Pharmaceutical Commerce - July/August 2013 - (Page 11)
Overcoming operational silos in
pharma revenue management
Disconnected business processes in contract administration,
managed markets, rebates, sales compensation and related
areas cause waste and inefficiency for company management
By Jon Smith, Revitas
Imagine a pharmaceutical manufacturer that has been growing successfully using
its own proprietary revenue management system to track contractual agreements with its
partners, pay rebates and incentives, and track other finance functions.
One day the company notices an increase in the number of unauthorized deductions from
its distribution partners that’s cutting away at its revenues. Most companies, faced with this
challenge, would seek out a chargeback solution to automate the process and safeguard their
revenue. They’d implement it and call it a day. Problem solved, right?
Maybe not. By focusing on just the problem itself, this company fails to identify other
impacted departments and processes that should be addressed at the same time it’s solving the
chargeback issue. Consider the many departments and employees this problem would touch:
Accounting would probably be the first to recognize the chargeback issue and set in motion
the effort to find a solution. At the same time, customer service or an account manager would
be tasked with smoothing out the situation and managing the relationship with the partner.
Your contract department and sales team would need to reconcile direct sales to chargebacks
and returns, creating a potential gap in assessing performance and compliance.
As you can see, even a seemingly localized issue can ripple outward into other parts of
the business fairly quickly and pervasively. In addition, revenue leakage, largely attributable
to mismanagement of pricing incentives and reconciliation processes, costs pharmaceutical
manufacturers an average of 4.4% of revenues annually, according to IDC Health Insights.
For high-growth companies, the situation is even more dire: a rapid-growth enterprise can
see its exposure increase to more than 13% of revenues if its supply chain is not aggressively
managed. For a company with $1 billion in revenues annually, these percentages amount to
anywhere from $44 million to $130 million left on the table due to inefficiency.
This example is indicative of a widespread issue brewing in the pharmaceutical industry
that has been limiting manufacturers’ ability to grow revenues and draining profits from their
bottom line. This problem has been fueled by the constantly shifting regulatory landscape and
the increasing need for deeper insight into the inner workings of revenue and pricing.
The challenge stems from new ways that manufacturers have been forced to operate.
Previously siloed functions, such as contracts, pricing, and compliance, are, by definition or
requirement, too interdependent not to be considered in concert with one another. Yet in
many companies, they aren’t, and that exposes manufacturers to significant business risks and
The problem, quite simply, is in how these companies solve problems. More often than
not, organizations solve issues in isolation, ignoring the ripple effects of any one problem
throughout the company. The first step in rectifying the situation is to take a step back,
recognize the other connected functions, and incorporate those into the discussion, creating a
holistic remedy across the entire organization.
Let’s first examine why so many companies still operate in silos, then explore the reasons
why isolating processes is no longer a sustainable business practice, and finally introduce the
methods that organizations can implement to solve this problem in order to retain more
revenue and position themselves for continuing growth.
Why isolated business processes are a losing strategy
In today’s large life sciences companies, it’s not uncommon to see isolated operations. One
team handles contracts, another covers managed markets rebates, a third group monitors
chargeback processing, and yet another team might oversee Medicaid and government pricing.
With multiple little islands managing information and building their own stores of business
intelligence, however, these companies have limited visibility into their overall processes and
how their interdependencies impact the bottom line. Each group typically maintains its borders
and doesn’t extend beyond its specific purview.
It’s easy to see why companies would drill into a single issue. They’re looking for the best
solution to a problem, so they limit their focus to find the optimal route. It’s the old adage: “If
it ain’t broke, don’t fix it.” But by tackling a pain point head on, they may address the specific
issue with a solution that’s ultimately short-sighted and poses serious business risks.
The interdependencies in any organization’s finance and compliance functions demand a
broader view of the issue to truly resolve the problem and optimize the system. Here are three
examples of how disjointed departments can derail your revenue growth:
1. Government compliance
Pharmaceutical manufacturers are forced to keep up with the relentless litany of regulations
from various government agencies. They must complete and file a host of monthly, quarterly,
and annual calculations and simultaneously monitor pricing to covered entities in order to
remain compliant. Keeping an eye on all these processes is no easy task and requires a team
with a range of specialties.
Unfortunately, the individuals responsible for handling these government pricing functions
often work in different departments and communicate infrequently, and even then, only
in narrow terms. This creates operational hurdles since calculating pricing and maintaining
compliance require comprehensive data or insight from a number of internal divisions.
Organizations need to pool data for pricing calculations in order to reconcile current
discounts and develop incentives that are based on chargeback information. They need
visibility into the top-line perspective out of their ERP system, their direct sales perspective, as
well as their different rebates, whether managed care or back-end customer rebates.
In the absence of managing all that data under one roof, it becomes difficult to join different
sources of data since systems can vary in the way they represent customers, products, and even
dollar flows. This data is typically gathered from disparate silos, such as chargeback systems,
ERP systems, contracting systems, financial systems, and all too frequently, spreadsheets or
some other loosely cobbled together manual solution.
Consider, for example, how 340B Drug Pricing Program compliance can quickly create
unintentionally disjointed views of a transaction. Customers that qualify for discounts
under the program are likely identified with a DEA reference for original sales, but the same
entities might later be referenced with a 340B identifier. This change could signal a refund of
overcharges or another similar payment. In addition, the original chargebacks that caused the
overcharge refund might be processed in a system completely separate from the system where
the refund is issued.
In order to simply maintain compliance, organizations routinely invest significant effort,
assets, and time in gathering and verifying data from these myriad disparate systems. In the
event of discrepancies or data anomalies, companies have to go back to the originating system
to fix it. Even worse, they sometimes fix the data in their compliance solution.
The result is disorder that could lead to costly mistakes and serious compliance violations.
Solving an issue in any one of the many systems used by the average pharma company can
create a number of new issues when it comes time to reconcile pricing information.
2. Gross-to-net and performance optimization
Just as for regulatory compliance efforts, organizations need to pull data from a multitude
of systems to explore gross-to-net profitability and downstream price impacts. From a business
intelligence and analytics perspective, these areas allow organizations to see the interrelated
trends and drivers in their revenues, including details about product or customer performance.
At most organizations, however, this need is hampered by a number of roadblocks on top of
the siloed systems and different representations of data. For example, the levels of accuracy and
parity can vary across each of the systems, and users combining data might not know where
data originated or the process used to gather it, limiting its value.
When organizations gather their data to try to get a holistic view of their business
performance, such as through a downstream data warehousing strategy, it takes much more
time and effort than should be required. Even then, once all the data is gathered, there may be
errors from a manual system that can distort the information the data reports.
For instance, if identifiers change or if new identifiers are introduced for tracking customers,
products, and contracts, companies have to make those changes in multiple systems. This
creates a risk for out-of-sync data and a misunderstanding of the impacts those different
transactions have in different systems.
July | August Visit our website at www.PharmaceuticalCommerce.com 11
Table of Contents for the Digital Edition of Pharmaceutical Commerce - July/August 2013
Pharmaceutical Commerce - July/August 2013
Brand Marketing & Communications
Manufacturing & Packaging
Legal & Regulatoryv
Meetings and Editorial Index
Pharmaceutical Commerce - July/August 2013