The Cost of Influence: How Gifts to Physicians Shape Prescriptions and Drug Costs

TL;DR

This study quantifies how payments from drug companies influence physicians to prescribe more expensive brand drugs, increasing overall drug costs, with effects varying across physicians and suggesting that gift bans could reduce costs.

Contribution

It introduces a novel causal inference approach combining physician data and machine learning to quantify the impact of payments on prescription behavior and costs.

Findings

Payments increase brand drug prescriptions by physicians.

A $1 payment leads to a $30 increase in drug costs.

Gift bans could reduce drug costs by 3-4%.

Abstract

This paper studies how gifts - monetary or in-kind payments - from drug firms to physicians in the US affect prescriptions and drug costs. We estimate heterogeneous treatment effects by combining physician-level data on antidiabetic prescriptions and payments with causal inference and machine learning methods. We find that payments cause physicians to prescribe more brand drugs, resulting in a cost increase of $30 per dollar received. Responses differ widely across physicians, and are primarily explained by variation in patients' out-of-pocket costs. A gift ban is estimated to decrease drug costs by 3-4%. Taken together, these novel findings reveal how payments shape prescription choices and drive up costs.