A Forthcoming Shift of Pharmaceutical Sales Compensation Plans?

Sales in the pharmaceutical industry has been a rigid and consistent business. Tactics may have changed, but for the most part these sales teams still run on a commission or quota based metric determined by optimized territories.

In some cases, incentive compensation (IC) methods have evolved to align with new regulations regarding specific sales metrics. For example, Corporate Integrity Agreements (CIAs) were implemented by the DoJ as a way to curtail off-label drug promotion which forced companies to ensure their sales incentives encouraged proper compliance. However, a recent article from the Harvard Business Review suggests the stagnant methods of pharmaceutical sales rep compensation may be the root cause of an even bigger public health issue.

Christopher Bowe, a CEO healthcare industry adviser, suggests the opioid overdose crisis that has impacted prescribers since the 90s may have been the result of a fractured incentive compensation system. Just like any common pharmaceutical sales compensation plan, sales forces are compensated for educating their territory of physicians and gaining market share through filled and re-filled prescriptions.

When the effect of OxyContin(c) was not lasting as long as expected, sales reps encouraged doctors to increase dosage. These reps were making higher valued sales as a result of this suggestion since per bottle prices increased as dosage increased. Bowe claims this could be a source of the overdose crisis and a case of crossing the fine line between sales incentives and public health.

Shifting Pharmaceutical Sales Commission

To counteract this unfavorable method of sales, Bowe suggests shifting compensation plans toward value-based, or patient outcome, incentives.

According to a study conducted by the Medical Group Management Association, this shift is already seen within physician incentives plans where doctors are compensated by metrics of quality, outcome, and patient satisfaction. In 2012, these plans made up less than 5% of physician pay, but are expected to surpass 10% in the coming years.

The Affordable Care Act was the source of this shift as it implemented harsher penalties for high readmission rates and poor patient satisfaction. The solution to avoiding these penalties: implement a value-based compensation method to receive the highest reimbursement from insurance companies and government healthcare services. Now that we are seeing this method on the physician-side of pharma, the same approach could be used for incentivizing sales reps to be, in Bowe’s terms, a “healthcare advocate” and solve the industry-wide problem of just selling to gain market-share.

New Incentive Plan Structure Impact

At first take, this claim may be a shock to sales reps in the field or comp plan designers who know how reliant these plans are on non-patient data.

The first question to ask, though, is how on earth would this work? Firstly, organizations will need to become more reliant on Anonymous Patient-Level Data (APLD). These databases would provide the necessary information to evaluate territories by demographic and socioeconomic factors, project success rates and, eventually, capture physician or patient satisfaction. Plans would then be designed to measure this data against organizational goals to determine sales compensation.

On the other hand, there is the issue of actually shifting organizational values and goals. Any social media conversation on ‘Big Pharma’ tends to go towards the direction of ‘in it for the profits’ and ‘just trying to sell.’ Whether this is true or not, organizations will need to spend even more time in their sales planning process, which, in some cases, can take upwards of 6 months, to determine what their specific end goal is for promoting a new drug and how they can incentivize their sales force for optimal success.

One thing that may be a substantial barrier to value-based comp plans is the financial risk and historical reliance on classic sales tactics. Financial measures will be dependent on factors not entirely in the control of sales teams which may cause frustration and dissatisfaction with their compensation terms. If this shift does make its way into the industry, organizations will need to spend a substantial amount of time crafting a comprehensive reward strategy and effectively communicate these changes to make sure the frontline sales force is aligning with the new company objectives.

Even with these big hurdles, re-writing current comp plans, adjusting physician relationship tactics, and mapping even more detailed territories isn’t unheard of. The Patient Protection and Affordable Care Act (PPACA) required similar adjustments for medical device sales. Under this 2010 regulation, Accountable Care Organizations (ACOs) formed to incentivize networks of healthcare providers to provide quality care while keeping costs down. Sales planning methods adjusted to meet the needs of value-based and data driven sales models by restructuring sales forces and creating compensation plans to mirror new roles.

Many of Bowe’s suggestions are merely speculative and a shift to APLD dependent comp plans on a larger scale would take years to completely catch on. But, based on current research from the physician perspective of value-based plans and recent regulations that foster favorable patient outcome, we may see this change sometime down the line.

Whether it happens in a few years or a decade, OpenSymmetry’s Strategy Team can assess and design compliant incentive compensation plans and provide implementation services around the execution and on-going support of your enterprise ICM/SPM platform. If you have any questions about how our design capabilities can meet your needs, contact us at os_info@www.opensymmetry.com.