Big pharma talks a lot about the changing business model and placing a new emphasis on patients, but the fact remains that quantity of medicines sold, not quality of care provided, is how to get paid (and how to keep investors happy).
Big pharma talks a lot about the changing business model and placing a new emphasis on patients, but the fact remains that quantity of medicines sold, not quality of care provided, is how to get paid (and how to keep investors happy). Despite its egalitarian trappings, the healthcare “ecosystem” is still dominated by the most skillful hunters, those who capture the most prey. However, new provisions inserted into corporate integrity agreements (CIAs) between government and pharma – GSK is the latest victim – could force companies to actually change their model, or pay the price.
Two summers ago, GlaxoSmithKline (GSK) made a lot of 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,” according to a press release dated July 26, 2010.
In the release, Deirdre Connelly, GSK’s president, North America pharmaceuticals, said “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 Office of the Inspector General 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 Inspector General, in an exclusive 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.
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 begins to think about meeting the compliance requirements of its new 122-page CIA, which begins in 2013 and includes provisions never before seen in a pharma CIA, including the one GSK signed in 2003 as part of a $88 million settlement that ended False Claims litigation related to Paxil and Flonase. CIAs are five-year agreements, so the old one expired in time for the new one to take effect, and GSK joins a large and growing crowd of CIA signees. Of the top 10 pharma companies (as identified by this year’s PharmExec 50), only Roche is not currently bound by a CIA.
“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.” The claw-back provision, also known as the “executive financial recoupment program,” 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. In other words, GSK execs have real skin in the game. The cost of doing business just got a little bit 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.
There are other new provisions in Glaxo’s CIA, too. 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.” The “Dear Payer” letter is “not something we have required before,” says Riordan.
In addition to the provisions cited above, other CIA requirements “reflect what GSK was already doing,” like restrictions on the way funding is provided to third party medical education organizations, and 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 2017.
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 could be changed? “I would say that the 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 Office of Inspector General conducted a round-table with pharmaceutical companies to get feedback on which provisions – from an industry perspective – are most effective in promoting compliance. A report based on the round-table findings was published, and classic CIA requirements like sales rep ride-alongs, physician payment disclosures, best practices for working with Independent Review Organizations, and of course, changing business models, are weighed and discussed.
Regarding industry compliance, “we have very few instances of non-compliance with CIAs with these major pharmaceutical companies,” says Demske. “In our experience they put a lot of resources into insuring that they are in compliance…I think it’s fair to say the pharmaceutical industry has had a good record of compliance under CIAs.” Understandably so, given that monetary penalties and 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 quality instead of quantity. Either way, expect the CIAs of the future to be much more comprehensive than the CIAs of the past.