Friday, October 06, 2006

Free Lunch for Physicians: Newsweek Misleads

According to a Newsweek online article, "A growing number of doctors and medical centers are shutting the door on freebies from big drug companies" (see "Saying No to Big Pharma").

Newsweek quoted IMS Health data for 2004 and claimed that pharmaceutical companies spent about $7.3 billion on "free lunches and pens" for physicians that year. Here's the exact quote:
"Drug companies spent another $27.7 billion on promotion, including $15.9 billion on free drug samples and $7.3 billion on sales-rep contacts (free lunches and pens), $4 billion on direct-to-consumer advertising and $500,000 on journal advertising..."
The $7.3 billion figure is likely to be repeated in many blogs and other critical pieces (for example, see the recent post on this topic in PharmaGossip). The problem is that Newsweek is purposely misleading its readers and I'd like to set the record straight.

Newsweek has mislead its readers (and some bloggers) by parenthetically qualifying "sales-rep contacts" to mean "free lunches and pens." This implies that $7.3 billion was spent
only on free lunches and pens for physicians, which is patently impossible! And this is from someone who is not a big fan of this type of promotion to physicians as any regular reader of this blog can attest (see, for example, "Gifts That Keep on Giving").

$7.3 billion works out to about $11,000
per physician! That assumes each physician in the US received the same piece of the total pie as it were. If you apply the 80/20 rule of physician marketing, which states that 80% of promotional spending goes to the top 20% of prescribers, then each high prescriber would receive $43,000 worth of free lunches and pens.

$11,000 or $43,000: no one could eat that much lunch or use that many pens! Unless, that is, each physician and his/her staff of four were treated to 250 lunches per year.

So, how much is actually spent on free lunches for physicians?

A while back I quoted a figure that suggested that each of the 90,000 or so pharma sales reps has a monthly physician lunch budget of $2,000 (see "Free lunch for patients! Why not?"). That works out to only about $2.2 billion for pharma's physician free lunch program. Eli Lilly claims the real monthly budget per rep is only about one-quarter to one-third that amount. Let's compromise and use $1.1 billion as the best estimate. That's 15% of the total sales rep promotional budget (not including samples), which is not an unreasonable amount.

Other Freebies
Of course, the $7.3 billion is what the industry spends on
all sales rep activity, not including cost of dispensing samples. Newsweek is being grammatically incorrect -- but politically correct -- by parenthetically qualifying "sales-rep contacts" to mean "free lunches and pens." Sales-rep contact includes other expenses like wages, bonuses, car, rep expenses, and most importantly, sales aids and other promotional items/expenses. The latter may include physician "freebies" like compensation to attend conferences, consulting fees, ghost writing services, etc.

These other "freebies" are what really influences physicians to prescribe the drugs of the gift givers.

In a recent Pharma Marketing News online poll, respondents were asked to rank various "gifts" to physicians in terms potential conflict of interest. The results are summarized in the chart (left). You can also access an interactive summary of the results or read opinions of experts in the article: "Free Gifts to Physicians: What's the Big Deal?"

It's a shame to frame this topic as "free lunch and pens" when the issue is much more complex than that. Lunches and pens involve little conflict of interest compared to payment for "consulting" and other "freebies" according to poll cited above. It is obviously convenient for Newsweek not to do any fact checking and to mislead readers to believe that $7.3 billion is spent on free lunch and pens for physicians. It makes for good proselytizing, but not good reporting.

While we're on the subject of free lunches for physicians, feel free to participate in the following poll:

Should pharma companies stop serving free lunches to physicians?
Yes
No

5 comments:

  1. Great post John! It is likely that a closer look at drug promotion practices would certainly benefit the public. Your analysis of Newsweek's data shows that their simplistic "lunch and pens" label is indeed quite misleading. More discussion of funding physician travel to "educational" conferences and the like should have been included in Newsweek's rather lazy analysis of the situation. I'm also wondering if you think PhRMA and/or IMS Health codes ghostwriting expenses and perhaps some physician travel under R&D rather than promotion. It always looks better for companies to exaggerate their R&D and understate their marketing expenditures, so I can't rule it out. After all, companies are training the physicians in research (though poorly) at these conferences and the ghostwriters produce articles that often get published in journals, so why wouldn't they code it as R&D?

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  2. Thanks for your comment.

    You point out an important limitation to analyzing how pharma allocates its promotional dollars -- how the spending is "coded."

    PhRMA obviously gets its numbers from the injdustry, which is likely what appears in drug company annual reports.

    If you look at a drug company's annual report (eg, Pfizer), you see these categories:

    Revenues
    Research and development expenses
    Other costs and expenses

    Plus other miscellaneous expenses like Merger-related in-process research and development charges, Restructuring charges and merger-related costs.

    For Pfizer, in 2005, revenues were $51.3 Billion, R&D expenses were $7.4 Billion, and "Other costs and expenses", which includes marketing, sales, administrative, and all other expenses, was $29.3 billion.

    So, it's worthless to try and use drug company financial statements to tease out what is actually spend on marketing. All we know is it is less than $29.3 billion in Pfizer's case for 2005.

    For CME, you can look to the ACCME data and get an accurate accounting -- but not all physician education sponsored by pharma is ACCME accredited.

    Even so, I find it interesting that by my estimate the pharma industry spends as much on free lunches for physicians as it does on CME!

    Of course, physicians need to eat if they are to learn.

    If only the industry spent half as much providing free lunches to children in school we might have a much better educated public. Then again, that may not be in the best interests of the pharmaceutical industry!

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  3. See
    http://www.perq-hci.com/News/articles/APR2006.pdf#search=%22journal%20ads%20namenda%22

    $500,000 for journal ads is missing 3 zeros at the back end ($500 MM).

    Verispan audits say that Details were $11 billion in 2005 and DTC was about $4.5 billion.

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  4. Chris,

    Good catch on the journal ad spend! I made a mental note that that number seemed low, but focused all my attention on the $7.3 bullion figure.

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  5. Anonymous8:34 AM

    Pfizer spends three times more on lunches and dinners than they do on actually paying for CME.
    CME meaning Physician Speaker horariums. Pfizer probably spends
    more money on KOLS. That is when the drug company chooses a
    high writing physician from a
    territory and pays his airline and hotel bills to soend a few days at a so called speaker training conference. The physician is
    given an honorarium , a check for
    eg 1500.00 with the promise that he will deliver an educational
    commercial for the company at a future date. When he returns home the reps are told to " find him
    a spot" to deliver a lecture.

    ReplyDelete