Seeing the value (and limitations) in Fair Market Value

05.26.16 | By Darren Jones

Fair Market Value is a critical component to a comprehensive compliance program for pharmaceutical and medical device manufacturers. What many Life Sciences companies don’t know is that a proper Fair Market Value program is defined by three distinct components, with rates being just one of them.  Manufacturers must demonstrate that they are compensating similar fees for similar services, so establishing labor standards for common activities like product training, speaker programs and advisory boards are essential. Thirdly, as our commercial and medical partners frequently remind us, we must pay higher fees for higher levels of expertise.

Thus if your FMV methodology emphasizes rates with equal attention being applied to activity model and tiering, you may have a false sense of confidence and control. The flexibility afforded by only providing hourly rates to commercial and medical partners directly exposes you to scalability risk. At lower volumes, this control can be enforced by training and oversight. However, as the organization scales and engagement volumes increase the reliability of these controls diminishes significantly.

Though it is critical that compensation is based on objective data, these objective rates fail to account for the premium necessary to serve as an alternative income source. As a result, most manufacturers already account for some “consulting premium” in their standard rates. In addition, most FMV methodologies recognize the need to pay higher fees for higher degrees of expertise. This additional KOL premium may range from 20% to greater than 100% of the standard rates. The importance of properly aligning consultant expertise to KOL tier is essential to demonstrating a functioning FMV program.

In companies that lack defined tiering objectives we have continually seen a disproportionate share of consultants tiered at the highest level, though their CVs do not demonstrate similar levels of expertise.  The result is overpayments that can range from that 20% to 100%+ level. To ensure this does not happen, Fair Market Value and KOL tiering should be cohesively integrated with one another. FMV rates rely on a KOL scoring model that objectively identifies the expertise tier so that proper rates can be assigned to physicians. It is important to distinguish the company’s rationale for nomination or selection from tiering. Tiering criteria must not be based on the manufacturer’s opinion of the KOL, but rather should measure peer-recognized domains of where an HCP can be distinguished.

A successful KOL tiering model should be built on three pillars:

  • Objectivity – to ensure a consistent and unbiased assessment of expertise
  • Flexibility – to facilitate appropriate scoring for physicians of all backgrounds and specialties
  • Simplicity – to promote consistent evaluation, a transparent process and a readily available audit trail

Though there is overlap, nomination and selection criteria may also incorporate the soft skills of the HCPs such as their product experience or communication skills. For tiering, simplicity is not only a key element to a successful scoring model, but also an essential component of an effective compliance process. Oftentimes the implementation of a new compliance process requires change management in order to harbor buy-in among stakeholders. This is a challenge for many companies, but a simple process may lessen the burden. Our process emphasizes training and change management, making sustainable adherence to the process easier to control. Lastly, an easy process allows companies to promote consistency in evaluation of HCPs, while subsequently producing an easily auditable payment record.

The ability to ensure that payments are consistent with Fair Market Value will continue as a fundamental global priority. A proven, consistent methodology grounded in peer judgement of an HCP’s medical expertise will provide Life Sciences companies with the confidence that their FMV strategy is forward thinking, defensible and compliant.

Polaris has worked with over 90 companies worldwide to develop and implement FMV and KOL tiering strategies, including device companies and more than 50% of top 20 Pharma firms. We have developed FMV methodologies in over 85 countries, and our team has partnered with clients in outsourcing KOL tiering and reviews over 4000 CVs per year. As a firm, we have been recognized in industry publications for robust methodologies and capabilities. Polaris’ experts have the distinction of having published the first article to explore FMV requirement for HCP contracting in a peer reviewed legal journal.

For more information on Polaris’ FMV and KOL evaluation solutions, contact Darren R. Jones, Partner, at djones@polarismanagement.com or (646) 381-8974.

Attend the live webinar: FMV and KOL Evaluation Solutions on Thursday, June 2 at 11 am ET. Register here.