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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.