutical industry and physicians. The ideal scenario envisioned by the lawmakers was that increased public scrutiny by patients and payers (insurance companies and the government) will render physicians reluctant to accept payments and firms less willing to offer them (Chen et al 2019; Pham-Kanter 2014). As Pham-Kanter (2014) notes, such a tacit penalty for financial transactions between firms and physicians would arise if (1) patients and payers are aware of the disclosure law and are sufficiently motivated to seek this information, (2) they are sufficiently put off by such transactions, and (3) they can act on this negative reaction by imposing some costs on physicians and firms.…”

“…The motivation behind these disclosure regulations is that patients and payers (insurance companies and the government) would make negative inferences about physicians and pharmaceutical firms once they understood the extent of the financial relationship between them (Agrawal, Brennan, and Budetti 2013; Carey, Lieber, and Miller 2015; Perry, Cox, and Cox 2014; Pham-Kanter 2014; Pham-Kanter, Alexander, and Nair 2012). This, in turn, might render physicians reluctant to accept payments (Chen et al 2019) and firms less willing to offer them, leading to a decline in such transactions. However, a consequence of public disclosure is that, in addition to patients and payers, physicians and rival firms can observe which physicians are being targeted by which firms and can learn about the amount of marketing expenditure directed toward each physician.…”

“… 12 Chen et al (2019) present a model of mandatory disclosure with data from a selected set of firms that disclosed annual aggregate payments out of legal settlements. However, their data are not as comprehensive as ours.…”