I saw this article today, CIAs pressure pharma to rethink sales rep compensation and thought it was interesting enough to share. A few weeks back we discussed in detail the future of Pharmaceutical Sales Compensation and neglected to take into consideration Government oversight, which appears to be a major driving force in Pharma comp. For those not familiar a CIA is a "Corporate Integrity Agreement" between the Department of Justice and a Corporation, it generally comes with a substantial fine.
In this case Novartis is going to have to cough up $422M dollars. It appears that Novartis was compensating their reps to push sales of products that are reimbursed under government programs. The compensation related language in the CIA includes, "ensure that financial incentives do not inappropriately motivate [sales reps] to engage in the improper promotion, sales, and marketing of products reimbursed by government healthcare plans."
Is Novartis the first company to come under scrutiny from the DOJ for their compensation practices? No, the article also talks about GlaxoSmithKline who signed a five-year CIA in 2003 (and paid $88 million) Over the summer, the company announced that it would end bonus structures for sales reps based on sales targets, and instead focus on qualitative measures, like customer evaluations. We discussed GSK's new compensation policies specifically in an earlier blog post the future of pharmaceutical sales compensation
In September it was Forrest Pharmaceuticals - $313M fine, CIA language includes, "Policies must be designed to ensure that financial incentives do not inappropriately motivate such individuals to engage in improper promotion, sales, and marketing of Forest’s products.
Also this year; Allergan - $600M fine, CIA language includes compensation (including through salaries, bonuses, and contests) for Relevant Covered Persons who are sales representatives. These Policies and Procedures shall: 1) be designed to ensure that financial incentives do not inappropriately motivate such individuals to engage in improper promotion, sales, and marketing of Allergan’s Government Reimbursed Products; and 2) include mechanisms, where appropriate, to exclude from incentive compensation sales that may indicate the off-label promotion of Allergan Government Reimbursed Products;
Government regulations impact the way a number of industries have to think about, design, pay, and track sales compensation. The Future of Pharmaceutical compensation will certainly be one of those industries The next wave of this that will be taking place is in the health insurance industry as the impact of health care reform will start to ripple through starting Jan 1, 2011. I hope to discuss this in more detail in a future post.
Thanks for reading. Comments and questions are always appreciated.
