Wealth effects of the pharmaceutical industry‐physician interaction compliance guidelines on large pharmaceutical companies

Abstract

Purpose -The purpose of this paper is to investigate the wealth effects of the issuance of guidelines by the Office of Inspector General (OIG) to encourage pharmaceutical manufacturers to use internal controls or self-regulation "to efficiently monitor adherence to applicable statutes, regulations, and program requirements" in their marketing to the physicians. Design/methodology/approach -The authors employ a standard event-study methodology to examine the impact on shareholders of 12 large pharmaceutical firms around four events leading up to the final guidance issued by the OIG. Findings -The overall results indicate a net wealth loss for the sample firms. Research limitations/implications -Interpretation of results warrants caution since the sample is biased toward large multinational pharmaceutical firms that are listed on the USA stock exchanges. The issuance of high-level government policy initiative triggers a pharmaceutical industry response that in turn mitigated firms' questionable marketing practices. The government accomplishes this without instituting regulation but by taking the dialogue to a wide-ranging and highly public forum. Originality/value -The empirical results suggest that a public policy initiative that impacts shareholder wealth could alter firm (industry) behavior thereby sparing government from enacting regulation and potentially saving exorbitant regulatory enactment, enforcement, and policing costs. The results also provide credence to the argument that the hybrid systems, ones that combine industry rule making with government oversight, provide the greatest potential for overall benefits to society.

Pharmaceutical industry–physician interaction compliance guidelines: Analysis of contagion wealth effects on large generic firms

“…As mentioned earlier, recent research documented the significant wealth effects of OIG’s guidance not only on Big PHARMA but also on biotechnology firms. 7,8 For the purpose of this paper, we are investigating the OIG’s impact on the share prices of generic firms. This intra-industry impact or contagion phenomenon is of interests to policy makers and regulators as further policy changes may be contemplated.…”

“…Based on the above, we can propose that the inter-industry contagion can be extended to generic industry since the prior evidence has shown that a certain regulatory event (in this case, OIG’s Guidance) has negatively impacted both the Big Pharma 8 and the biotechnology industry. 7…”

“…According to Stigler, 6 “The central tasks of the theory of economic regulation are to explain who will receive the benefits or burdens of regulation, what form regulation will take, and the effects of regulation upon the allocation of resources.” The more interdependence there is among firms or industries, the more significant the future cash flow impact an event is expected to have on specific firms in those industries or related industries. Even though the direct cost of a particular regulatory event for the pharmaceutical and biotechnology industries has already been documented, 7,8 the indirect or contagion effect on future cash flows of the related industry, generic, has not been examined and thus provides us the motivation for our study. Of course, the resultant findings could have the potential for strong public policy implications as additional regulations and policies are contemplated for the healthcare industry.…”

“…Back in May of 2003, The Office of Inspector General (OIG) in the US Department of Health and Human Services (hence forth OIG) issued “Compliance Program Guidance for Pharmaceutical Manufacturers” to encourage Pharmaceutical Manufacturers to use internal controls to self-regulate “to efficiently monitor adherence to applicable statutes, regulations and program requirements” in their interaction with the physicians. 1 As mentioned earlier, prior works by researchers 7,8 investigate the wealth impact of OIG regulation on Big Pharmaceutical and Biotechnology industries, and document significant wealth effects on shareholder value around this regulatory event.…”

Drug prescription practices in Brazil: a structural equation model

“…The diverse forms of economic consumption have always interested marketing professionals and academics alike. The use of prescription drugs has been studied by several authors, both in terms of the growth of the pharmaceutical industry (Kim and King, 2009; Fogel and Novick, 2009; Delorme et al , 2009; Limbu and Torres, 2009) and the specificity of consumption in this industry (Diehl et al , 2008; Miao‐Sheng and Yu‐Ti, 2008; Kess et al , 2008; Jambulingam et al , 2009).…”