Abstract: We study how firms target and influence expert intermediaries. In our context, pharmaceutical manufacturers provide payments to physicians during promotional interactions. We develop an identification strategy based on plausibly exogenous variation in payments driven by differential exposure to spillovers from AMC CoI policies. Using a case study of an important class of cardiovascular drugs, we estimate heterogeneous effects of payments on prescribing, with firms targeting highly responsive physicians. We also develop a model of supply and demand, which allows us to quantify how oligopoly prices reduce drug prescribing, and how payments move prescribing closer to the optimal level, but at great financial cost. In our estimated model, whether consumers are harmed by payments depends on whether there is substantial under-prescribing due to behavioural or other frictions. In a final exercise, we calibrate such frictions using clinical data and estimate that payments benefit consumers in this case study.

Objective

To determine whether the variation in prices paid for cardiac medical devices was associated with management practices in cardiac units.

Study setting

Cardiac units in US hospitals.

Study design

We regressed unit prices on management practice scores and other hospital characteristics, with and without controls for device fixed effects, for the 11 top-spending cardiac device categories.

Data collection

A trusted third party that had entered into a confidentiality agreement combined de-identified medical device price data for N = 213 US hospitals from ECRI's Supply Guide benchmarking service, with survey responses regarding management practices in those hospitals' cardiac units; the resulting merged data were made available to researchers for analysis with hospital identifiers removed. N = 1980 hospitals with interventional cardiac catheterization laboratories and at least 25 annual acute myocardial infarction discharges in 2010 were eligible for inclusion; N = 648 responded to the management practices survey; N = 213 subscribed to Supply Guide and purchased at least one of 11 top cardiac medical device categories.

Principal findings

Cardiac units with better management practices paid lower prices for cardiac devices (percent decrease in price for one standard deviation increase in management score = 1.33%, 95% confidence interval 0.99-1.67). This was comparable in magnitude to the price decrease associated with a one standard deviation increase in patient volume.

Conclusions

Better management practices were associated with lower device prices. This relationship is robust, but modest in magnitude. This modest magnitude is similar, though, to other events expected to lower input prices, such as transparency in the form of benchmarking information and hospital mergers.