Newly merged administrative data sets for ten large device categories 2014-17 show payments from device firms to physicians are pervasive and highly correlated with spending within a firm-hospital pair. Event studies suggest that a large positive increase in payments to a given hospital from a given firm is associated with 27 percent higher expenditures on the paying firm’s devices post-event. Even after controlling for patient mix, payments to hospitals outside the top Academic Medical Centers (AMCs, a potential expert benchmark) are correlated with larger deviations from the procurement patterns of top AMC hospitals.

We develop a model where targeted payments from manufacturers have different estimated effects on prescribing for different doctors, prescribing can be biased at baseline, and prices are negotiated between payers and upstream suppliers. In estimates using market and  clinical data for statins 2011-12, AMC policy spillovers identify heterogenous payment effects, and payments are beneficial on net because they counteract under-prescribing.

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Media: The Fix, LDI, MarketWatch

Responses to new product introductions suggest that buyer-level spillovers represent up to half of all potential demand spillovers and one-third of the overall correlation in supplier shares across categories, with implications for firm strategy and antitrust policy for firms selling in multiple product categories.

Relative to drug firm payments, device firm payments were: seven times as large as a percentage of industry revenue, more often related to product development and training, and more strongly correlated with physicians’ Medicare billing amounts. Top-paying firms dominate the most prominent device categories.

Media: Stat

Mergers among a sample of US Hospitals 2009-15 result in little to no costs savings on average, despite large expected opportunities for such. Savings, when they occur, tend to be local, and offset by managerial costs of merging.

Media:  NBER Digest, Advisory Board, Modern Healthcare, Daily Caller, Axios

Across a large number of important product categories, access to information on purchasing by peer hospitals leads to reductions in the prices hospitals negotiate for supplies. Asymmetric information about seller willingness to concede finds stronger support than a purchasing manager agency mechanism. Transparency decreases high prices, but does not affect low prices.

Media:  NYTimes, LDI, Knowledge@Wharton

Product testing can reduce consumer uncertainty, but also increase entry costs and delay entry. In a stent case study, no monitoring would severely depress demand; "post-market" monitoring would maximize welfare.

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Media: AEA Research Blog, LDI, Knowledge@Wharton, LSE Business Review

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PURC Prize for Best Paper in Regulatory Economics (2018)

Prices vary widely across buyers of the same product. A structural model of demand and negotiated prices disentangles bargaining position variation due to heterogeneous preferences from bargaining abilities. Variation in bargaining abilities explains 79% of the price variation. Bargaining ability also has a large firm-specific component. 

Bargaining generalizes the traditional price competition model, fits this data better, and interacts with competitive effects in counterfactuals. Allowing different prices to different buyers can increase competition, so group purchasing must increase bargaining ability to compensate.