How Physicians Are Compensated by Life Sciences Companies

It’s no secret that compensation for physicians consulting at pharmaceutical, device and life sciences firms is often much higher than what’s on the table at hospitals and university-affiliated medical centers. This is why many physicians make the decision to pivot to liaison roles in the private sector. Most who do find that this work is very satisfying because it ultimately continues the same mission that led them to hospital and clinical work in the first place. Physician liaisons at life sciences firms work to improve lives. In many cases, the impact is global.

Physician pay scales at life sciences companies hinge on many different factors that include everything from project budgets to a physician’s professional credentials. When life sciences companies bring in doctors, they must use the fair market value (FMV) payment model. Far from just an industry norm, FMV is a legal necessity.

‍Compensation From the Perspective of Life Sciences Companies

While pay scales at life sciences companies are competitive, they are also very carefully managed. There’s a very important reason for this. As private companies increasingly rely on physicians to fill roles as key opinion leaders (KOLs), they increasingly face scrutiny about what exactly they are compensating doctors for when creating contracts. These are the services that companies should be paying doctors to provide:

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  • Research expertise.
  • Assistance with product-specific research and development.
  • Patient education resources related to new product development
  • Peer-to-peer education related to new product development.

All of this is considered “above board” in the medical and research communities. However, regulators are quick to scrutinize physician-company relationships for any signs of “kickbacks.” For nearly 30 years, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) has held the position that any compensation relationship between a physician and pharmaceutical manufacturer can implicate fraud when compensation rates are out of scale with the services being offered. This could place physicians in violation of the Anti-Kickback Statute (AKS). Unless a payment made to a physician can be proven to be in line with fair market payment, the OIG reserves the right to scrutinize a payment. The accusation being that the disproportionate payment is an incentive or reward for the physician to endorse a product. 

How Payment Agreements Between Doctors and Life Sciences Companies Are Created‍

To avoid scrutiny from federal regulators, life sciences companies distribute ironclad contracts that closely comply with the OIG’s safe harbor requirements outlining various payment and business practices that will not be considered as “offenses” under the Anti-Kickback Statute. These safe harbor requirements include:‍

  • Agreement terms are set out in writing.
  • Agreement terms are signed by both the consultant and the company seeking services.
  • The agreement terms last at least one year.
  • The agreement terms cover all services that will be provided.
  • If services are provided periodically, specific terms are detailed regarding time intervals.
  • The compensation amount is in keeping with other recent compensation amounts paid by the company.
  • The volume of referrals or generated business is not factored into compensation.
  • The services performed under the contract do not involve product promotion.
  • The services performed under the contract do not exceed what would be considered “reasonably necessary” in the context of the services.

Of course, this is a simplified roundup of what’s nested within the OIG’s safe harbor requirements. The complete list contains specific payment caps and regulatory details that any doctor interested in becoming a KOL at a life sciences firm should become familiar with. It’s also wise for doctors to employ their own lawyers to look over contracts before signing anything to ensure that all necessary safe harbor regulations are in place within a contract.

What Does Fair Market Value Mean for Medical Science Liaisons (MSLs)?‍

Fair market value among MSLs and KOLs means the same as it does in any industry. It refers to the dollar-based compensation amount that a company is willing to pay doctors for their services. However, the value does not take into consideration the way that doctors can generate business for life sciences companies the way that market values in other industries might. Compensation offers often hinge on the following factors:

  • Job duties and responsibilities.
  • Job objectives.
  • Job deliverables.
  • The time allocation needed for the job role.
  • The physician’s educational credentials, degrees and training.
  • The physician’s professional certifications.
  • The physician’s experience level.
  • The physician’s reputation in the medical community.
  • Extras like leadership roles, academic standing, publication history and research history.

Again, it’s important to stress that a physician’s experience, expertise and recognition in the medical community are not points that are to be looked at as benefiting the life sciences company by way of “clout” or “influence.” This would violate the regulations that prohibit companies from hiring doctors based on their ability to drum up referrals or sales based on professional status. The compensation scale instead focuses on the ways that experience, training and reputation make a doctor more competent in a role for drawing out better outcomes explicitly related to product development.

Life sciences firms also look at “outside” factors when determining fair market value. To determine fair compensation for one physician, firms must establish a price that they would pay to acquire a replacement. This helps to create a baseline for compensation. Additionally, life sciences firms look at current compensation rates for similar job roles.

KOL and MSL roles cannot be untangled from fair market value. While not all life sciences payment contracts are the same, they all follow the same model in terms of assigning fair market value very carefully based on a physician’s contribution to product development instead of focusing on the ability to influence product sales. This distinction is what the core of every determination of a doctor’s fair market value is rooted in.

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