Here's a fix for pharma's image problem: Tie exec bonuses to patient outcomes, HBR says

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(photo by Ken Teagarden, courtesy of SeniorLiving.org)

The pharma industry has an image problem, no doubt, and it’s not just about drug pricing. Underneath the outcry of the past nine months has been a drumbeat of accusations, investigations and settlements with U.S. prosecutors--even some outright arrests and criminal convictions for over-aggressive marketing. Not to mention the opioid epidemic that’s put makers of painkillers on trial for their promotional practices.

Top companies and industry advocates have fought back with public comments and, now, beefed-up ad campaigns designed to polish that tarnished reputation.

But that’s not enough, argues the Harvard Business Review. Not enough to fix pharma’s reputation, and certainly not enough to fix the underlying problems triggering the scrutiny. So, what if drugmakers radically overhauled their pay structure, too?

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An HBR columnist argues that executive pay--which runs in the tens of millions for Big Pharma and Big Biotech, and even higher for some specialty drugmakers--should be tied not to financial measures, or even to development milestones, but to a company’s performance in treating disease and improving patients’ lives.

Specifically, the idea is to use actual patient outcomes to determine whether top execs and sales staff get bonuses. Rather than rewarding R&D execs mostly for moving research programs through the pipeline, outcomes could be added to the mix. Researchers and CEOs alike could earn bonuses tied to a drug’s real-world outcomes, incentivizing pharma to go further beyond the pill.

That’s something that drugmakers have talked about for years--focusing on delivering patient outcomes rather than selling products. If pay were tied to that goal, then outcomes would become more important to the people who could make it happen.

Likewise on the commercial side of the business, HBR columnist Christopher Bowe says. “[T]his is the root of nearly all the mistrust that clouds the industry’s operations, relationships, and reputation,” he writes. “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.”

Rewarding reps for sales volumes rather than results in patients is a problem, he argues, and some in the industry have agreed with him. In fact, in the wake of that penalty, GSK chief Andrew Witty famously--and controversially--overhauled his company’s sales compensation structure to tie incentives to “softer” measures like relationships with physicians rather than sales quotas.

Bowe’s idea departs even more from Witty’s. Part of the sales team’s incentive pay could be tied to real outcomes in patients in their territories, adjusted to account for headwinds in some geographic regions such as socio-economic factors and education levels.

It would create an accountable care organization of sorts for pharma sales reps instead of doctors and health systems. [T]he sales force could be a grassroots, public health army working and advocating for optimal health outcomes in patients and the community,” he contends. “The opioid story, after all, might have been different if bonuses incentivized value instead of volume.”

Sounds almost utopian, even compared with Witty’s optimistic overhaul of sales compensation, and some have blamed that quota-free model for some recent disappointments on the launch side. In fact, GSK has rolled back some of those changes, while keeping others. And Witty’s vision of inspiring an industrywide shift toward new sales incentives--which could endear drugmakers to doctors and the public alike, he figured--flat out didn’t happen. 

Collecting outcomes stats wouldn’t be a simple task, either, at least not until Big Data can sort out health-records analysis in the U.S. And pharma chiefs might not be thrilled to let go of targets that they can influence more directly--such as earnings per share--in favor of numbers that depend largely on other people’s behavior. Industry execs collect the largest chunk of their pay in the form of incentive compensation, after all. For Big Pharma and, increasingly, biotech and generics makers, that line item amounts to $10 million or more.

Then again, drugmakers have been wading into pay-for-performance pricing deals for some drugs. Novartis struck a couple of big arrangements of that sort on its heart failure drug Entresto, and Amgen and Sanofi have done the same on their PCSK9 meds Repatha and Praluent. While that’s not a direct tie between pay and outcomes, it’s an indirect one, and pharma-watchers figure more of those deals are coming.

- check out the HBR article

Special Report: The top 20 highest-paid biopharma CEOs of 2014

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Photo by Ken Teegarden, courtesy of SeniorLiving.Org

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