Pharmaceutical companies pay more than $2 billion to physicians every year. Most of these payments are for food and beverage, speaking, honoraria, consulting, and travel and lodging, which are termed “general payments.” These payments have come under increased scrutiny as critics of pharmaceutical promotion argue that they influence prescribing in unethical ways, leading to the rapid growth of prescription drug spending in the United States. In Section 1, I examine pharmaceutical payments’ effects on prescribing behavior in Medicare Part D. The data I use for this analysis span four years (2013-2016) and include over 500,000 physicians and 1,750 drugs covered by Medicare Part D. I estimate fixed-effects specifications that control for unobserved physician-specific heterogeneity and also address selection bias as pharmaceutical companies carefully choose the physicians they target. I find an overall small and positive effect (1.5%) on the number of claims, which include new prescriptions and refills, across all types of payments, 91% of which are for food and beverage in terms of frequency. The overall effect found across all drugs and all payment types indicates an elasticity of about 0.005 in the intensive margin; that is, if payment size doubles, number of claims increase by approximately 0.5% for physicians who are already prescribing the drug. The effects found are substantially smaller than those reported in previous literature, including studies that do not control for targeting bias as well as studies that try to control for targeting bias, but only examine a certain set of drugs, physicians, or payment types. In Section 1, I further analyze whether the effect is different across different nature and frequency of payments. The effect found is much higher (12%) for payments that are larger in size such as speaking fees and honoraria. I also find that the number of payments, which proxies the interaction intensity between pharmaceutical company representatives and physicians, affects the prescription volume. I also ask whether the effect has changed since the law required the disclosure of payments and find that public disclosure has not led to a decrease in the effect. Last, I study the effects of own and rival payments in the extensive margin, and observe that business stealing largely occurs in the extensive margin. In Appendix D, I analyze the heterogeneity across different drug classes and states. Analyzing the heterogeneity across states is important as some states implemented measures (including public disclosure) to combat the effects of these payments over the years. Results show that prior disclosure laws have not helped to significantly reduce the effect of payments on prescribing. In Section 2, I study supply side decisions. The main difference in the data construction for this study is that the data include payments for all drugs and all providers and not only the ones that are listed in the Medicare Part D Utilization data. Data on pharmaceutical payments to healthcare providers between August 1, 2013 and December 31, 2016 are used to estimate how the approval and launch of new drugs affect the payment decisions for entrant and incumbent drugs in the same class. Results indicate that pharmaceutical payments are used as a promotional tool to increase sales and do not just have an unintended persuasive effect on prescribing. The extent (i.e., number of physicians paid) and the intensity (i.e., annual payment size per physician) of how this promotional tool is used differ for manufacturers of drugs of different age and type, and depend on whether there is a new brand competitor in the drug class. While payments are both more likely and larger in total size for younger drugs, especially after approval and right after entry, payments for older drugs are also often observed. A new brand competitor has a larger effect on payments provided for biologic drugs compared to chemical drugs, suggesting that biologic manufacturers find it profitable to defend their position against entrants more often than chemical manufacturers. While drug age and generic competition are leading factors in payment decisions for chemical drugs, brand competition is more influential for biologics. Entrants not only provide payments to a wider group of providers, but they also provide larger payments to each physician while older drugs’ promotional activity mostly focuses on reaching more providers rather than the size of each payment. Incumbents respond similarly: young incumbents make use of both the extent and intensity dimensions of payments while old incumbents mainly focus on the extent. Manufacturers generally tailor their promotional activities to defend their profits and market position, at least in the short run.

Creator

• Cakkalkurt, Hasat

DOI

• https://doi.org/10.21985/n2-6jda-yk29

Subject

• Marketing
• Economics
• Health care management

Language

• en

Alternate Identifier

• http://dissertations.umi.com/northwestern:15216
• etdadmin_upload_760464

Keyword

• Prescriptions
• Pharmaceutical company payments
• Pharmaceuticals
• Advertising

Date created

• 2020-01-01

Resource type

• Dissertation

Rights statement

• In Copyright