The Wild West Days of Pharmaceutical Sales Are Coming To an End

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Pharmaceutical sales reps used to spend all their time inviting doctors to Hawaii for “conferences” and giving out lots of free samples. But the times, they are a changing:

Kendall French used to pitch drugs to doctors who could prescribe them.

But many of those doctors now work for hospitals that don’t give them final say over what is on the menu of medicines they can pick. So when the GlaxoSmithKline PLC saleswoman began plugging two new lung-disease drugs to a big San Diego hospital system this spring, it was to an administrator who doesn’t see patients but helps write the menu, also called a “formulary,” of approved medications.

….Ms. French’s sales calls are part of a shift that is rewriting the drug-marketing playbook. As hospital systems get bigger, they are putting distance between their doctors and drug sellers, making it harder for pharmaceutical companies to get quick acceptance of newly approved medicines and putting pressure on profits.

Today, 42% of doctors practice as salaried employees of hospital systems, up from 24% in 2004, according to Cegedim Relationship Management, a marketing consultant.

This is yet another example of how the health care market should be viewed as a competition between buyers and sellers. In some cases, this means that a region with a small number of powerful insurers might have lower overall costs because the insurers (buyers) have a lot of bargaining power with doctors and hospitals (sellers). In the case above, it means that hospital consolidation can reduce costs because it gives hospitals (buyers) a lot of leverage with pharmaceutical companies (sellers).

In other words, it’s complicated. Hospitals are responsible for some of the most egregious billing practices in the entire health care industry, but at the same time, they can also be responsible for helping to contain costs. This is because powerful hospitals are both sellers (when they’re dealing with insurance companies) and buyers (when they’re dealing with pharmaceutical companies). Sometimes they’re the good guys and sometimes they’re the bad guys. It might not be the greatest way of running a health care system, but it’s what we’ve got.

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