Persuasion and Welfare in Physician-Industry Relations: Evidence from the Medical Device Industry

Pilot Project

Persuasion and Welfare in Physician-Industry Relations: Evidence from the Medical Device Industry

Abstract: Many physicians receive payments and other in-kind compensation from companies that produce products they can prescribe, inject, or recommend. There have been a number of recent studies on the association between payments from firms to physicians and subsequent utilization of those firms’ products, but forming policy regarding physician-industry interactions is complicated by: (1) the challenge of inferring a causal link between firm activities, expert advice, and consumer choice; and (2) accounting for the welfare implications of any causal e↵ects, given other frictions such as market power, negotiated prices, and agency problems. Moreover, the literature on physician-firm interactions has thus far focused almost exclusively on pharmaceuticals. This is a significant limitation: hospital supplies and medical devices accounted for a quarter of the growth in hospital costs between 2001 and 2006 (Maeda et al. 2012); hospital care represents three times the healthcare spending burden of prescription drugs (Kaiser Family Foundation 2014); and half of payments reported to OpenPayments.CMS.gov in 2014 were related to devices rather than drugs. In this project, we will provide the first comprehensive evidence on the association between payments from device manufacturers to physicians and: (1) device utilization; (2) device prices (often negotiated and hospital-specific); and (3) patient health outcomes. We will then use methods developed in our previous work on pharmaceutical markets to estimate causal e↵ects of payments on these same outcomes. Thus, this project will combine new data and recently developed methods to shed light on the e↵ects of physician-industry relationships on medical device markets.