This U.S. Supreme Court case won’t rise to the level of debate afforded the Affordable Care Act, but the high court is hearing arguments today on whether GlaxoSmithKline (NYSE:GSK) pharmaceuticals sales representatives are entitled to overtime pay, a court decision that would affect the entire pharmaceutical industry.
Michael Shane Christopher, et al., v. SmithKline Beecham Corporation, dba GlaxoSmithKline is the only case scheduled for argument today. In the case, GSK pharma reps Michael Christopher and Frank Buchanan claim they are entitled to overtime for their work beyond 40 hours per week.
For most jobs, it’s fairly easy to determine compensation based on hours worked. The Fair Labor Standards Act, or FLSA, requires employers to pay for hours worked beyond 40 hours unless an exemption applies. GSK claims that these workers are “outside salespersons” exempt from overtime. The workers claim that they’re not outside salespeople at all. The court is answering two questions: Whether the U.S. Department of Labor is interpreting the FLSA appropriately and whether the outside sales exemption in the law applies to pharmaceutical sales reps.
GSK argues that the work that Buchanan and Christopher did was consistent with the responsibilities of outside sales people. The company adds that pharmaceutical sales reps are “not merely ‘promoters.'” They sell specific products to specific doctors off-site from GSK locations. According to the law, the work qualifies for an exemption from overtime rules if the employee is “obtaining order or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer,” and “the employee must be customarily and regularly engaged away from the employer’s place or places of business.” Britain-based GSK, which has its U.S. headquarters in Research Triangle Park, North Carolina, argues that the workers qualify as exempt from overtime on both counts.
“On the job, petitioners did precisely what outside salespeople are expected to do,” GSK said in its brief. “They did not work out of a GSK office; instead, they spent their time traveling to, visiting with, and seeking commitments from their physician-customers to prescribe GSK products for appropriate patients.”
But here’s the thing. GSK pharma reps — and reps for all pharmas, for that matter — don’t actually sell drugs. They visit doctors’ offices and promote pharmaceutical products. A sale happens only after a doctor prescribes a drug and the patients fill the prescription. On that reasoning, the pharma reps argue that they’re not outside salespeople. They say in their court brief that their work involves drug promotion rather than drug sales.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
The U.S. Department of Labor has weighed in on the matter and sided with the pharma reps. The department’s interpretation of the law is that pharma reps are not exempt from overtime because they’re not selling or taking orders. They’re giving physicians information. As far as the Labor Department is concerned, the sale is a transaction between the pharma company and the pharmacies.
Pharma rep compensation has become a hotly contested topic at companies and courts in recent years. Other large pharmas, including AstraZeneca (NYSE:AZN), Abbott Laboratories (NYSE:ABT) and Pfizer (NYSE:PFE), are also facing similar lawsuits from pharma reps. Novartis (NYSE:NVS) earlier this year agreed to a $99 million settlement with pharma reps who were claiming overtime, though the company continues to believe that such workers are exempt from overtime.
One might expect that a court ruling on pharma rep overtime will lead to broad changes in how pharmas structure the roles of their sales representatives. But that change is already under way. GlaxoSmithKline last year implemented a new pharmaceutical sales strategy that has revamped the role of the pharma sales representative. Instead of being compensated on the financial measure of sales targets, reps are being evaluated on criteria that range from their knowledge of a medication to their ability to communicate that knowledge to a physician.
GSK executive James Millar told MedCity News last year that the goal of the new sales strategy was not to sell more GSK drugs. Instead, the company aims to promote appropriate prescriptions of its products. If anything, those changes would seem to bolster the pharma reps’ claims that they are conveying information rather than making sales. But these new changes aren’t part of the case that is before the court today. Before the pharmaceutical industry can make the full transition to the the new model of pharmaceutical sales, the industry still has to resolve some unanswered questions regarding the old one. And in light of the $99 million Novartis settlement, a Supreme Court decision puts at stake tens if not hundreds of millions of dollars.
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