Will GSK’s Incentive Compensation And Speaker Program Initiatives Set The Tone For 2014?

When British drug giant GlaxoSmithKline PLC (“GSK”) announced last month that it was implementing a new global marketing strategy to transform the way it sells and markets drugs to both doctors and patients, many commentators were quick to announce that a fundamental shift in the pharmaceutical business was underway.   While GSK’s announcement was significant in terms of precedence and scope, it is unclear at best whether other pharmaceutical companies will follow suit.

New Program

According to the Wall Street Journal on December 17, GSK said its new program will involve the following key elements:

  • Stopping direct payments to physicians who speak about the Company’s drugs, or diseases treated by its drugs, to other doctors and healthcare professionals who write or influence prescriptions and ending payments for doctors to attend medical conferences.  The Company, which will roll out these measures early next year, plans to fund education for healthcare professionals through an independent grant process.  The Company said it expects these changes to be in place globally by 2016.  Notwithstanding the foregoing, GSK will continue to pay fees to healthcare professionals for sponsored clinical research, advisory activities and market research.
  • Implementing a new compensation program on a global scale by early 2015 that eliminates individual sales targets based on the number of prescriptions written.  Already in place in the U.S. since 2011 through a Program known as “Patient First“, the plan is for GSK’s pharmaceutical reps to be evaluated and rewarded for technical knowledge, the quality of service they deliver, and the overall performance of GSK’s business.  According to the Company, Patient First has improved customer interaction and satisfaction rates.
  • Continuing to develop a “multi-channel dissemination process” that provides accurate information about the Company’s medicines, including the disclosure of payments to healthcare professionals.

“These [measures] are designed to bring greater clarity and confidence that whenever we talk to a doctor, a nurse or other prescriber, it is patients’ interests that always come first,” GSK CEO Andrew Witty said in a statement. “We believe that it is imperative that we continue to actively challenge our business model at every level to ensure we are responding to the needs of patients and meeting the wider expectations of society.  We recognize that we have an important role to play in providing doctors with information about our medicines, but this must be done clearly, transparently and without any perception of conflict of interest.”

Observations

As Pharmarisc readers know from our previous posts covering the Company’s well-publicized troubles in China (see Enemy at the Gates: Bribery Charges in China Getting Worse For GSK and Big Pharma On Its Heels as China Rounds Up “More Of The Usual Suspects” And Prepares To Slam GSK), implementing GSK’s U.S. based incentive compensation system on a global scale should come as no big surprise, despite the Company’s statements in a news release that the moves are merely part of a broader effort to improve transparency and further align its activities in the best interest of patients — and, therefore, unrelated the Company’s ongoing high-profile China bribery investigation.  By contrast, the Company’s decision to end speaker programs has quite rightly raised a lot of eyebrows.  Dinner and lunch programs featuring physician-consultants who promote the company’s products have been a staple of pharmaceutical marketing for decades precisely because physicians — despite their affiliation with, and financial incentives they receive from, pharmaceutical companies — generally have much greater influence over their peers in prescribing medications than a company’s bright, young and often attractive sales representatives.  And not even the Government has argued that consultant fees or “speaker honoraria” (provided they are based on fair market value), or the meals provided at speaker programs, constitute “bribes” or “kickbacks.”

So why is GSK doing away with speaker programs?  Several interrelated reasons come to mind.  First, despite their effectiveness, speaker programs are fraught with risk, as we noted in our earlier post titled “Government One-Two Punches Novartis and Exposes Dangers of Speaker Programs“.  Unless it is willing to marshal the resources to effectively audit and monitor speaker program compliance, a company cannot be sure that the sales reps responsible for organizing the programs are following or enforcing the rules.  These rules often include 1) prohibitions on non-HCP guests; 2) minimum attendance requirements; and, perhaps most importantly, 3) a ban on off-label discussions — at least by the speaker.  Not surprisingly, physicians (who are quite capable of reading drug labels themselves) are often mostly interested in a product’s off-label uses and see very little reason to attend a dinner program if the speaker is unable to respond to off-label questions.  Once attendance drops below a certain threshold, the programs cease to function as a scientific and educational exchange of ideas and look more like the kind of “dinner among friends” that the PhRMA Code prohibits.

A second related reason for GSK’s decision to eliminate speaker programs could be that they aren’t seeing enough bang for the buck.  The decision about which drugs to prescribe is now often taken out of a physician’s hands by insurers and government agencies based on what these payers deem are the most cost-effective therapies.  Over the past several years, GSK and other pharmaceutical companies  have shrunk their budgets for lunch and dinner programs and other so-called “perks” traditionally offered to healthcare professionals.  This overall shift in spending has resulted in the elimination of tens of thousands of sales jobs, which reached a peak of 105,000 in 2006.

Finally, there is China and the seemingly bottomless well of whistleblowers and plaintiff’s lawyers eager to file suit and cash in on any company misstep.  After paying a still-record $3 billion to the Feds less than two years ago, it would be quite understandable for GSK to say “enough” and not only eliminate the risk that comes from paying doctors to promote their products to other doctors, but reduce the payments the Company must report under the Sunshine Act provisions of the Affordable Care Act.  (Drug makers started collecting and reporting doctor payments in August, and the Centers for Medicare and Medicaid Services will publicize data starting next fall).

Do GSK’s bold decisions on incentive compensation and speaker programs foreshadow an industry shift?  Unlikely, at least in the near term.  The Sunshine Act presumes that paying doctors and providing them with meals are an integral part of the pharmaceutical business and the Government and most consumer groups believe that the major problems associated with such payments and perks will be solved by transparency.   Moreover, while it is true that GSK is not the only pharmaceutical company to come under Government pressure in recent years, no other company has endured the same kind of scrutiny, particularly with respect to its business activities in China.   The bet here is that most companies will take a “wait and see” approach . . . if GSK’s business is not affected by these “reforms”, other companies are more likely to follow suit; however, if GSK loses market share to companies that continue to incentivize reps with sales targets and offer speaker programs (as many think will happen), then GSK will be an outlier and may in a few years regret and reconsider these seemingly noble decisions.

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References:

http://us.gsk.com/html/media-news/pressreleases/2013/gsk-announces-changes-to-its-global-sales-and-marketing-practice.html

 

http://www.nytimes.com/2013/12/17/business/glaxo-says-it-will-stop-paying-doctors-to-promote-drugs.html?pagewanted=1&_r=1&

 

http://www.reuters.com/article/2013/12/17/us-glaxosmithkline-payment-idUSBRE9BG03620131217

 

http://online.wsj.com/news/articles/SB10001424052702304858104579263640414302348

 

About José P Sierra

José Sierra is a partner at Laredo & Smith, LLP, in Boston, which provides respected advice and creative representation in business litigation, white collar criminal defense, government investigations, corporate compliance, and business and employment law. Prior to joining the Firm, Mr. Sierra was a principal at Fish & Richardson. Previously, Mr. Sierra was senior vice president, chief compliance and ethics officer for Sepracor Inc., and Kos Pharmaceuticals, and was legal director at Schering-Plough Corporation, and an assistant U.S. attorney in the Newark, NJ U.S. Attorney's Office.

Mr. Sierra's practice focuses on white collar criminal defense, government investigations and corporate compliance. Contact him at 617-443-1100 or via email.

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