Healthy Skepticism Library item: 12010

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: report

Thought Leader Compensation: Establishing Fair-Market Value Procedures
: Cutting Edge Information 2007 Nov
http://www.cuttingedgeinfo.com/thoughtleadercompensation/PH106_summary.pdf

Notes:

TABLE OF CONTENTS
Executive Summary 15 Study Methodology 18 Study Definitions 21 Profiled Companies 25 Therapeutic Areas 26 Five Key Findings and Recommendations 28
Fair-Market Value: Procedures, Benchmarks and Strategies 35 Procedures to Determine Fair-Market Value 37 Fair-Market Value Benchmarks 46 Thought Leader Impact Measurement 120
Managing Thought Leaders in the Current Compliance Environment 125
APPENDICES 134 Fair-Market Value Benchmarks by Provider Type 135 Fair-Market Value Benchmarks by Primary Care Provider Category 201

…Calculating Fair-Market Value

In the advisory relationship between physicians and pharmaceutical companies, the government claims to see “high potential for fraud and abuse.” The 2003 guidelines established by the Office of the Inspector General (OIG) stipulate that prior to receiving compensation, thought leaders must provide a legitimately necessary service under a documented written agreement with a pharmaceutical company. If these preconditions are in place, a physician may be paid for services provided, but only at the fair-market value rate. Yet, with no official definition by which pharmaceutical companies can safely calculate fair-market value, the industry is currently struggling to establish a best-practice approach.

Pharmaceutical executives have looked to other official sources for a legal definition of fair-market value. Some companies have cited the IRS definition, for example, which defines fair-market value as “the price of a service between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having a reasonable knowledge of the relevant facts.” This theoretical definition does not, however, provide pharmaceutical companies with a method to calculate fair-market value…

Data Collection

Analysts developed the information upon which this study is based through both primary and secondary sources. Cutting Edge Information’s process for collecting and analyzing information encompasses two distinct tools: quantitative surveys and qualitative interviews. Both tools are necessary for understanding not only the hard metrics included in this study, but also the reasoning behind the metrics. Cutting Edge Information aims to explain why some companies spend more than others…

The following is excerpted from Chapter 1, “Fair-Market Value: Procedures, Benchmarks and Strategies,” Section 1, “Procedures for Determining Fair-Market Value.”

The Qualitative Role

According to the data, the most common criterion for determining fair-market value is the specific role that the thought leader plays. No matter the size of the company or the nature of the department, every company interviewed came back to this key point. In attempts to remain compliant with FMV requirements, some companies have moved away from paying flat fees. Instead, they try to determine the amount of time and the depth of activities required for each contractual agreement with a thought leader. In essence, companies now often break down any contractual agreement to an hourly rate, and the end result varies contingent upon the tasks assigned.

An executive from Company 1 gives an example: if his company were going to hire a thought leader to participate in an advisory board, the thought leader would need to prepare for four or so hours to intelligently contribute. Yet, if the same person were to give a presentation at the meeting, or to moderate it, his or her time commitment and level of responsibility. Therefore, he or she would be compensated at a higher rate.

Geographical influence is a key point in segmenting a thought leader and, therefore, affects compensation. Yet, even more basic, compensation can be affected by a thought leader’s geographical location due to the competition in that area, as well as the thought leader’s everyday expenses…

The following is excerpted from Chapter 1, “Fair-Market Value: Procedures, Benchmarks and Strategies,” Section 2, “Fair-Market Value Benchmarks”

Overview

Although each provider category maintains its own specialties and each therapeutic area has its own key drivers that affect thought leaders’ compensation structures, Cutting Edge Information’s analysts looked at overall costs for opinion leader payments by company size. Also, because minimum and maximum hourly rates are listed, the data intuitively take into account specialty and expertise, as those with either of the former will receive nearer the maximum than those thought leaders without those qualities.

In general, large or larger mid-sized pharmaceutical companies attract thought leaders by offering high-profile, exciting and groundbreaking research opportunities rather than by just offering honoraria; therefore, these companies pay less, on the average, than small companies. As Figure 1 shows small companies pay the highest minimum and maximum hourly rate for a thought leader at $340 and $784 an hour. Mid-sized companies, on average, pay a higher minimum than large companies, at $279 versus $261 an hour but, according to survey data, pay almost $100 less at the maximum. Yet, according to the medians of both data sets, both company sizes pay a maximum rate of $400 an hour. Third-party companies pay the least overall, with a range of $181 to $321 an hour. Consistently throughout the report, the data show that third-party companies pay less in hourly and additional fees because often they provide the service of finding physicians consulting activities, instead of the physicians contacting the companies themselves…