Negotiating Rebates: How Pharmaceuticals firms can succeed
Since the birth of rebates, pharmaceuticals manufacturers have been struggling with the ability to analyze customer and contract performance for an objective measure of margins and profitability. Most pharmaceuticals firms lack the IT skills to do this; outsourcing to a consultant with know-how in artificial intelligence and machine learning solves the problem.
Rebates should offer opportunities to pharmaceuticals manufacturers. But, if proof were needed that companies are not handling rebates well, it would lie in the fact that there is a growing pre-rebate “gross” earnings for manufacturers, and a post-rebate “spread.” Rebates are reducing earnings by 50 percent to 60 percent according to a recent study.
Data Scrubbing for Rebates
Rebates have long been viewed as a way to gain formulary status, a preferential position, early in the life-cycle of a drug.
“Since the rise of managed care, pharmaceuticals manufacturers have needed to use rebates as part of the challenge of managing ever-growing drug expenditures. Drug formularies were created as a way to control costs by determining which drugs would be covered—and therefore, in an indirect way, which would be most frequently prescribed, and even demanded. Ever since, the pharmaceutical industry has been faced with the dilemma of determining the level of rebates, or post-purchase refunds, to be paid to various segments of the supply chain,” explains consultant John Still.
As the concept caught on, the bidding became increasingly aggressive. In 1990, the federal government passed the Medicaid Reform Act, which brought Medicaid into the rebate arena.
“Then Pharmacy benefit managers (PBMs) and health maintenance organizations (HMOs) also brought sophistication and complexity to the rebate process with utilization-measurement tools, such as bid grids, complex performance structures, and innovative contracts that were often exceedingly difficult to manage on both sides of the table. This presented the drug industry with the need for more robust contracting systems, increased data scrubbing, and contract compliance measures.”
It is here that most pharmaceuticals firms fail at rebate management. Their IT departments do not have the know-how to undertake the contracts management, data scrubbing and compliance that is required.
A Data-driven strategy is needed
There are steps that every drug maker can take to turn rebates from a significant “expense“ into a significant “investment“—steps that may even result in savings, Still continues. “What's required is a system to make rational, performance-based decisions within the immensely complex world of managed-markets contracting. A data-driven strategy can help you deal with these critical issues:
- Deciding which accounts to contract to—and at what discount—in order to maximize market share;
- Tracking the complete picture of a brand's “product locks,“ “prior authorizations,“ and “copay differentials“;
- Calculating incremental profits on discount investments;
- Analyzing the cost/benefit ratio of paying for formulary position and discount decisions for contracted accounts;
- Measuring the impact of a formulary position on volume and share;
- Establishing performance benchmarks to monitor a deal by customer channel, customer segment, or geographic region;
- Applying regional formulary data in order to improve position sales and marketing efforts;
- Quantifying the “margin for share“ financial investment.
All of these variables will assist in determining the difference between the rebate investment and the rebate expense.” Most companies view this function as an expense, and have not invested sufficiently in improvements. For example, instead of operating efficiently, they spend a of time doing roster updates and not enough time checking that performance benchmarks have been attained. We take the labor-intensive tasks off your plate, so that you can focus more on activities that add value.
Point Data provides proactive and robust monitoring and updating of IDN/GPO rosters and rebate management. We offer pharmaceuticals companies peace of mind -- rosters are continually updated in real time so that accuracy is assured.
Accurate data is critical to pharmaceuticals companies if they are to get the full benefit of working with GPOs and IDNs. But, currently, each pharmaceuticals company tries to maintain its own roster, with revisions and updating only made when errors in the roster are discovered. The burden of adding new locations or expanding the customer list is too imposing for pharmaceuticals firms to support -- they lack the tools for these operations.
PointData fills this gap for these companies. Using our services, GPO and IDN rosters are updated almost in real time -- this reduces error rates and provides accurate data that saves time and money.
No other company offers Data-as-a-Service format to manage these rosters. PointData was founded by a team of seasoned IT professionals, all with years of experience in the healthcare industry. We believe the roster management processes and rebate processes for pharmaceuticals/biotech firms is in dire need of an update. As a result, our focus is on helping organizations to make their entire contracting process more efficient and to drive down the cost of services, freeing up resources to focus on activities that add greater value. Today, PointData is improving efficiency at pharmaceuticals firms, offering them our Data-as-a-Service platform and providing consulting services to integrate cutting-edge solutions.
The rebate validation process and the associated support activities are proving too labor-intensive and costly for pharmaceuticals firms. Yet managing these rebating processes efficiently is critical to pharmaceuticals firms’ success. Rebates are, of course, necessary to obtain formulary and tier placement. But rebates have to be negotiated with all the stakeholders in the pharmaceutical value chain every year, and then tracking how they are to be paid has become an overburdened complex process for pharmaceutical companies.
Using our data-as-a-service platform, and our proprietary software solutions to manage rebates, we can cut down on the time-intensive and error-producing process used by most pharmaceuticals firms. And firms can easily track every aspect of the rebate support process in real time. And we can track them. PointData can cut rebate processing costs and increase value obtained from rebates.