Fair Market Value

Sep 01, 2005

Large pharmaceutical companies pay millions of dollars a year to doctors who, in after-dinner speeches and other forums, tell other doctors about their products. Such payments to consultants and advisors have become routine marketing expenses. But they may soon come under close scrutiny from the Office of the Inspector General (OIG), which sees in promotional speaking and advisory services a "high potential for fraud and abuse," according to the OIG Compliance Program Guidance for Pharmaceutical Manufacturers.

As part of these guidelines, released in 2003, OIG issued specific rules governing consultant and advisor compensation. Most of these requirements are straightforward and easy to follow. Consultants have to provide a legitimately needed service, under a written agreement that is documented, before they are paid. But a final condition—that doctors must be paid fair market value (FMV)—creates a real challenge for most pharma companies. Not because anyone resists complying with the new rules, but because the guidelines themselves are so fuzzy that companies may be unable to follow them—or equally troublesome, unable to build a convincing case that they did.


Fair Market Value: Keys to Compliance
Companies and prosecutors may agree that FMV compensation eliminates excessive payments and reduces the apparent conflict of interest in paying doctors for services they provide to pharmaceutical companies. But without a definition of FMV and a procedure for determining it, a pharma company could end up facing a federal prosecutor whose views define the concept of FMV in court.

This problem is not destined to go away anytime soon. Research shows that doctors are most strongly influenced to prescribe by other doctors. The number of promotional meetings has quadrupled in the last six years, to nearly 240,000, according to Verispan. That number will easily exceed a quarter million this year. Since 2003, six top pharmaceutical firms have signed corporate integrity agreements with OIG, several of which specifically address consultant contracting. OIG clearly believes that these marketing practices create significant compliance risks.

Here are a few scenarios that might require explanation under the new guidelines:

  • For the second or third time over the past five years, a renowned liver specialist who has spoken for ABC Pharma says that competing firms are offering higher rates for promotional talks. He requests and receives yet another hefty fee increase. Can ABC pay more to keep a valued consultant without running afoul of OIG?
  • Two different physicians make essentially the same presentation about hypertension, in which they discuss a company's medication and treatment plan. One of the doctors is a primary care physician, while the other is a cardiologist, who demands and receives nearly double the fee of the primary care doctor. Is this appropriate? Could the higher fee be characterized as a kickback?
  • Two cardiologists are paid to give similar promotional talks for the same company. One is paid $1,000; the other is paid $1,500. Can the company minimize the risk of the extra $500 being viewed as a kickback?

Over the past five or six years, many pharmaceutical companies have added to their pool of consultants and advisors, often without codifying pay rates. Most companies believe the rates they pay for doctors' services are similar to those paid by other companies. Unfortunately, under the new, fuzzy OIG guidelines, that does not necessarily mean they are paying FMV.