American Journal of Law & Medicine

Oversight of marketing relationships between physicians and the drug and device industry: a comparative study. (Follow the Money: The Impact of Economic on the Delivery of Health Care)


Throughout the world, complex mutually-dependent relationships exist between physicians and pharmaceutical and medical device companies. This article focuses on one particular aspect of these relationships--payments made by drug and device companies to physicians and their organizations and institutions to market drugs and devices. It is widely believed that drug and device company marketing to physicians creates conflicts of interest that corrupt physician judgment and increase the cost of medical care. This article examines first the economic basis of physician/industry relationships that causes conflicts to arise. It next considers the measures that a number of developed countries have taken to respond to these relationships. Finally, it proposes an approach that would comprehensively address the problems caused by drug and device company marketing to physicians.


Throughout the world, complex mutually-dependent relationships exist between physicians and pharmaceutical and medical device companies. (1) These relationships are found in research, education, and clinical practice. They include, for example, drug and device company sponsorship of research, fellowships, and continuing professional education; industry payments to physicians for consulting; gifts of meals, pens, and coffee mugs to physicians, their office staffs, and medical students; and industry involvement in the formulation of clinical practice guidelines. Some physicians also hold equity interests in drug or device companies or intellectual property interests in their products. Physician-industry relationships present conflicts of interest because the physician's primary commitment to patients in clinical practice, students in education, and science (and patients) in research comes into conflict with a secondary commitment to a drug or device company that offers the physician an opportunity for financial gain. (2)

The literature on physician-industry conflicts of interest has generally viewed these relationships negatively. There is a concern that industry funding of research may bias research findings; obscure the source of information on research results or their interpretation; or at least delay or limit the release of research findings and sharing of data. (3) Industry support of undergraduate, graduate, or continuing education may bias presentations to favor the products of sponsors. Physicians in clinical practice may order drugs and devices produced by firms that offer them consulting contracts or gifts or in which they hold an equity interest rather than the products that are most appropriate for a particular patient or most cost effective. (4) Conflicts of interest may even infect clinical practice guidelines. (5) Biases resulting from industry-physician relationships may result in bad research, patient injury, and high health care system costs.

But there are also arguments in favor of close working relationships between industry and physicians. (6) In most countries, industry support for research is necessary if medical research is to continue. Support from government and from non-profit foundations is far from adequate to support continued medical progress, and is in any event usually focused on basic science rather than on clinical trials and product development. Industry support for medical education may provide much needed funds to make up for short-falls educational institutions would face if they had to depend solely on public support and on student tuition. Industry marketing and support for continuing professional education helps busy doctors in practice learn about new products that may prove very beneficial to their patients, but that they may not otherwise have learned about. Moreover, doctors are scientists trained to think critically--it should not be assumed that a gift of a meal or pen will distort their judgment, which a life-time of training tells them should consider only the welfare of their patients. Conflicts of interest do not necessarily result in bias.

But they may. Common sense tells us that financial interests do affect judgment, or are likely to. Indeed, there is considerable empirical evidence that even small gifts, even when given without any strings attached, create an expectation of reciprocity on both sides that distorts judgment and result in bias. (7) Tellingly, physicians who are skeptical that pharmaceutical representatives influence their own prescribing believe that the behavior of their colleagues is influenced by industry relationships. (8) Indeed, a systematic review of the medical literature on gifting found that gifts had a negative effect in most instances. (9) There is reason, therefore, to be cautious in encouraging, or even permitting, financial relationships between industry and physicians.

This article considers why physician-industry conflicts of interest exist, how developed countries regulate them, and how they should be regulated. It examines first the economic basis of physician-industry relationships that causes conflicts to arise. It next considers the measures that a number of developed countries have taken to respond to these relationships. The article focuses primarily on industry activities best described as "marketing." It specifically does not address in any detail industry sponsorship of research. Industry sponsorship of research is perhaps unavoidable, and is generally accepted as making a positive contribution, despite the concerns it raises. Most (although not all) commentators agree that industry research funding should be regulated rather than banned. (10) It is less clear that industry marketing efforts aimed at medical education and clinical practice are necessary. The argument for banning them, or at least for regulating them, is stronger. This article concludes with a proposal that would ban most industry payments to physicians for marketing, while continuing to allow drug and device companies to advertise their products freely and providing a substitute stream of funding for the legitimate activities that drug and device companies now finance.


The market for drugs and devices is quite distinctive. The supply side, demand side, and regulation of the market are each unlike those found in typical markets.

On the supply side, the market is characterized by very high fixed costs with relatively low variable production costs. (11) This is particularly true with small molecule drugs, where research and development can cost hundreds of millions of dollars, while manufacturing costs are comparatively small. Second, manufacturers often have considerable market power. Drugs and devices are usually protected by patents (or sometimes trade secrets), and in some countries by market exclusivity periods that supplement patent rights. Intellectual property rights give breakthrough products sole dominance over the market. Because of the high cost of developing innovator products, companies often find it more profitable to produce new products that offer only marginal improvements over existing products (longer lasting slow release products, for example) or products that are therapeutically similar to competing products that dominate lucrative markets. (12) But even products that have therapeutic equivalents often retain some market power until they face competition from multiple generics. (13) Many countries regulate in one way or another the prices of drugs and devices, but regulated prices are often a function of prices paid by other countries, and throughout most of the developed world, prices are high and not radically different from country to country. (14)

On the demand side, drugs and devices usually face relatively low price elasticity of demand. (15) Health is of great value and sick patients are often willing to pay handsomely for the restoration of health and well-being or for protection against a worsening of their condition. An even more important factor influencing demand is moral hazard. In developed countries, most patients are covered by public or private insurance, or both. Patients rarely pay the full cost of drugs and devices. Patients often face some cost-sharing obligations, but most of the cost of a drug or device is usually borne by insurance. Insurance coverage allows pharmaceutical companies to keep prices high. (16) Moreover, purchasing decisions are often not made by the patient, but rather by an agent - in the first instance by the physician who must write a prescription, and beyond that by institutional formulary committees or by national coverage determination entities that decide which drugs and devices are available. …

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