Association for Public Policy Analysis & Management

In a pervasive but controversial practice, drug firms frequently make monetary or in-kind payments to medical providers.  Critics are concerned that drug firms are distorting prescribing behavior away from the best interests of patients, while defenders of the practice claim that payments arise from the need to educate providers about changing drug technologies. We investigate the effect of payments from drug firms on patient-level prescribing behavior in Medicare Part D. Our rich dataset allows us to analyze the behavior of nearly 2 million patients seeing more than 800,000 prescribers between 2011 and 2013. We link prescribers to a record of recent payments that they have received from fifteen drug firms who were forced to disclose payments as part of a legal settlement. One-third of the prescribers in our data are paid by at least one firm, although three-quarters of the payments are less than $100 (typically, a meal).

Using three different identification strategies, we find that patients whose prescribers receive payments from a drug firm tend to increase expenditure on the firm's products. Our methods account for the selection of prescribers into payments (which may result if, e.g., drug firms target payments to prescribers who see a large number of patients); our finding holds even when we look over time within patients who change prescribers, or within prescriber-patient pairs for prescribers who begin to be paid by a firm. 

Next, we consider whether payments affect prescription quality.  We use hand-collected efficacy data on four major therapeutic classes from published clinical trials; this dataset reflects the measures used by medical providers themselves to infer drug quality and includes the same information that drug firms are allowed to disclose to prescribers in the encounters that generate payments.  Applying the same methods we used for expenditure, we show that those receiving payments also prescribe higher-quality drugs.  In addition, we examine four case studies of major drugs going off patent. Prescribers receiving payments from the firms experiencing the patent expiry transition their patients just as quickly to generics as prescribers who do not receive such payments. These results suggest that interactions between drug firms and prescribers, while certainly changing expenditure patterns, may also play an important role in informing medical providers about the quality of prescription drugs. Absent other interventions to facilitate education, policies such as the Physician Payments Sunshine Act may affect the efficacy of drugs prescribed.