Mandatory Disclosure: Theory and Evidence from Industry-physician Relationships

Abstract: We present and test a model of the impact of mandatory disclosure on disclosed activity. The effects of disclosure laws on what is being disclosed are typically unknown since data on disclosed activity rarely exist in the absence of disclosure laws. We exploit data from legal settlements disclosing $316 million in payments to 316,622 physicians across the U.S. from 2009-2011. Multiple regression analysis of differences-in-differences and LASSO double-selection models were used. States were classified as having strong, weak, or no disclosure based on whether the data was reported only to state authorities (weak) or were publicly available (strong). One state, Massachusetts, began releasing payment data online during our sample period, allowing separate analysis of physician payments while the cost of disclosing data remained fixed for pharmaceutical companies. Strong disclosure law reduced payments among doctors accepting less than $100 and increased payments among doctors accepting greater than $100. Weak disclosure states were indistinguishable from no disclosure states. Cross-sectional and longitudinal variation yield similar estimates, which is consistent with a mechanism where mandatory disclosure decreases willingness by physicians to accept payments, and suggests the imposition of significant administrative costs on industry is not the primary mechanism for the behavioral response to mandatory disclosure.