09/28/2023 | News release | Distributed by Public on 09/28/2023 09:06
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.
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.
Efforts to gain post-deal insights are further complicated by external barriers.
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:
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.