Pharmaceutical Sales Representatives are not Selling

Have things changed that much or have sales reps with the help of their lawyers just figured out how to characterize the pharmaceutical sales representative position so as to align their cases with the FLSA definitions for “non-exempt?”  Granted, it has been a while since I have been in the field (as a rep or riding along) but I always felt pharmaceutical sales reps were pretty autonomous, responsible, and accountable for “selling” the company products (legal and regulatory constraints considered) and “managing” the business in their territories.

Ok.  I’m not an attorney but the recent U.S. District Court ruling (Kuzinski, et al. v. Schering Corporation, Civil No. 3:07cv233 (JBA), August 5, 2011) would seem to suggest that all pharmaceutical representatives will have to be classified “non-exempt” hourly employees and be eligible for overtime pay.

By the courts’ strict interpretation of the FLSA (Fair Labor Standards Act) definition, pharmaceutical representatives do not actually make sales. Basically, they do not “consummate sales or obtain contracts or orders” or “binding commitments for purchase” from the physicians they call on and therefore do not qualify for the “outside sales exemption.”  This is hard to argue when a Department of Labor FLSA literal definition for prescription drug “sales” would only occur at the pharmacy or within the supply chain (e.g., wholesalers, chain pharmacies, buying groups, and hospitals) through negotiation, contract, and transaction activities that do not directly involve pharmaceutical representatives.  Despite arguments about the regulatory requirements dictating the role of physicians in the prescription drug sales process, without a lenient interpretation (consideration for regulatory and prescription drug market limitations) of the FLSA definition, it is unlikely that pharmaceutical representatives could ever qualify under the “outside sales exemption.”

The court’s interpretation of “administrative exemption” as it pertains to pharmaceutical representatives, however, is even more disconcerting.  It seems that if you do any training, supply any company developed sales materials or territory management assistance, or provide any management oversight, the courts will determine that “the primary duties” of pharmaceutical representatives do not include the “exercise of discretion and independent judgment with respect to matters of significance.”  This would suggest that the only way to qualify for the “administrative exemption” is to make sure pharmaceutical representatives have complete autonomy (totally independent of any corporate input), do their own training and planning, do whatever they want in the territories that they define as theirs (on their own with no physician or account data supplied by the company), decide and say what they want about the products they choose to promote, and are not managed or supervised in any way.

While this may sound absurd, this is not meant as a sarcastic commentary and certainly is not meant as legal advice but rather a practical observation of how the courts seem to be interpreting the FLSA definitions for “outside sales” and the “administrative exemption” as they pertain to pharmaceutical representatives.  As a result, if the courts continue to rule on these grounds,  I believe pharmaceutical companies will have little choice but to classify pharmaceutical representatives as “non-exempt” hourly employees and will be forced to implement some of the types of tactics discussed in an earlier post.

Do Prescription Drugs Add to, Shift, or Reduce Healthcare Costs?

One would think that by implying your prescription drugs keep people healthy and out of the hospital you could also imply and conclude that drug treatment will lower overall healthcare costs for those patients.  The pharmaceutical industry has implied this for decades.  And, this may actually be true in many cases but the evolving new healthcare market is becoming much less receptive to what would seem to be obvious and will be demanding more and better data to support any claims of improving clinical outcomes at lower cost.   Interestingly, some healthcare providers have already determined this is not just a pharmaceutical industry issue.

For example, pharmacists for years have claimed that they can help patients avoid medication errors and improve patient care through patient counseling and follow up.  They are often the only healthcare provider with that opportunity once a prescription is written, especially for chronic conditions.  Seems logical that pharmacists obviously play an important role here.  But then you read the recent study that suggests that mail order pharmacies may do a better job of lowering costs while improving clinical outcomes than local pharmacies.  Whether or not this study can be replicated or validated remains to be seen but it represents how it is going to be better to have data to support your position than to rely on implication.  Think about pharmacists who now are trying to make their case for improved clinical outcomes with counseling at the local pharmacy.  What data do they present to refute this mail order study?

Similarly, Express Scripts® recently reported on several research studies that demonstrate the ability of Pharmacy Benefits Managers to lower costs and improve clinical outcomes.  Again, even as part of the “managed market,” Express Scripts® felt compelled to support their benefits claims with data.

Why is this important?  Because pharmaceutical companies who still feel they can use traditional marketing and sales advertising and promotion to imply being able to lower costs while improving clinical outcomes  without actually having the data are going to have a much more difficult time convincing decision makers and selling their products.  More importantly, pharmaceutical companies that develop the real world data to support their claims for improving clinical outcomes and lowering overall healthcare costs (and not just shifting costs to another part of the healthcare system), will find a more receptive audience and create a significant competitive advantage.

We are entering a time where the healthcare market will expect you to prove (“show me the data”) that you (as a healthcare provider) or your products or services are delivering demonstrated (data driven) real world clinical outcomes that reduce overall healthcare costs.