US healthcare reform’s impact on pharmaceutical sales
Von Gehr Consulting Group
The passage of comprehensive healthcare reform will have a dramatic impact on pharmaceutical sales in the United States. The tightening of regulations and product formularies will result in less face-to-face meetings between sales representatives and physicians.
The golden age of pharmaceutical sales in the United States has ended. The industry must come up with a new quota and incentive model to keep its sales force relevant for the current and future challenges ahead.
“The golden age of pharmaceutical sales in the United States has ended.”
The golden age of sales
To understand the impact that comprehensive healthcare reform will have in the United States, we should first look at the past.
During the final quarter of the last century the pharmaceutical sector hit a major strike with blockbusters like Lipitor™, Zocor™, Prozac™, and Claritin™i to name a few. Combined with a well-respected and educated sales force they were able to sell millions of prescriptions resulting in billions of dollars in sales (see figure 1). The vast majority of the pharmaceutical sales were earned in the United States.
Figure 1: Final year of patent salesii
Unlike the universal healthcare coverage in Europe, where pricing and treatment formularies were fixed from a central bureaucracy, the United States’ healthcare sector operated in a semi open marketplace where physicians could prescribe as they saw fit.
The industry entered into a sales force arm race at this time. The desired goal was to increase their share of the marketing voice, to maximize their presence in front of the physician, and to distribute samples of their products.
The resulting end of this golden age was not with glamour or in a whimper. An industry that was once working behind the scenes to inform and educate healthcare professionals was now the punch line of jokes. The once respected sales force was now mocked as being uneducated “used car” salespersons. (To see an example search for “Charles Pharma Sales” on YouTube.) The result was offices, clinics, and hospitals shutting representatives out.
“The industry had become a target of the political class and identified, though wrongly, as being the driving force behind the increasing costs of healthcare.”
The industry had become a target of the political class and identified, though wrongly, as being the driving force behind the increasing costs of healthcare. By 2008, the United States was spending 16% of GDP on healthcare and only 10% of this was spent on prescription medicines (figures 2 and 3).
Figure 2: Healthcare percent of U.S. GDPiii
Figure 3: Healthcare dollars spent on Rxiv
The current state
The industry is currently consolidating through mergers and acquisitions to strengthen their product pipelines. To reduce waste and costs they have been shutting facilities and cutting back their army of sales representatives.
The leading companies of the industry have been hit with billion dollar penalties by the U.S. and state governments over marketing practices. The result has been a tightening on information shared between representatives and physicians. Research that has been supported by the industry is considered suspect at best and blatantly biased at worst.
In lieu of any national mandate, some individual states within the U.S. have taken certain steps unilaterally. States like Vermont, New Hampshire, and Massachusetts have passed laws restricting and/or requiring reporting on pharmaceutical marketing activities.
The pharmaceutical companies have not yet adjusted their current method for incentivizing their sales staff to generate revenue. Currently, using a mix of volume, market share, product conversions and other formulas the industry still sets targets as if it is operating in an open marketplace. In the meantime some of the companies have been changing the size and nature of their sales forces to match Medicare administrative regions or individual state mandates.
The industry is mired in trying to predict the future in an ever-changing political and economic landscape.
Impact of comprehensive healthcare reform
The current bill passed by the House of Representatives and the one currently being debated within the Senate are looking to have an unelected committee that will set budget requirements. This means a board that will mimic the United Kingdom’s National Institute for Health and Clinical Excellence (NICE) and the current Health Technology Assessment Commission in Washington State. That means that new products will have to meet new hurdles to be approved for use within the United States, if the law is passed.
That means the industry will have to fund and run new comparative studies on the new treatment versus older and current therapies. A new product that does not show a statistically significant difference or improvement may not be approved for use. Completely new therapies where there is no generic alternative may be limited to specific treatment protocols.
“A new product that does not show a statistically significant difference or improvement may not be approved for use.”
This is the beginning of a national prescription drug formulary that will limit what products can be prescribed, when can another option be used, and how long will the treatment be paid for. This is unlike the current marketplace that allows physicians to change therapies as needed for the treatment of their patients.
Two examples of this are the United Kingdom and Massachusetts. In the first, where the central government negotiates pricing, therapy use is monitored, and the recommendations of NICE are followed, the sales representative is constrained by where their product falls on the formulary. There is no incentive for the physician to break the rules and use a product that is further down the formulary. The second example has resulted in offices, clinics, and hospitals keeping sales representatives out. There is simply no value from the healthcare provider’s perspective in meeting with a sales representative.
The result is that it makes the current model for building quota and incentivizing the pharmaceutical sales force null and void.
Meeting the challenge: the future for pharmaceutical sales
In order to meet the new challenges of comprehensive healthcare reform if it passes and/or to change the current perceptions of the industry if it does not, pharmaceutical companies must do the following:
1. Return to the era of hiring experienced sales professionals and not new university graduates. This will bring back respect to the pharmaceutical sales profession and make the implementation of the following steps successful.
2. Build a sales model around total patient outcomes and the financial savings healthcare professionals will experience. This requires hard data and pharmacoeconomic information in the hands of the sales representatives. A focus on total patient outcomes and how it can save the practice in costs. Demonstrating how the removal of waste in not properly treating the patient will be seen as delivering value through a consultative approach to pharmaceutical sales. To be truly effective in providing value to physicians and hospitals the representative needs to know the complete picture of the practice, how it operates and how it is compensated. This means the representative needs to be trained to speak the business of healthcare delivery and understand all the economic pressures involved.
3. Compensation and incentives should not be based on the individual number of prescriptions that are written by physicians. Instead the new sales force should be built around the pharmacy order rate within their territories and the number of patient outcomes programs enacted in physicians practices or hospitals. Both arms of this compensation are given quotas and incentives that are exclusively different from each other.
4. The sales force should be reduced further than its current numbers. Representatives should be given larger geographies to cover, forcing them to focus only on large practices and key thought leaders in their territories, but supported through new technology to enable broader coverage.
5. Representatives that sell patient outcomes can represent the entire portfolio of a company as tools to help in those outcomes programs that they sell. Yet, since the outcome programs quota and incentives are different from the products, a physician can choose an outcomes program from company X while forced by the state or insurance company to prescribe products from company Y.
By no means are these steps a panacea to the trying times currently hammering the pharmaceutical industry. The industry prides itself on innovation when it comes to discovering new treatments that result in longer lives for patients. In order to be relevant in the current and upcoming marketplace, the industry needs to innovate its sales force and compensation model now to meet the challenges today. Failure to do so will continue to malign the industry and make its power in healthcare irrelevant.
i) Lipitor is a trademarked product of Pfizer, Inc. Zocor is a trademarked product of Merck &, Co. Prozac is a trademarked product of Eli Lilly &, Co. Claritin is a trademarked product of Schering Plough, Inc.
ii) Data from final years of patent sales and/or current sales as reported by The Wall Street Journal, Forbes Magazine, Fortune Magazine, and respective companies’ annual reports.
iii) Data from Forbes Online Magazine July 3, 2009. Click here for article.
iv) Gillis, Marin, PhD Scientific And Ethical Concerns of Pharmaceutical Sponsored Research. (Slide 4) University Nevada School of Medicine Presentation August 2008.
About the author:
Erroin A. Martin is a Business Advocate with the Von Gehr Consulting Group, LLC, a coaching and consultancy provider for businesses and medical practices. He has over eleven years experience working within the pharmaceutical industry in various levels of leadership across six continents. He currently coaches business leaders and physicians in the tools needed to plan for their success. Learn more about the Von Gehr Consulting Group, LLC at www.vongehrconsulting.com or call +1 203 433 8079.
How will pharma in the US respond to healthcare reform?