In this article, I will answer some key questions surrounding doctors using or intending to use the MLM compensation scheme to recruit other doctors as prescribers of critical illness medicines, such as those for cardiovascular diseases, hypertension, and diabetes. These are:
- What is MLM?
- Is MLM the same as pyramiding?
- How can MLM pay high commissions and incentives to its members?
- What’s wrong with doctors using MLM to prescribe critical illness medicines to their patients?
- Why is using MLM a bad business model for doctors?
- Why are not all innovations considered good?
Let me start with an introduction about the findings from ProPublica, a nonprofit newsroom that investigates abuses of power. ProPublica has reported evidence that doctors who receive payments or other forms of compensation from pharmaceutical companies tend to prescribe more of those companies’ drugs. This raises concerns about the influence of financial incentives on medical decisions and the potential for conflicts of interest. Financial relationships with pharmaceutical companies may lead doctors to behave unethically in three ways: 1) writing unnecessary prescriptions, 2) switching patients to less suitable medications, or 3) choosing more expensive drugs over cheaper, equally effective alternatives.
Q1: What is MLM?
A1: Multi-Level Marketing (MLM) is a business model where individuals sell products directly to consumers and earn commissions not only on their sales but also on the sales made by people they recruit into the business. This creates multiple levels of salespeople, hence the name “multi-level.”
There are five basic types of MLM compensation (stairstep breakaway, unilevel, binary, matrix, hybrid), all involving building a network of independent distributors who sell products and recruit new distributors, creating a hierarchical structure of salespeople. MLM is sometimes jokingly referred to as “Making Lots of Money” though it is important to emphasize that there are legitimate MLM companies which follow strict ethics as well as industry standards in the direct selling industry.
Q2: Is MLM the same as pyramiding?
A2: No. Pyramid schemes are illegal. They are often disguised as legitimate MLMs though. The key difference is that pyramid schemes focus primarily on recruitment rather than product sales. In a pyramid scheme, income is mainly generated from recruiting new members rather than selling actual products or services, which makes it unsustainable and fraudulent.
Q3: How can MLM pay high commissions and incentives to its members?
A3: MLMs can pay high commissions and incentives because they often bypass traditional distribution and marketing channels, such as wholesalers, retailers, and advertising. The money saved from retailer commissions and fees, as well as advertising and promotions, is reallocated to the MLM salesforce. The MLM company maintains variable-based costs, mitigating the risk of being unprofitable. They then allocate the budget to create an incentive-driven sales force. The promise of commissions and bonuses motivates distributors to sell more products and recruit others, driving growth without the need for a traditional sales force.
Q4: What’s wrong with doctors using MLM to prescribe critical illness medicines to their patients?
A4: Doctors face legal, compliance, and ethical risks. Pharmaceutical industry is heavily regulated. Doctors are ethically bound by their profession. They are supposed to write the generic name and then allow patients to choose what brand to buy, or risk not being allowed to practice. If doctors end up being promoters of a particular brand or remove the choice from the patients, especially when they have financial interests in the transactions, they may end up prioritizing profit over patient well-being.
Q5: Why is using MLM a bad business model for doctors?
A5: There are three primary core tests to evaluate a business model:
Financial Soundness Test: This test scrutinizes not just the profitability but the sustainability of the proposed business model. Sustainability will be in question when there is an erosion of patient trust. Revenue for an MLM firm will likely decline if patients switch away from doctors involved in MLM schemes. Mandatory disclosure requirements in government and private hospitals may lead to significant resignations of doctors from MLM distributorships to protect their reputations. These factors can negatively impact the financial soundness and sustainability of the MLM business model relying on doctors as distributors.
Value Soundness Test: This test focuses on the overall strength and sustainability of the offering model. While nothing is wrong with using legitimate MLM, the use of MLM among doctors for prescribing critical illness drugs violates their ethics and creates a bias in prescriptions, thereby altering the trust relationship between doctors and patients.
Doctors who join MLMs become part of a hierarchical sales structure where their income depends not only on their own sales but also on the sales made by those they recruit. This arrangement creates a conflict of interest, as doctors might prioritize financial gains over patient care, much like wolves in sheep’s clothing. Additionally, the broader medical community may view these doctors as compromising professional ethics, which can damage their reputation and credibility.
Operational Soundness Test: Various government units (please see the section on ‘Government and Regulatory Bodies’) can question the MLM practices of doctors, which could not just render their recruitment efforts futile but also ruin their reputation. Passing regulatory and ethical standards is the minimum requirement for any company.
The MLM commercial scheme for doctors creates reputation risks for the company, the owners, and the doctors. Additionally, it may attract the attention of lawyers for potential malpractice suits. Imagine putting an accused doctor on the witness stand to admit they prescribed a specific drug and are either a stockholder or a member of the MLM company involved, a de facto endorsement, creating an ethical breach.
Q6: Why are not all innovations considered good?
A6: Innovation has two dimensions – new value and commercial success. There have been bad innovations in the past. The subprime mortgage being sold by banks in the U.S. two decades ago didn’t benefit consumers and, in fact, not only put them in harm’s way but also affected the global economy. Having doctors do MLM prescribing critical illness medicines is similar, benefiting them financially in the short term but affecting their reputation and the entire medical profession in the long term. Patients will eventually be on guard about whether doctors really have their well-being in mind or have undisclosed and unregulated self-interests.
Government and Regulatory Bodies
Aside from being called to the Senate and the Department of Health (DOH) investigations, what will stop the highest medical associations from enforcing ethics to send a clear message to violators? What will stop the Professional Regulation Commission (PRC) from requiring annual disclosure of financial interests? What will stop hospitals from doing the same with their doctors and launching a whistleblower campaign for anonymous reporting systems for patients and healthcare workers to report unethical behavior without fear of retaliation? And what will stop audits of prescription patterns of doctors?
Additionally, what will stop the Bureau of Internal Revenue (BIR) from prioritizing audits of the doctors again for tax compliance? What will stop the Securities and Exchange Commission (SEC) from auditing if there are de facto unlicensed securities depending on their MLM compensation scheme they have adopted? What will stop the Department of Trade and Industry (DTI) from auditing if there is a de facto headhunting scheme to protect consumers? What will stop the National Privacy Commission from auditing if doctors kept patient information private and only share it with those directly involved in the patient’s care? What will stop anyone from filing cases with the Ombudsman against doctors serving in government hospitals?
Summary
For doctors, engaging in MLM schemes can be a risky path fraught with legal, ethical, and professional challenges. For the government, it is imperative to establish robust mechanisms to protect consumers from potential conflicts of interest and ensure that healthcare remains focused on patient welfare. For businesses, upholding ethics is not just a moral obligation but a critical component of sustainable success. The intertwining of healthcare with profit-driven models like MLM needs careful scrutiny to preserve the integrity of the medical profession and the trust of patients.
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Josiah Go is the chair and chief innovation strategist of Mansmith and Fielders Inc. He was the chairman of the Direct Selling Association of the Philippines (DSAP) and is the author of the 8-point test to determine the legitimacy of an MLM compensation plan used by the direct selling industry. He is a strong supporter on the practice of legitimate MLM and marketing.
