Wednesday, January 8, 2014

Market Success ≠ Product Effectiveness

Pre-employment personality tests are marketed by hundreds of assessment companies and used by thousands of employers, including many of the largest employers in the U.S. There has been significant growth in the usage of personality tests over the past 10-15 years and their widespread adoption evidences market success, but does it evidence product effectiveness?

One might argue that product effectiveness is demonstrated by market success, that one could not have the latter without the former. That argument fails in light of the many instances in which market success did not correlate with product effectiveness.

Vioxx, DePuy, Polybutylene ...

Vioxx, a non-steroidal anti-inflammatory drug developed by Merck, received FDA approval on May 20, 1999. The drug gained widespread acceptance among physicians treating patients with arthritis and other conditions causing chronic or acute pain. Merck recorded more than $11 billion in Vioxx sales during the drug's years on the market from mid-1999 to September 2004. The drug was withdrawn from the market after a study showed it increased the risk for heart attacks and strokes. At the time of the withdrawal, Vioxx was Merck’s second-best selling drug, generating $2.3 billion in sales the previous year. Since the withdrawal, the company has paid nearly $6 billion in litigation settlements, not including legal-defense costs and possible payments from pending litigation. That pending litigation includes a derivative class action lawsuit on behalf of all shareholders who lost money on Merck common stock or options trades between May 1999 and September 2004.

In 2005, DePuy, a Johnson & Johnson company, started selling its Articular Surface Replacement, or A.S.R., hip for use in standard hip replacements in the United States. Close to 40,000 patients in the U.S. received a DePuy ASR hip implant from its introduction to the market in August 2005 through August 2010, when DePuy issued a recall for the device. On November 19, 2013, Johnson & Johnson announced its agreement to pay at least $2.5 billion to resolve thousands of defective DePuy ASR hip implant lawsuits. In addition, Johnson & Johnson may pay as much as $1 billion to Medicare and private health insurers who covered the medical costs of removing its recalled hip implants

Beginning in the late 1970s, polybutylene plastic plumbing systems—touted as being cheaper and more durable than copper pipe systems—were installed in new homes nationwide. Over the years, several million homes were built with polybutylene plumbing systems. Before long, the plumbing systems began to experience failures of the fittings and of the pipe itself. Consumers nationwide attributed the failures to various causes, including inadequate design, defective manufacturing, improper installation, and degradation of the materials from chemicals in the drinking water. More than ten years of litigation, and bankruptcy for one company, would follow, and hundreds of millions of dollars would be spent before reaching a final class action resolution.

Market Success = Greater Risk Exposure

Market success does not equate with product effectiveness, but market success may multiply the unintended consequences of an inherently flawed design due to path dependencies and systemic effects.

The success of assessment companies in marketing pre-employment personality tests over the past 10-15 years has created systemic risk for their employer customers. If one employer has violated the law and subjected itself to significant liability as a consequence of its use of an assessment provided by an assessment company, then all customers of that company are similarly at risk.

Similarly, the lack of diversity in the psychological model underlying many of the personality tests offered by assessment companies (the five-factor model of personality or Big Five) means that if one assessment company's personality tests that use the Big Five is found to screen out persons with mental illness or to be an illegal medical examination under the ADA, the personality tests marketed by other assessment companies that use the Big Five (and, more importantly, their employer customers) are similarly at risk.

As set out in When the First Domino Falls: Consequences to Employers of Embracing Workforce Assessment Solution, the potential risks to employers are substantial and include:

  • Damages and injunctive relief for violating the ADA and Rehabilitation Act of 1973;
  • Brand damage and lost revenues; and
  • Illusory indemnification by the assessment companies.
Additional risks include those referenced in the Vioxx, DePuy and polybutylene examples discussed above, risks like shareholder derivative class actions, defense costs and claims by state and federal governments for costs incurred as a consequence of the illegal acts (i.e., unemployment insurance, income support payments - SSDI and SSI, Medicare and Medicaid costs).

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