Fair Market Value - Pharmaceutical Executive


Fair Market Value

Pharmaceutical Executive

Where are you seeing the most errors committed? And, in terms of documentation, what should be used to demonstrate compliance?

DJ: Errors are arising in several respects. One is the lack of appropriate documentation by the pharmaceutical company in determining how certain rates were arrived at. Another common error is simply relying on present market values that may be unrealistically high. A third error is the inappropriate assumption that the process of an arm's-length negotiation or meeting the demands of physicians constitutes fair market value.

It's really left up to industry to determine the extent of documentation that is appropriate. The federal government, except in cases of compliance with corporate integrity agreements or in the case of the medical device industry, doesn't require that compensation payable to physicians be supported by an independent third party opinion. If pharmaceutical companies determine fair market value, then they need to develop a compelling argument for their the basis of their information and conclusions. They also must be ready to demonstrate to the government that they believe that what they're paying physicians is within fair market value.

How is each physician accessed in fair market value calculations? Are there tiers?

AB: For a marketing engagement or event, you want somebody with expertise and prestige. If you are going to invite this person in an advisory role, you might want somebody who has experience in a particular area that you need advice in. A doctor's physical location may not be as important as his or her educational background, publication record, number of invitations to international symposiums, and number of speaking engagements. We go down to the level of looking at the first author on an article versus other authors on it. We scrutinize their résumé in great depth; looking at what publications they are in, what topics they've presented, whether they are a chairman of a department at a major university medical school. We look at why a pharmaceutical company is engaging them or what it is they will be doing. For the most part, especially with the work we've done for pharmaceutical companies, you might have three, four, or five of these types of individuals. The vast majority are physicians looking to specifically market or educate communities about a particular drug's value. If a doctor went to Harvard and is the chairman of his medical school, that may not be as important as being respected in the local community.

In non-referring engagements, with no opportunities for referrals or compensation, we look at expert witnesses in medical malpractice suits. Usually in these situations, companies want the highest-level thought leader to review the issue. We receive data from attorneys all over the country regarding how much they pay for a thought leader in orthopedics or in neurosurgery for consultations and for trials. We weigh that against what role the physician plays, and then crosswalk it as a way to get out of the non-tainted data.

How do you validate doctors who disagree with the rate you suggest?

AB: If a doctor refuses the rate, then the pharmaceutical company can either take a risk and hire him at the rate he wants, not hire him, or change the duties to be more amenable to the doctor. The bottom line issue is paying for referrals or paying for business. Are you compensating somebody to give you business versus giving it to them for what they are actually doing?

You must determine what level of risk you're wiling to take, and that's understandable because you can use all kinds of ways to get around it. If you want to take more risk, you don't need an assessment. You can just say, "Well, that looks like fair market value to me." If you have one physician you are paying a large amount of money to for a specialized task, you're probably not carrying a lot of risk. If you have 75 physicians being paid a lot of money to do something, then that will be more visible and open to scrutiny. So it comes down to understanding this level of risk, and recognizing that penalties are substantial.

Ann Brandt is manager at HeathCare Appraisers. She can be reached at

Daryl Johnson is principal at HealthCare Appraisers. He can be reached at


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