Physician Group Practices and Technology Diffusion: Evidence from New Antidiabetic Drugs

One way that physicians learn about new treatments and technologies is through interactions with other physicians. Such interactions are shaped, in part, by the structure of group medical practices: physicians who work in the same practice have more opportunities to exchange ideas. To quantify the importance of physician practices in technology adoption, I analyze physicians' adoption of three new anti-diabetic drugs introduced between 2009 and 2011 using data on the universe of Medicare Part D prescriptions. I construct the network of colleague relationships through practice memberships, and test whether physicians are more likely to adopt the new drugs if they have colleagues who do so. To distinguish the causal effect of interest from other sources of correlated decisions within practices, I use instrumental variables and also a panel data approach with physician and drug fixed effects. The instruments exploit the network structure, using characteristics of second degree connections (colleagues of colleagues) as a source of exogenous variation. The results indicate that having a colleague who prescribes the drug is associated with a 21 percentage point increase in a physician's probability of adopting the drug, compared to a 2 to 5 percent baseline adoption probability.