Thought Leader Compensation: Establishing Fair-Market Value Procedures (PH106)

Create your own fee schedules by exploring fair-market value benchmarks for 20 therapeutic areas and multiple specialties:

Fair-market value has been a notoriously difficult concept to master, especially since there are no defined regulations or procedures for calculating thought leader compensation. With state compliance guidelines changing almost on a daily basis, and the potential introduction of federal guidelines on the horizon, thought leader management executives are understandably overwhelmed.

Cutting Edge Information’s newest report cuts through the regulatory confusion and provides clear procedures for calculating fair-market value compensation. Backed with real-world metrics from more than 40 top pharmaceutical, biotechnology and medical devices companies, Thought Leader Compensation: Establishing Fair-Market Value Procedures provides relevant case studies and best practices to guide your thought leader management team. The report provides compensation ranges for various specialties in 20 different therapeutic areas.

Study participants included vice presidents and directors of medical affairs, product directors and managers, marketing consultants, thought leader development managers and MSL team leaders. The fair-market value benchmarks contained in this study are aggregate data collected directly from executives at participating companies.

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 the 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.

Traditionally, companies have relied on historical data regarding payments to physician thought leaders for their services. However, these data poorly reflect a complex structure of different types of physicians and various therapeutic areas and fail to account for varying levels of experience, specialty and influence. Historical data may also fail to catalog different payments for different services, such as delivering a speech, writing a manuscript or chairing an advisory panel.

As a benchmarking intelligence firm, Cutting Edge Information is committed to researching pharmaceutical companies’ actual fee schedules for thought leader payments, taking into account the physician’s therapeutic area, years of experience, provider status and geographic level of influence. Just as physicians’ salaries vary based upon field of expertise, so do their consulting fees. Because all of these factors affect physicians’ base hourly rates in addition to their advisory or speaking fees, comparing historical payments without controlling for these factors proves an unhelpful and inaccurate method of determining fair-market value.

Rather than relying on historical payments or theoretical descriptions of fair-market value, Cutting Edge Information is moving toward a cohesive method of determining fair-market value based on each applicable factor. Benchmarking fee schedules for different thought-leader services across the industry in each therapeutic area, for each type of physician, accounting for geographic influence and tenure gives a more complete picture of fair-market value upon which pharmaceutical companies can base their compensation.

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 answer why some companies spend more than others.

Analysts began developing the quantitative survey tool by working closely with pharmaceutical industry executives. These executives proved to be invaluable resources, guiding the survey design team to ask more specific questions than in Cutting Edge Information’s 2006 survey on thought leader fair-market value. By taking the initial survey from the 2006 study, analysts were able to build upon its solid foundation and expand it to include more detailed and refined data segments.

Once the research team completed the survey design, analysts recruited participants from pharmaceutical companies, biotechnology companies and third-party providers to collect data on fair-market compensation. The research team collected the fair-market value benchmarks, as well as all survey data, through primary research with front-line thought leader development experts. All together, Cutting Edge Information collected and analyzed fair-market value benchmarks from more than 500 data sets, including data from more than 40 pharmaceutical and biotechnology companies of all sizes, as well as third-party vendors. The data sets included in the appendix in this report encompass 20 therapeutic areas. Study participants included vice presidents and directors of medical affairs, product directors and managers, marketing consultants, thought leader development managers and MSL team leaders.

Once participants submitted a survey, analysts used qualitative interviews to uncover more detailed information. Cutting Edge Information used the telephone interviews with pharmaceutical executives to understand compliance challenges in the current regulatory environment. Not all participants submitted to telephone interviews. However, Cutting Edge Information gathered enough information from its completed interviews to properly interpret the data. In return for these parties’ contributions, Cutting Edge Information distributed the study results to all participants. Secondary research focused on public information related to specific companies and OIG guidelines.

Company Blinding

To ensure that Cutting Edge Information protects the identities and privacy of all study participants, this research does not name the companies or products it examines, nor does it link specific companies with therapeutic areas. Company blinding is a critical device that allows survey respondents to comfortably provide accurate data for studies such as this one.

Sample Content

Excerpted from Chapter 1, 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 without.

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 paying less on the average than small companies. As Figure 1.1, shows small companies pay the highest minimum and maximum hourly rate for a thought leader at $XXX and $XXX an hour. Mid-sized companies on average pay a higher minimum than large companies, at $XXX versus $XXX an hour but, according to survey data, pay almost $XXX less at the maximum. Yet, when looking at the median of both data sets, both company sizes pay a maximum rate of $XXX an hour. Third-party companies pay the least overall, with a range of $XXX to $XXX an hour. Consistently throughout the report, the data show that third-party companies pay less hourly and for fees because often they provide the service of finding physicians consulting activities instead of the physicians contacting the companies themselves.

Excerpted from Chapter 2, Section 1: Managing Thought Leaders in the Current Compliance Environment

Compliance Groups

The drastic increase in federal and state regulation concerning companies’ interactions with physicians also implies and precipitates an increase in legal oversight of each relationship recruited, established and maintained. From the time of the OIG’s publication, legal’s presence has continually infused the process to retain thought leaders. Some companies, such as Companies 1 and 19, involve their legal teams for almost every contract or thought leader engagement, to ensure that they are staying with compliance standards. At Company 23, those dealing with thought leaders must prepare a slide set for legal representatives to review before encountering a thought leader and sharing the slides with him.

This oversight phenomenon has slowed the bureaucratic process to hire thought leaders, creating the need not only for dedicated thought leader management teams, but for a liaison between legal and these teams. While legal has other concerns than contracting thought leaders, thought leader management teams have duties suffering from the inordinate amount of time spent communicating with legal teams and fighting through the dense legal writing that today’s compliance environment effects.

Subsequent to the OIG’s publication of its guidelines for the pharmaceutical industry, many companies began to shift their thought leader development groups away from commercial organizations and into their medical affairs functions. This shift represented a major trend between 2003 and 2007. Although not every company has shifted its thought leader management groups’ reporting lines, many that have are now going one step further by creating dedicated compliance organizations.

Published 2007

278 Pages

500+ Metrics

194 Tables, Charts and Diagrams

Format PDF
Table of Contents
Price: $7,695.00 / GBP3,847.50