Tuesday, June 19, 2012

Are drug company reps "salespeople" for the purposes of labor laws?

This Supreme Court decision is a great example for us to discuss this morning because it (should) make us think about a very nuanced difference in the letter and spirit of the law. 

The basics of the decision is whether drug company external representatives, who are hired and trained for their sales ability, should be considered salespeople under labor law, even though they don’t formally make sales in the traditional sense.  The case revolves around overtime pay.  Traditional salespeople are usually eligible for extra commissions to compensate for their extra time, so the law doesn’t need to guarantee them overtime pay.  Not all salespeople are on commission, but they have enough power to negotiate for it so the law leaves them on their own. Right or wrong, that is the old law that this case revolves around. In contrast, people on pure salary might need some protection from abusive bosses who make them work after hours for no compensation.  

What these drug reps do is a new form of selling that was not envisioned when the labor laws were first created.  They convince the doctors to prescribe the drugs in the future.  But of course doctors need to have a patient on the table when making each individual prescribing decision so there is no formal contract with the salesperson. 

According to the letter of the law, this is not a “sale”. No documents are signed.  No money changes hands.  But what was the law’s spirit?  It was addressed at people who spend their time on the road making sales pitches to potential customers.  They can negotiate for commission based pay even if they don’t actually get any. 

These drug reps can’t get direct commissions because of the limitations I stated above.  Doctors can’t make any final decisions at that time, and it is usually the patient (or his/her insurance) that is paying the bill.  But here is where I agree with the 5 Justices who decided they are still salespeople.  Drug companies have incredibly sophisticated analytics that can model with pretty good accuracy if doctors’ volume of prescribing particular drugs goes up or down and when the change occurs.  So they can see if the rep made a difference.  The reps can negotiate to have commission based incentives based on this just as easily as traditional salespeople can negotiate with traditional sales. 

Personally, I think there are a lot of ethical questions in the whole practice of hardselling doctors on name brand drugs with high profit margins and questionable efficacy compared to cheaper generics, alternative therapies, and even placebos.  But those are topics for other days.  For the narrow question of whether these sales reps are similar to traditional salespeople for the purposes of these labor laws, I think it is a clear yes.

Unless there is something I am missing.  Please educate me in the comments.