The Persuasive Effect of External Financial Relationships: The Influence of Pharmaceutical Industry Payments on Decision-Making in Hospitals

Abstract

This paper examines the potential for conflicts of interest to influence managers, specifically in the context of health care. Managers in all types of firms may be expected to have relationships with outside firms such as vendors in the course of performing their duties. Yet these relationships open managers to the possibility of conflicts of interest as well, to the extent that this contact is persuasive rather than informational. The possibility for a conflict of interest becomes particularly concerning in the presence of a financial relationship between a firm’s employees and its suppliers. I examine this possibility in the context of health care, where physician contact with pharmaceutical companies (key vendors for hospitals) is important for clinical decision-making, but also presents the possibility of conflict of interest. I examine physician prescribing behavior after the termination of a financial relationship with a pharmaceutical company in order to identify the persuasive (rather than informational) effect of the relationship, and find that affected physicians do significantly alter their behavior, confirming the presence of a persuasive and non-informational effect.