Physician-Industry Interactions: Persuasion and Welfare

Abstract

In markets where consumers seek expert advice regarding purchases, firms seek to influence experts, raising concerns about biased advice. Assessing firm-expert interactions requires identifying their causal impact on demand, amidst frictions like market power. We study pharmaceutical firms' payments to physicians, leveraging instrumental variables based on regional spillovers from hospitals' conflict-of-interest policies and market shocks due to patent expiration. We find that the average payment increases prescribing of the focal drug by 73 percent. Our structural model estimates indicate that payments decrease total surplus, unless payments are sufficiently correlated with information (vs. persuasion) or clinical gains not captured in demand. AbstractIn markets where consumers seek expert advice regarding purchases, firms seek to influence experts, raising concerns about biased advice. Assessing firm-expert interactions requires identifying their causal impact on demand, amidst frictions like market power. We study pharmaceutical firms' payments to physicians, leveraging instrumental variables based on regional spillovers from hospitals' conflict-of-interest policies and market shocks due to patent expiration. We find that the average payment increases prescribing of the focal drug by 73 percent. Our structural model estimates indicate that payments decrease total surplus, unless payments are sufficiently correlated with information (vs. persuasion) or clinical gains not captured in demand.

Prices for Medical Services Vary Within Hospitals, but Vary More Across Them

“… 11. The magnitude of variation is larger than, but similar to, that documented for medical supplies in recent research, which found coefficients of variation ranging from 9% to 35% (Grennan & Swanson, 2018). …”

“…Our results contribute to the growing literature in health economics on price dispersion for medical supplies (Grennan, 2013;Grennan & Swanson, 2018), pharmaceuticals (Kyle, Allsbrook, & Shulman, 2008), and medical services (Cooper et al, 2019;Dunn, Liebman, & Shapiro, 2017;Newman, Parente, Barrette, & Kennedy, 2016;Xu et al, 2015). 2 The previous studies looking at medical services have relied on data sets that do not include explicit information on the payer with which each patient is associated.…”

“…Prices for similar medical services vary substantially (Cooper, Craig, Gaynor, & Van Reenen, 2019). Economic theory suggests that these price differences could result from a range of factors including differences in firms' costs, consumers' preferences, and the market power of different actors (Grennan & Swanson, 2018). Research into the specific factors driving this price variation is important in developing policy, since it may suggest ways to lower overall health care expenditures.…”

An Investigation of Marketing Compensation in Medicine: The Impact of the Information Disclosure Regulations

“…The PPSA was established to provide transparency regarding pharmaceutical payments to physicians and to deter payments and promote ethical conduct. Previous research (e.g., [4,5,15,16,19,22]) on the PPSA's impact has approached the question from several angles and presented very diverse findings due to the complexity of the issue. To understand the PPSA's impact, researchers must consider multiple stakeholders, various fields of medicine, and the dynamics among physicians, pharmaceutical companies, hospitals, patients, and policy makers.…”

The Association between Industry Payments and Brand‐Name Prescriptions in Otolaryngologists

“…5,13 Other studies have found that region-specific industry payments for specific brand-name drugs and devices are associated with increased brand-name drug and device use. 14-16…”