(Bloomberg View) — Selling prescription drugs is a classic principal-agent problem. The key decision-makers are the doctors who write the prescriptions, but they’re not the ones paying for the drugs, or taking them. So competing on, for instance, price is dumb. Doctors may not even know how much the drugs they provide cost, and they don’t have much in the way of fiduciary responsibility to insurance companies. Competing on effectiveness is better; I gather that most doctors do care about their patients’ health. But at some level the simplest way to sell prescription drugs is to bribe doctors to prescribe them. This is all well known, and bad and illegal. You can’t just bribe doctors to prescribe your drugs, come on.
So you have to fall back to competing on effectiveness. But just making an effective drug isn’t enough; you also have to convince doctors that your drug is effective. How do you do that? Well, you get them in a room, and you have someone — like another doctor with experience prescribing your drug — explain to them how your drug works and why it’s good, either in person or in a pre-recorded presentation. If sometimes the room is Le Bernardin, well, at least the doctors are getting a useful explanation with their fancy meal. And if the recorded presentation is played on a laptop turned toward the wall and with the sound off, well … at least the doctors are getting a fancy meal?
Many of these doc-in-the-box programs were little more than a mechanism to provide the attendees with extravagant dinners and an opportunity to socialize, and the speaker with $250 per event for doing little to nothing. Sales representatives often would not play the pre-recorded programs. And if the programs were played, the laptop or other device on which they were played was placed in a location where it could not be seen or at a volume at which it could not be heard.
That is from a Justice Department complaint against Raleigh, North Carolina-based Salix Pharmaceuticals Inc., which settled a kickback case for $54 million on June 9. (Here is the settlement, which admits many of the facts in the complaint.) Salix was bought by Valeant Pharmaceuticals International of Bridgewater, New Jersey, last year, shortly before everything became embarrassing for Valeant; this can’t particularly help. “All of the conduct alleged in the government’s complaint predated Valeant’s acquisition of Salix and involved personnel who are no longer with the company,” said a Valeant spokeswoman.
Anyway, the way the “doc-in-the-box” pre-recorded program worked is, a Salix sales representative would show the recorded presentation, or not, and would pay a doctor to be on call to take any questions, by telephone, at the end of the presentation. There often weren’t any questions. Because, you know. There wasn’t a presentation. Even if there was, the doctors who saw it probably wouldn’t have any questions, because they had heard it before:
The same doctors were repeatedly invited to the same doc-in-the-box programs, which simply served as opportunities for them to have an evening out with their colleagues paid for by Salix. An email from a former Maryland sales representative to a Washington, D.C., doctor, dated September 28, 2012, reflects the sham nature of the pre-recorded speaker programs. In the email, the sales representative wrote to the doctor: “I’m showing the Xifaxan video at the Suburban GI journal club next Wednesday, can you be available at 6:00 if there are any questions that arise? (considering this is the third time I’ve shown the video to them, I doubt they will have any questions this time either) ha-ha.”
Ha-ha. One assumes the sound was off there too. The doc-in-the-box programs were a way to give a bunch of doctors a fancy dinner, and one doctor a small fee, but the real money was in the live speaker programs, where a doctor — normally chosen because he prescribed a lot of Salix drugs — could be paid thousands of dollars for talking about Salix drugs, or not talking about Salix drugs, whichever:
A doctor from Providence, Rhode Island, was the paid speaker for numerous events during the Covered Period, earning more than $190,000 in honoraria. For approximately half of these events, the medical discussion lasted 15 minutes or less, including multiple events that were entirely social in nature with no medical discussion. The events were primarily a get together for the attendees, who in many instances knew each other and even practiced together. On multiple occasions, the sales representative announced that the attendees could just have dinner.
This is all dumb and bad, but it is worth trying to imagine yourself in the shoes of the doctors or, better, the sales representatives. Of course these dinners were bribes. The doctors chosen to attend the events, and paid to speak at them, were the ones “who prescribed comparatively more of Salix’s drugs or who Salix identified as having the potential to be high prescribers.” The sales representatives were told to “spend, spend, spend, spend, spend, spend” on the dinners. They were “expected to schedule so many speaker programs that, practically speaking, there was little or no way for them to avoid conducting programs where the same attendees attended the same programs over and over again.” By the third time you are showing the same recorded presentation to the same group of doctors, of course you are going to turn the volume off and tell everyone to dig in. We are all human beings here. The food is good; the presentation was probably boring the first time.
And yet the sales representatives were also told to make it look good.
Pursuant to Salix’s internal policies, the venue for speaker programs — which were typically held in restaurants, and during which a meal was provided to the speaker and attendees — was supposed to be “conducive” to the exchange of information.
In addition, under Salix’s policies, the cost of the meal was supposed to be “modest” by local standards of restaurant meals, and the attendees were supposed to consist entirely of health care professionals with a legitimate interest in the scheduled topic.
And, pursuant to Salix’s internal policies, speaker programs were supposed to involve the presentation of scientific or clinical information about the relevant Salix product.
Salix thus understood how its speaker programs were supposed to be conducted: They were supposed to be legitimate educational events with modest meals.
The message of “spend, spend, spend, spend, spend, spend” seems to have gotten through more clearly than the message of “legitimate educational events with modest meals.” How could it not? For one thing, the sales representatives were, you know, sales representatives. They were compensated based on how many Salix prescriptions were written by the doctors they covered. They presumably knew what they were doing, and they sensibly concluded that showing the same presentation over and over again on a laptop at an Olive Garden was a less effective sales tactic than plying doctors with $300 dinners to which their staffs and spouses were invited.
The complaint goes on and on with evidence that, as the Justice Department puts it, “through its sham speaker programs, Salix intended to provide kickbacks to doctors and other health care professionals to increase their prescription writing.” I am convinced! But honestly, if you had just told me that Salix took doctors out to dinner and paid other doctors thousands of dollars to speak to them about its drugs, I would also have concluded that it intended to provide kickbacks to doctors and other health care professionals to increase their prescription writing. I am cynical like that. Everyone is cynical like that. There is, as we like to say, no such thing as a free lunch. Or a free dinner. Or a free honorarium.
But the complaint doesn’t stop there, because it can’t. Taking doctors out to dinners was apparently fine; taking them out to expensive dinners, where they could bring their spouses, where it was too noisy to hear the presentation — that’s what made it bad. Paying doctors who wrote Salix prescriptions thousands of dollars to speak about Salix’s drugs was fine; telling them to wrap up their speeches early so everyone could get to the food was not. Or something. It isn’t totally obvious from the complaint or the settlement — it’s certainly not obvious from the statute — which parts of Salix’s dinner program were legal and which were illegal. “Many speaker programs were not conducted in private rooms, either because the restaurant did not have one or because Salix chose not to conduct the programs in a private room.” Is the law that it is legal to take doctors out to dinner and tell them about your drugs in a private room, but not in the main area of a restaurant? Is there a particular decibel level where a restaurant becomes illegal? I mean, probably not, right? There’s a wide gray area between doctor education and doctor bribery. Salix surely did enough to get well over the line into bribery, but you could imagine a program half as bribey as Salix’s (fancy meal, public room, but quiet, no spouses and you always give the whole presentation?) that might be a hard call.
I am generally fascinated by the bribery business because it distills and intensifies the regular sales business into its comical extreme. If you are in the business of selling things to companies, or governments, or insured patients, principal-agent issues are at the heart of what you do. The company (or government, or insurance company) is buying your products, but the company is an abstraction; your immediate job is to make the person in charge of the decision happy. The ideal way to do that is to explain to her that buying your product would be good for her company (government, patient) and thus for her long-term career. The wrong way to do it is to hand her a Ferragamo bag stuffed with cash. But the normal way to do it is to explain to her that buying your product would be good for her company, over a nice meal. Sales is a human business. It’s a business of relationships, and relationships are built by sharing meals together. It’s a business of persuasion, and people are harder to persuade when they’re hungry. The happier and more grateful that you can make the agent, and the more you can get her to like you on a human level, the more likely she is to spend her principal’s money on your products.
Everyone knows this, but it is awkward to acknowledge. We like to pretend that there are bright lines. Some industries, companies and regulators try to have clear bright lines — buying someone a $49 meal is fine, buying them a $51 meal is a crime, that sort of thing — while others keep things vague and rely on a general assumption that everyone will know the line when they see it. Certainly there are lots of cases where it’s easy to see that the line has been crossed. The Salix case is one of them. But even here, it’s not so easy to tell where the line was crossed.
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