Deciphering Rebate Impact: Pharma Post-Deal Analytics

Rebates make the pharmaceutical world go around. When it comes to negotiating contracts with payers, every single manufacturer has experienced fighting tooth and nail for a Tier 2 position over a competitor - and being asked to include rebates of 40%, 50%, or higher to avoid being shunted into Tier 3.

But is it worth paying the high price? Just look at your last corporate income statement. You'll see that one of the largest line items is customer rebates, often greatly exceeding your overall sales and marketing costs. And although your senior management (and external analysts watching your company) keep a close eye on such things as R&D and marketing investments and strategic staffing decisions, hoped-for-versus-actual returns on rebate deals with pharmacy benefits managers (PBMs) and health plans slip by under their radars.

So, when the dust settles, have you made more money by paying the ever-increasing rebates payers demand? Or is your brand name and reputation strong enough among doctors, pharmacists, healthcare administrators, and patients alike to drive higher sales with a less prominent (and less costly) Tier 3 label?

There's only one way to know for sure: A post-deal analysis.

Many companies do pre-deal analyses - performing detailed examinations of all costs and expected returns from signing a contract with a payer (see below for more details). But few follow up and check on the final financial ramifications of the contract when it's over - which is usually years after the signing.

In this blog, we'll look at what's standing in the way of pharma companies taking this very logical step of closing the contract-ROI loop, reasons to continue to push for post-deal analysis, and look into advanced automation tools as a potential step into making post-deal more accessible to pharma companies.

Pre- versus post-deal analyses: a primer

Here are the differences between what should be matching analysis bookends of contract financial governance.

Pre-deal analysis

At most pharma companies, signing a rebate contract, especially with a large payer, is a big deal. Detailed pre-contract analyses are conducted on multiple levels by different departments - finance professionals, brand teams, and account managers all get involved. Many different models are used. Break-even points are calculated in "what-if" exercises. Anticipated profits are projected based on forecasts of sales managers based on various scenarios. If the deal is a big one, you may need to escalate the sign-off to the C-suite because the ramifications of giving a rebate could echo for years.

Post deal analysis

Pre-deal analyses are relatively easy, as they're based upon established data points like market share and historical growth. Post-deal ones are much more complex. It requires many different functions to contribute "their" data to get a complete picture of what actually happened once the rebate was in place. Overall sales volumes, market shares, changing mindshare of doctors and pharmacists, and other data must be examined.

Also, many companies are stymied by external factors beyond their control, such as new product launches by competitors after a rebate deal has been signed. Yet pharma companies that go to the trouble of doing post-deal analytics are richly rewarded. Comparing actual performance against deal assumptions can be extremely helpful and inform future contract decisions.

Challenges of performing post-deal analyses

There are too many challenges that make accessing and analyzing the necessary data difficult. These challenges can be divided into external and internal factors.

Many pharma companies are still stuck doing spreadsheet-driven analyses of contracting metrics. But the internal factors don't stop here.

• Tedious and error-prone manual process: It takes huge amounts of time to find the right data, manually transform it into a standard, accessible format, and run advanced analytics to help with decision-making. Plus, there is always the risk of human error.
• Cross-functional priorities: So many different people from different functions are involved in contracting decisions, and each has their own roles and responsibilities that require personalized interfaces, workflows, and datasets.
• Lack of ownership:No single role/individual is ultimately accountable for the business performance of the entire pricing and contracting lifecycle.
• Difficulty collaborating: Current platforms and tools don't make it easy for all the individuals and teams involved to collaborate on insights and decisions.
• Lack of visibility: Pharma companies need to be able to monitor and track progress at any point in the contract so they can see if ROI is on track and if expectations are being proven correct.

Efforts to gain post-deal insights are further complicated by external barriers.

• Unexpected market events: New competitive product announcements, disruption in a particular class of drugs, FDA warnings, and legal actions can all affect the return on a rebate contract.
• Introduction of generics: Loss of exclusivity and competition from generics puts pressure on margins, affecting both market share and profitability.
• Loss of negotiating power: The top three payers - CVS Health/Aetna, Optum Rx (United Health), and Express Scripts - now control approximately 75% of the market, giving them the upper hand in contracting.
• Too many payers demanding rebate contracts: Large pharmaceutical companies draft thousands of contracts each year. Doing an in-depth analysis on each one simply can't be done manually.

Too good to pass up

The key question that the contracting team has in mind as they negotiate rebates with a payer: Should they sign the contract or not? If they do, will it be profitable financially? If not profitable, is there another reason that giving the rebate is strategically important to the company? Knowing what happened with the last contract is a huge advantage during such talks. If a post-deal analysis was done, your firm has the following advantages:

• Perform oversight to ensure financial accuracy: Post-deal analyses can confirm that contractual terms are being correctly applied and all financial calculations, such as rebates, discounts, or fees, are accurate. This can identify any mistakes or discrepancies that could lead to significant financial losses or overpayments.
• Evaluate contract performance: The analysis can help you assess the effectiveness and profitability of your contracts. By comparing actual results with initial forecasts, you can determine if a contract is meeting its goals and providing the expected ROI.
• Identify opportunities for improvement: These analyses can reveal opportunities for renegotiating contracts or for improving future contracts. They can help identify trends, highlight issues with compliance or adherence to the contract, and suggest areas where you could push for better terms.
• Manage regulatory compliance risk: Post-deal analyses can highlight any areas of potential risk, such as non-compliance with regulatory requirements or issues, that could impact your reputation.
• Enhance relationships with payers and health plans: Transparency and a demonstrable commitment to ensuring the proper execution of contracts can improve relationships with payers and health plans. This can lead to more favorable contract negotiations in the future and increase trust and cooperation between parties.
• Inform future negotiations: Lessons learned from post-deal analyses can inform future negotiations and help companies avoid previous pitfalls or replicate successful strategies. This can result in more favorable contract terms in the future and better overall deals.

Post-deal roadmap

For most pharmaceutical companies, diminishing returns on contracts due to higher rebate payout remains and will continue to be the largest cost they incur for marketing their drugs.

And some of the questions contract analysts have are not quantitative but qualitative: what competitive threats are our brand facing today? Will those threats remain the same for the duration of the contract? Are we seeking a profitable deal or one that captures greater market share?

Answering even these "softer" questions can be helped by running analytics models achieved with advanced automation and analytics tools. The insights provided give you precise data points faster, enabling you to negotiate with payers more effectively.

In addition, leading revenue management vendors are working on ways to automate the post-deal analysis process using tools embedded with AI that will make information transparent, consistent, and accessible as it flows through the revenue-management system. Systematic ways to monitor contracts will ensure workflow efficiencies and allow professionals across functions to share models and "what-if" scenarios that give them insight into how well different contracts were executed - successfully or not.

Once these tools become available, conducting post-deal analyses will become much easier for the pharmaceutical industry. These tools should be able to eliminate many of the internal constraints and ease some of the internal constraints. And with that, pharma organizations will hopefully be able to confidently assess their rebate impact.

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