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Big Pharma talks a lot about changing its business model to one that prioritizes quality and value over quantity and waste. While the healthcare "ecosystem" waits for pharma to grow into this model, government is delivering a comeuppance that actually puts it in the driver's seat and gaining the upper hand.
How do you judge a sales rep's performance if not on how much she sells? Two summers ago, GlaxoSmithKline (GSK) made big noise about the fact that it was eliminating sales-based compensation and bonuses for US-based sales reps. Instead of rewarding the biggest sellers, a sales rep's bonus would, beginning in 2011, be determined in part by "customer feedback, and by a sales professional's adherence to the company values of transparency, integrity, respect, and patient focus," the company said.
Deirdre Connelly, GSK's president for North America pharmaceuticals, said in a July 26, 2010 release that "physicians have been telling us they want to see fewer sales professionals, and those they do see need to provide greater value in helping improve patient health. In response, we are changing the way we sell our medicines and vaccines in order to deliver the value our customers demand, in a transparent way, with integrity and respect for the patient."
The story got a lot of play in the media, and has been used as a congratulatory example of how one of the major industry players is taking real steps toward changing the pharma business model from one based on sheer volume selling, to one focused on patient health outcomes. GSK's "Patient First Program" may indeed have been created in response to physician feedback, as Connelly described, but it was also created in response to the Department of Health and Human Services (HHS) Office of the Inspector General (OIG) and the Justice Department.
GSK "developed the [Patient First Program] in response to the investigation and the information brought to them by the government," said Greg Demske, chief counsel to the HHS inspector general, in an interview with PharmExec. That investigation was concluded on July 2, when the Justice Department announced that GSK would pay $3 billion—the largest settlement ever—to close the book on alleged off-label marketing practices in support of Paxil and Wellbutrin, two anti-depressant drugs; for allegedly hiding safety data related to Avandia, a diabetes drug; and for allegedly false price reporting practices.
Top Pharma Corporate Integrity Agreements
While the dollar amount itself is significant, it wasn't a surprise; in January 2011, GSK announced that it had stashed away $3.4 billion to cover the costs of an inevitable settlement with government. The leftover $400 million may come in handy as GSK is forced to meet the multitude of requirements housed in the company's 122-page corporate integrity agreement (CIA), which began on June 28 and introduces provisions never before seen in pharma, including the previous CIA GSK signed in 2003 as part of a $88 million settlement that ended false claims litigation related to Paxil and Flonase, a nasal spray.
Most startling, perhaps, is the provision requiring GSK to cut the link between sales rep pay and how much they sell. "The GSK CIA is very significant because it does address the issue of financial incentives for individuals within [GSK], in a way that we have not done in the past," says Demske. "There are two major ways that we do that: one is compensation for sales people; GSK's current system breaks the tie between sales person compensation and the volume of business that they're generating, and the second part is the claw-back provision."
With respect to sales rep compensation structures, government has been gnawing on this idea for a few years. Since 2008, Pfizer, Novartis, Merck, AstraZeneca, Johnson & Johnson, Lilly, Abbott, Novo Nordisk, Allergan, and Forest Labs—to name a few—all signed CIAs that directly addressed the issue of sales rep pay as it relates to potentially incentivizing off-label promotion. The GSK CIA, however, is the first time rep compensation based on sales volume has been outlawed entirely.
The claw-back provision, formally known as the "executive financial recoupment program," is another CIA first. It mandates that GSK establish a program that "puts at risk of forfeiture and recoupment an amount equivalent to up to three years of annual performance pay (i.e., annual bonus, plus long-term incentives) for an executive who is discovered to have been involved in any significant misconduct," according to the text of the CIA. Combine this with Park Doctrine expansions that make it easier to hold executives responsible for crimes committed by their subordinates, and government's ultimate ability to exclude non-compliant individuals from doing business with public healthcare plans, and you get a situation where "executives are no longer interested in people that can push the envelope," says Ron Ginor, CEO at Becker & Associates Consulting, a Washington DC-based firm. "They're interested in people that are going to keep them out of trouble." In other words, GSK execs have real skin in the game. The cost of doing business the wrong way just got a lot pricier.
"The idea is to try to change the financial equation for people at the sales level and the executive level, so the executive isn't just thinking, 'Well, the more profits that are generated, the more bonus I get,' but also thinking, 'If I cross the line, I may have some of my money on the line, and I may lose that bonus, and maybe even more than that,'" says Demske. Sir Andrew Witty, GSK's CEO, wouldn't go broke if he had to give back three year's pay, but "in our analysis, nothing can damage a company's value more than a significant compliance enforcement action," says Ginor. "With a CIA, essentially for five years, the government is running your company."
There are other completely new provisions in Glaxo's CIA. Mary Riordan, senior counsel, office of counsel to the inspector general, points to an expansion of the famous "Dear Doctor" program that requires a pharma company working under a CIA to send out a letter notifying physicians about the settlement. "This CIA goes one step further...there's also a requirement that [GSK] send a letter to payers, government, and other payers with which the company has rebate agreements, to notify the payers about the settlement," says Riordan. "Part of the purpose of that provision is to really focus the company's attention on the relationship that GSK has with government payers." Government payers, including Medicare and Medicaid, represent around half of Big Pharma's revenues.
In addition to the provisions cited above, other CIA requirements "reflect what GSK was already doing," says Riordan, like restrictions on the way funding is provided to third party medical education organizations, and the criteria for determining which organizations are eligible. Another example, unique to GSK's CIA, requires that a physician—if requesting off-label information from a rep—sign a form stating that the request was unsolicited. This is an example of a program already instituted by GSK, but reinforced by the mandate of a CIA. "That provision is part of a broader section [III.B.3] that talks about policies and procedures that the company has to maintain," says Riordan. "We were sort of memorializing and binding GSK to abide by those policies and procedures during the course of the CIA," which lasts through June of 2017.
This enshrining of internal compliance programs and policies is often the result of a typically long and protracted negotiation between pharma and government, prior to a settlement. Ginor says companies can derail enforcement actions before they escalate, by bending over backward to show that a problem is being adequately addressed. An apology letter from a CEO won't cut it. "It is escalation versus negotiation...government does not feel that they are your consultants," says Ginor. It's better to spend a little extra money on compliance programs at the outset, in good faith, than to spend a whole lot more later on, after the Justice Department steps up on its soapbox, says Ginor.
So what is the cost of complying with a CIA over five years? Ginor says it's usually two or three times the settlement amount. GSK didn't respond to an inquiry on the estimated cost of its current CIA, but other executives with previous and current experience working under CIAs agree that roughly 80 percent of the requirements mandated by a CIA should already be happening inside of a well-run company. Given the prevalence of CIAs, though, a lot of companies still seem to need a nudge in the right direction.
In addition to internal compliance programs and teams, CIAs also require independent review organizations (IROs) to monitor and report on a company's progress. Curiously, these IROs are often the same companies—PriceWaterhouseCoopers, Ernst & Young, and Deloitte—that are already employed by pharma as business strategy consultants. IRO contracts are certainly lucrative for the contract players involved, and their intimate knowledge of the client's business, where it's headed and where it went wrong, no doubt makes the audit and reporting processes run more efficiently. But is it not, too, an obvious conflict of interest, even if "firewalls" have been erected between practice areas at these large firms? So far government hasn't raised this issue, and Riordan seemed unmoved by the question. "These companies have done a fair amount of work in this area, and have very specialized units that are focused on pharma operations," she said.
By design, CIAs are forward-looking; they exist as a way to help protect government programs from fraud, waste, and abuse. But can CIAs help push industry into the new business model they seem ready to embrace, if only the financial models can be changed? "I would say that we are constantly looking at the CIAs that we have, and what we're receiving under the reports from those CIAs, and constantly assessing what we think is effective, and what should be in future CIAs, and other things that we should not use in the future," says Demske, adding that the OIG conducted a roundtable with pharmaceutical companies to get feedback on which provisions—from an industry perspective— are most effective in promoting compliance. A report summarizing the roundtable findings was published (available at bit.ly/OIGReport), and well-established CIA requirements are weighed and discussed, including sales rep ride-alongs, physician payment disclosures, best practices for working with independent review organizations, and changing business models.
Regarding CIA compliance, "we have very few instances of non-compliance with CIAs" among major pharmaceutical companies, says Demske. "In our experience they put a lot of resources into insuring that they are in compliance...it's fair to say the pharmaceutical industry has had a good record of compliance under CIAs." Understandably so, given that monetary penalties and possible exclusion from government programs are the two primary dangers of non-compliance. If pharma could comply with the law to begin with, perhaps the OIG and Justice Department wouldn't have to come up with new provisions to prevent law-breaking in the future. Or maybe the old business model perpetuates overselling and excess utilization, and government CIAs will be one of the tools that finally helps push industry into selling on the basis of quality instead of quantity. Either way, expect the CIAs of the future to continue building on the precedent set by GSK's CIA. "Your clinical, regulatory, and compliance person is likely to be the most important person in your company over the next few years," says Ginor. "If you're director of sales increases revenues by a few million dollars, that's great. But if your director of compliance blows it, and you wind up in a CIA, you're cooked."