We think Christopher Bowe knows what he is talking about. If you care about what is going on with the Opioid epidemic, then this article is insightful.
Repost of the HBR article, “Fixing Pharma’s Incentives Problem in the Wake of the U.S. Opioid Crisis.” June 13, 2016, by Christopher Bowe.
“No matter how you look at it, there have been terrible, unintended outcomes from the introduction and marketing of next-generation prescription opioids. Since 1999, three years after OxyContin was unveiled by Purdue Pharmaceuticals, the rate of drug overdoses in the U.S. has quadrupled, according to the Centers for Disease Control and Prevention (CDC). Nearly half a million people have died, a number driven mainly by prescription opioid overdoses In 2014, more people died in the U.S. from drug overdoses than in any year on record at the agency, and at least half of those deaths were caused by prescription opioids.
Meanwhile, the amount of prescription opioids sold by pharmaceutical companies has quadrupled, despite no proliferation in the amount of reported pain. Dr. Thomas Frieden, director of CDC, and his colleague Dr. Debra Houry wrote in the New England Journal of Medicine in April that they “know of no other medication routinely used for a nonfatal condition that kills patients so frequently.”
But disastrous events often demand hard questions and unearth new perspectives. How did the making and marketing of drugs like OxyContin go so terribly wrong? And what can we learn from it? One place to start might be a fresh look at the incentive compensation structure in the pharmaceutical industry.
Generally speaking, executives are compensated for things under their control: moving projects along, the stewardship of a P&L, and for the company hitting financial targets. Sales positions can be incentivized by activities like calls on doctors and meeting regional sales targets. These incentives, when combined with the strategy of developing and maximizing the rapid and widespread use of OxyContin — an old drug with a new longer-acting dose — helped catalyze a massive uptick in doctors prescribing the drug.
As the Los Angeles Times recently reported, Purdue doubled its sales force when the drug launched. Reps were instructed to pitch OxyContin as a convenient answer to pain, with its 12-hour dosing a key selling point. Even when doctors began reporting that patients were complaining that the drug wore off much sooner, reps were instructed to reiterate to doctors that the 12-hour dosing was correct — and that one solution was to encourage physicians to increase dose strength instead of the frequency of taking the medication. This created the potential for two negative outcomes. If the drug wore off sooner, patients could be at risk of anticipating future doses and beginning a cycle of dependence. And higher doses have a greater risk of overdose.
“Higher doses did mean more money for Purdue and its sales reps,” write Los Angeles Times reporters. “The company charged wholesalers on average about $97 for a bottle of the 10-milligram pills, the smallest dosage, while the maximum strength, 80 milligrams, ran more than $630, according to 2001 sales data the company disclosed in litigation with the state of West Virginia. Commissions and performance evaluations for the sales force were based in part on the proportion of sales from high-dose pills.”
The opioid epidemic is an extreme example of how development and marketing incentives drove sales, but ultimately raised the risk of potential addiction, overdose and death. “Successful” from a financial standpoint was not necessarily aligned with public health, to say the least.
So what if bonus compensation for both executives and sales employees was tied instead to potential real outcomes of a product while in clinical testing — like prolonging a person’s life who has cancer — and measured outcomes after it was approved and selling on the market?
Here’s roughly how it might work for the two core functions of the industry: R&D and commercial (sales and marketing). They typically hold sway over the decisions, direction, actions and success of the company. These ideas are by no means comprehensive, but they can help spark conversation about what needs to change.
R&D. When you analyze most proxy statements from pharmaceutical companies, it becomes clear that an R&D chief’s pay is determined in a quantity, process-oriented, ticking-boxes type of manner. Bonuses are awarded for moving programs along, some of which could have started years before this executive’s arrival. Ideally, these R&D projects would have been selected and maintained for their maximum ability to produce outcomes. But that’s often not the case.
Tying R&D — and CEO — bonus compensation to generating outcomes, in addition to internal measurements like project completion, could have significant benefits. It could prompt collaboration and agreement on achieving a good outcome — a health state of a patient resulting from healthcare — and metrics to define it, something pharma and physicians have clashed over in part because, well, it’s hard. It could drive early attempts and innovations to collect outcomes data for a new medicine (for instance, niacin drugs were big sellers until they were found, years later, to have little impact preventing heart attacks or strokes). It could also help drive the selection of drugs to test by the potential biggest impact on patients. Researchers — and executives like CEOs — could also receive bonuses tied to a drug’s observed number and degree of real-world outcomes seen in patients when it is used widely on the market.
Commercial. It isn’t news that rewarding sales volume rather than public health outcomes is a problem in the pharmaceutical industry. In fact, this is the root of nearly all the mistrust that clouds the industry’s operations, relationships, and reputation. The memory of hefty legal settlements for improper marketing and obfuscation of safety risks lingers, the biggest being GlaxoSmithKline’s 2012 $3 billion penalty over the marketing of antidepressants and a safety issue for a diabetes drug.
But there are ways that employee compensation around outcomes could change that. For one, it could instantly align each sales rep, and other commercial employees, with their customers — and with the patient. Suddenly doctors and pharmaceutical employees could be working to the same defined outcome goal for patients.
So, for example, part of the incentive compensation for the commercial team could be tied to real outcomes in patients in their territories. Certain territories will be more challenging — for instance socioeconomic factors, diet, education, and behaviors like smoking could vary from area to area. Adjusting for that, a sales rep could have higher compensation potential for working in such areas and generating results.
Legally, salespeople can only talk about outcomes if they are approved in the drug’s label by the Food and Drug Administration — another reason to have more outcomes data determined in the testing phase. But commercial employees also could work to help improve outcomes through community outreach.
This reimagination of the sales rep as a health outcomes advocate would require some different skills and a new collaboration with health providers and insurers. Strategically, however, it could transform the value of the frontline sales force. Rather fighting for doctor time, the sales force could be a grassroots, public health army working and advocating for optimal health outcome in patients and the community. The opioid story, after all, might have been different if bonuses incentivized value instead of volume.
While much of this may sound difficult, tying employee compensation to positive outcomes for patients is not inconceivable. It may actually be following a trend: Physician compensation is increasingly connected to patients’ outcomes. Sooner or later, this change is going to affect pharmaceutical companies — by way of what doctors decide to prescribe given different incentives — whether they like it or not.
The tragedy from the success of Oxycontin — and other prescription opioids that followed — highlights the fact that pharmaceutical companies need to change to rebuild their trust with society. Aligning pay to a larger public health goal might just deliver that, or be a good first step.”
Christopher Bowe advises CEOs in the health care industry on articulating and communicating their strategies and ideas.