FAIR MARKET VALUE IS KEY TO COMPLIANCE

It is becoming increasingly important for pharmaceutical companies to address the issue of fair market value in their dealings with key opinion leaders (KOLs), according to experts on the issue.

"An important part of compliance is fair market value," said Rick Schwartz, managing director at Duff & Phelps. "As all know, there's increased scrutiny being placed on the marketing, sales and education practices of manufacturers."

KOLs are the target of many compliance programs, Schwartz told attendees at the Center for Business Intelligence conference on "Defining Appropriate and Effective Interactions with Thought Leaders and Key Opinion Leaders" in McLean, Va., on Nov. 13.

While fair market value is an important part of a company's compliance efforts, many manufacturers are unsure about how to determine such a metric, according to Schwartz. Such a determination should include:

Fair market value is defined as the price at which the product or service would be exchanged between a willing buyer and a willing seller, assuming:

o An arm's length agreement between buyer and seller;

o Neither the buyer nor the seller is under any obligation or compulsion to enter into an agreement; and

o Both the buyer and the seller have reasonable knowledge of relevant facts and circumstances. One measure of fair market value is the expense the buyer would have to incur if the seller did not offer the product. This expense includes considerations such as:

o The buyer's willingness to pay depends on the price of the next best alternative; and

o The calculation of the benefits to the parties.

It's also important to remember that fair market value and price are two different things, according to Schwartz. "It's not the price you should charge or pay," he said. Fair market value "is typically going to be a range, rather than one number. The range may reflect variability across the entities that you're looking at. If we're looking at the value of a physician's time to provide speaking engagements, for example. There's a range, and the range will reflect variability in degree of specialization or years of experience."