International Journal of Health Care Finance and Economics

, Volume 12, Issue 4, pp 285-302

First online:

Physician response to financial incentives when choosing drugs to treat breast cancer

  • Andrew J. EpsteinAffiliated withCenter for Health Equity Research and Promotion, Philadelphia Veterans Affairs Medical CenterDivision of General Internal Medicine, Department of Medicine, Perelman School of Medicine, University of PennsylvaniaLeonard Davis Institute for Health Economics, University of Pennsylvania
  • , Scott J. JohnsonAffiliated withPrecision Health Economics Email author 

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This paper considers physician agency in choosing drugs to treat metastatic breast cancer, a clinical setting in which patients have few protections from physicians’ rent seeking. Physicians have explicit financial incentives attached to each potential drug treatment, with profit margins ranging more than a hundred fold. SEER-Medicare claims and Medispan pricing data were formed into a panel of 4,503 patients who were diagnosed with metastatic breast cancer and treated with anti-cancer drugs from 1992 to 2002. We analyzed the effects of product attributes, including profit margin, randomized controlled trial citations, FDA label, generic status, and other covariates on therapy choice. Instruments and drug fixed effects were used to control for omitted variables and possible measurement error associated with margin. We find that increasing physician margin by 10% yields between an 11 and 177% increase in the likelihood of drug choice on average across drugs. Physicians were more likely to use drugs with which they had experience, had more citations, and were FDA-approved to treat breast cancer. Oncologists are susceptible to financial incentives when choosing drugs, though other factors play a large role in their choice of drug.


Agency Physician treatment decisions Financial incentives Medicare Reimbursement

JEL Classification

I11 D82