MLM: Bad business model for doctors

In this article, I will answer some key questions about doctors using or intending to use the multilevel marketing (MLM) compensation scheme to recruit other doctors as prescribers of critical illness medicines, such as those for cardiovascular diseases, hypertension, and diabetes.

ProPublica, a nonprofit newsroom that investigates abuses of power, has gathered evidence that doctors who receive payments or other forms of compensation from pharmaceutical companies tend to prescribe more of the drugs of those companies.

This raises concerns about the influence of financial incentives on medical decisions and conflicts of interest. Financial relationships with pharmaceutical companies may lead doctors to behave unethically in three ways: writing unnecessary prescriptions, switching patients to less suitable medications, and choosing more expensive drugs over cheaper, equally effective alternatives.

Question: What is MLM?

Answer: It 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.

There are five basic types of MLM compensation: stair step breakaway, unilevel, binary, matrix, and hybrid, all of which involve 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,” although it is important to emphasize that there are legitimate MLM companies that follow strict ethical standards in the direct selling industry.

Q: Is MLM the same as pyramiding?

A: No. Pyramid schemes are illegal. They are, however, often disguised as legitimate MLMs. The key difference is that pyramid schemes focus primarily on recruitment rather than product sales. In pyramiding, income is mainly generated from recruiting new members rather than selling actual products or services.

Q: How can MLM pay high commissions and incentives to its members?

A: MLMs can pay high commissions and incentives because they often bypass traditional distribution and marketing channels, such as wholesalers, retailers, and advertising. The MLM company maintains variable-based costs. 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.

Q: What’s wrong with doctors using MLM to prescribe critical illness medicine?

A: Doctors face legal, compliance, and ethical risks. The 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 which brand to buy. If doctors promote a particular brand or remove the choice from the patients, especially when they have a financial interest, they prioritize profit over patient well-being.

Q: Why is using MLM a bad business model for doctors?

A: There are three primary core tests to evaluate a business model:

Financial soundness test: Scrutinize not just profitability but the sustainability of the proposed business model.

The revenue of an MLM firm will likely decline if patients switch away from doctors involved in MLM. Mandatory disclosure requirements at government and private hospitals may lead to significant resignations of doctors from MLM distributorships to protect their reputation. These factors can negatively impact the MLM firms that rely on doctors as distributors.

Value soundness test: Focus on the overall strength and sustainability of the offering model. While nothing is wrong with legitimate MLM, the use of MLM by doctors for prescribing critical illness drugs violates ethical standards and creates bias in prescriptions, thereby altering the trust relationship with patients.

Doctors who join MLMs become part of a hierarchical sales structure where income depends not only on their own sales but also on the sales made by their recruits. This creates a conflict of interest, as doctors might prioritize financial gains over patient care, much like being wolves in sheep’s clothing.

Operational soundness test: Various government units 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 scheme for doctors creates reputation risks for the company, owners, and the doctors. It may attract the attention of lawyers for potential malpractice suits. Imagine putting the accused doctors on the witness stand to admit they had prescribed a specific drug and are either a stockholder or a member of the MLM company involved.

Q: Why are not all innovations considered good?

A: Innovation has two dimensions—new value and commercial success. There were bad innovations in the past, like the subprime mortgage sold by banks in the U.S., which not only harmed consumers but also affected the global economy. Having MLM doctors is similar; it benefits them financially in the short term but affects their reputation and the entire medical profession in the long term.

Regulatory bodies

What stops the highest medical associations from enforcing ethical standards? What stops the Professional Regulation Commission from requiring annual disclosure of financial interests? What stops hospitals from doing the same with their doctors and launching a whistleblower campaign for unethical behavior? And what stops audits of the prescription patterns of doctors?

Additionally, what stops the Bureau of Internal Revenue from prioritizing audits of doctors for tax compliance? What stops the Securities and Exchange Commission from auditing unlicensed securities linked to MLM schemes? What stops the Department of Trade and Industry from auditing de facto headhunting schemes? What stops the National Privacy Commission from auditing whether doctors keep patient information private? What stops anyone from filing cases with the Ombudsman against doctors serving at 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 health care 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 health care with profit-driven models like MLM needs careful scrutiny to preserve the integrity of the medical profession and the trust of patients. —CONTRIBUTED