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

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.