GlobeBackground

Fair market value (FMV) is the economic concept that services rendered should receive compensation at a level commensurate with the skill needed to perform that service. Despite the fairly straightforward definition, the practical application of FMV is difficult, particularly in pharmaceutical fields. Pharmaceutical companies have traditionally relied on feedback from experts in the healthcare field to help determine the feasibility of developing and marketing a new drug. In turn, these experts have expected compensation at fair market value. However, close-lipped policies on exact amounts of compensation have made it impossible to determine a fair market value for pharmaceutical, academic services and have fostered mistrust between pharmaceutical companies and consumers.

Introduction

To help combat the concern that overvalued compensation was influencing medical decisions, the Sunshine Act was implemented in the United States, and data collection started August 1, 2013. In general, the Act requires that any gift or payment from a manufacturer to a physician or teaching hospital greater than $10 be reported to the Centers for Medicare and Medicaid Services. The requirements for reporting apply only to relationships of companies based within the United States or those who have professional, compensated relationships with US physicians within US borders. No global standard for compensation transparency currently exists, but the recent US legislation has forced serious consideration of international transparency and establishment of fair market value.

Issue

Should the Sunshine Act be implemented on a global scale?

Rule

The Sunshine Act should be implemented on a global scale if:

1)   Other domestic transparency initiatives do not exist  AND

2)   Fair market value is an interchangeable value across cultures  AND

3)   Cost and manpower to create a centralized system is acceptable

Analysis

Emergence of Individual Domestic Transparency Initiatives

While the Sunshine Act isn’t binding in any country besides the United States, its global impact is already undeniable. In the past two years, France, the United Kingdom, Slovakia, Japan, the Netherlands, and Australia have implemented legislation similar to the Sunshine Act. Although the point at which compensation must be reported differs, the crucial similarity is that this compensation must be reported, listed, and analyzed in a register. From this reported data, fair market value in that country for a given service can be discerned. Currently, companies must walk a fine line between attracting qualified experts who can offer valuable information regarding a new drug and exceeding fair market value for the compensation experts may receive.

This issue has already been mitigated with the simultaneous emergence of many nationally based transparency systems since companies now have access to significant amounts of FMV data for services rendered. Since other initiatives have already been implemented in other countries, expanding the Sunshine Act into a single global system is superfluous, particularly as good practices are established and solidified.

Interchangeable Calculations of FMV Do Not Exist

A study by CuttingEdge, a company that develops FMV payment plans for pharmaceutical companies, neatly summed up the lack of feasibility of a “one size fits all” approach to global FMV. Each country internally reckons fair market value based on cultural and industry norms (i.e. flat rate vs. hourly pay). A global initiative would necessarily ignore these nuances and run the risk of offering compensation above fair market value in certain regions. This unintentional non-compliance would incite regulatory authorities in other countries and make international relationships more difficult to maintain for fear of legal consequences. Since international calculations of FMV are not easily interchangeable, a global system is unnecessary.

Prohibitive Cost and Manpower to Create a Centralized System

The current estimate for the cost of compliance with the Sunshine Act is approximately $180 million annually per company within the United States. Therefore, the cost of expanding these standards  into other countries and modifying around their existing regulatory structure is likely to give even large companies pause. Similarly, the difficulty of tracking the minutiae of domestic information magnified by other regions would be overwhelming, requiring a large pool of qualified individuals. The difficulty also remains of choosing which system (domestic or international) is better suited to determine fair market value and should take precedence. Given the estimated high cost and required manpower to maintain the Sunshine Act domestically, expanding into other countries would be cost prohibitive.

Conclusion

Since other domestic transparency legislation exists, FMV isn’t an interchangeable calculation across cultures, and the cost to implement a centralized procedure is prohibitive, a global system to calculate FMV for physicians is unnecessary.

For more information on this issue, contact the Kulkarni Law Firm.