In today’s environment, pharmaceutical manufacturers (pharmcos) are tasked with meeting statutory requirements for discount and liability accruals with greater specificity. Given the increasing diversity and complexity of current marketing and contracting offerings, this has never been more challenging. As a result, pharmcos are wisely investing time and resources to improve the gross-to-net (GTN) management process using forecasts to reconcile these items.
Improving GTN management, however, should transcend simply meeting statutory requirements. In fact, improvements in these areas can drive profit through a more comprehensive understanding of revenue and demand, and the influence of discounts and liabilities. In addition, greater accuracy in the accruals process leads to fewer adjustments and greater predictability in cash flow.
The key to success lies in designing a GTN analytics platform that has the flexibility to drive projections at a level of specificity that matches the level of variability and allows for both top-down and bottom-up projections. Given how complex GTN processes are evolving for most pharmcos, a number of software vendors have entered the space with solutions that claim to address every challenge. Unfortunately, they do not. In fact, during the GTN conference in November 2015, 75 percent of those polled who had implemented off-the-shelf software said that they would prefer to revert back to an Excel based solution.
The reality is that no single solution on the market today can tackle the multiplicity of variables within methodologies. Bottom line: the industry is not consistent, and software solutions have not reached a level of maturity that empowers companies to unlock true growth potential.
Nevertheless, the complexity, quality, and maturity of GTN processes affect company performance. A strategic imperative is to understand the data that is central to transforming GTN from an accounting function into a productive management tool that improves contract decision-making across a company’s entire product portfolio.
The challenge of GTN centers around data aggregation and analysis. By gaining a deep understanding of the data and the impact of various components, pharmcos can improve workflow while optimizing sales forecasting and general ledger (GL) accruals. Because data varies from company to company as much—or more than—processes, a software package must rely on cleansing and aggregating that data before it can be reliably used.
Software implemented without the proper subject matter/functional expertise will fail to adapt quickly to changes in calculations and methodologies. Most software on the market is not sufficiently robust to adequately address the sheer number of variables and methodologies required in the various approaches to GTN management.
Even the most configurable software can fall short if it isn’t set up to align with the internal processes and structure. While most companies enter into similar types of liabilities, including returns, contracts, coupons, and more, the importance and complexity of each liability line varies widely for each pharmco. The process involves different steps that are voluminous, tedious, and challenging.
Accurate forecasting and management of GTN requires more than simply creating a trend line or benchmarking deductions against historical averages. The solution needs to go beyond what is generated by statistical analysis and provide the ability to intervene and apply overrides to the forecasts based on an understanding of the unique elements of the current situation. Applying this expertise can deliver a number of critical management advantages:
- Knowledge: Data knowledge requires data collection and aggregation from disparate levels and sources, with an understanding of how it can roll-up into the GL. This requires calculations and metrics used by sources/departments/liabilities that feed into GTN and accrual processes, as well as structural consistency, specificity, completeness, and accuracy of data.
- Collaboration: Documented processes and procedures are needed, especially for teams with multiple levels of analysts and reviewers, as well as cross-functional teams. There are intertwined and dependent processes that need to be mapped out and properly supported.
- Human Element: Pharmcos must also understand resource needs and allocation. Software cannot provide essential business knowledge factors related to movement of lives, product formulary placement, preferred drug list, and so on. This requires human knowledge and interaction.
What’s more, differing strategies and factors can vary not only by line of liability, but also within a line of liability across customers and across manufacturers. Understanding the impact that a differing product mix can have on how a line of liability is forecast is critical to understanding what drives a specific company’s GTN processes, rather than a simplified industry-wide model. These subtle differences can impact every aspect of the process, including:
- Reserves (inventory and return)
- Differing metric calculations
- Average Sales Price (ASP), complex Price Protection (PP) scenarios, and blended rates (WAC and/or rebate terms)
Establishing configurability at this deep level challenges the premise of off-the-shelf software, which typically works best when a common solution can meet the needs of many customers. Ultimately, differing channel mixes must incorporate projection methodologies, showing dependencies/impacts across liabilities, including Medicaid liability, based on projected changes in wholesale acquisition cost (WAC), as well as Best Price (BP) and the associated rebate per unit (RPU) levels. They must also show how that liability is divided between the current rebate, increased base rebate due to changes in BP, and changes in CPI-U penalty rebates, showing:
- Interactions between different models
- How Medicaid affects Public Health Services (PHS)
- Commercial to Medicaid/BP
This leaves the industry with a dilemma: GTN management requires robust data aggregation and integration that is typically seen with enterprise-class software, but requires flexibility and adaptability that runs counter to the idea of an industry-wide “best practice.” Furthermore, the level of interactivity required to apply the vast amount of human intelligence needed to fine-tune the process of forecasting and accruals lends itself more to spreadsheet applications than to rigid application-based processes.
Even without off-the-shelf software, however, some of the same benefits can be achieved while retaining flexibility by addressing the core problems of data aggregation and integration.
Case in Point
A mid-size pharmaceutical company was spending 10 business days to manually account for chargeback, rebate, and Medicaid claim actuals in their forecasting process. This labor-intensive procedure included performing multiple filters against data extracts to obtain customer numbers for units, rebate dollars, and admin fees. Staff recorded information on paper and then updated within forecasting spreadsheets (Excel)—an extremely inefficient approach.
Knowing the process could be automated, the solution provider implemented a GTN solution that extracted paid chargeback, rebate, and Medicaid claim detail level transactions into a centralized database. This database contained views that transform and summarize the data based on the needs of the forecasting spreadsheets. The solution provider leveraged the centralized database by automating the forecasting spreadsheets to pull in summarized data from the centralized database.
From there, the solution provider took the automation a step further by creating complex formulas to pull customer-specific values into customer-specific pages, which complemented their existing forecasting methodologies and formulas. To address internal auditing and compliance concerns, the solution provider also implemented additional pages to manage versioning, as well as audit checks and balances to ensure accuracy and completeness within the forecasting spreadsheets.
The solution also offered the capability to load finalized forecast data (customer detail and summaries), demand trend data and WAC schedule—by forecast, brand, and segment—back into the centralized database for future reporting and analytics.
The automation of the actuals into approximately 60 forecasting spreadsheets reduced the effort to less than one day—a 90 percent reduction in time spent.
Given the diverse array of line items and individual transactions, the management of GTN—especially commercial managed care forecasting and accruals—remains an ever-more difficult struggle for pharmcos. These operational challenges are compounded by industry dynamics, such as legislation, new channels of distribution, and complex contract structures.
Typically, a process dependent so heavily on robust data integration and collaboration across functions would benefit from an off-the-shelf software package. In this case, however, the flexibility needed to adapt to the wide variety of metrics, processes, and policies around GTN management does not lend itself to a rigid software package, even one built for this function. In time, the GTN software market may further mature to the point where the adaptability and flexibility of these packages meets the needs of the market, but this has not yet occurred.
To successfully address this problem, either with or without software, a company needs to establish a centralized way of consolidating and managing the data that drive the GTN process. In many cases, simply centralizing the data and establishing a feedback loop for forecast accuracy can drive the same improvements that would typically require a large software investment. If software is in a company’s plans, such data consolidation is inevitable to drive accurate calculations.
Without quality data, any software package will fail. Beyond data management, there are many other ways to drive improvement in this area, such as statistical forecasting methods, workflow optimization, and document/version management. The best first step for an organization is to make a detailed assessment to diagnose the issues and choose the best solution partner.
With the goal to improve methodologies and forecast financial exposure for reserves and financial purposes, experts can help pharmcos make decisions based upon data analytics that enable more efficient discounting and create a competitive advantage.
About the Author
Charlene Washer, Managing Consultant, Alliance Life Sciences, is a versatile, highly accomplished managing consultant with more than 20 years of experience in the life sciences and healthcare industry. She has extensive experience and a record of success in data warehousing, master data, business intelligence analytics within sales and marketing, managed markets, commercial analytics and gross-to-net analysis.