beyond systems: your data and your...

Beyond Systems: Your Data and Your Team

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Best practices for effective government pricing management

Each new piece of legislation, clarification, and guidance has a cumulative effect. It is atypical for new regulatory requirements to completely replace old ones; typically new requirements are implemented in addition to existing ones. For example, the Deficit Reduction Act (DRA) did not introduce Monthly AMP instead of Quarterly AMP. Rather, Monthly AMP was added in addition to Quarterly AMP. Coverage Gap rebates were not introduced instead of more traditional Managed Care Part D rebates, but rather in addition to them. Even given all of this change and evolution, few manufacturers are actively adding headcount to government pricing teams, and most manufacturers depend on their existing team structure, systems, and data support to handle any new requirements.

Given this “perfect storm” of increased government scrutiny, an increasingly complex regulatory environment, constant new reporting and payment requirements, and typically little to no increased headcount, how are manufacturers supposed to adapt?

Pharmaceutical professionals in the government contracting space are aware that the only constant in this industry niche is change. Reflection back on even the past decade – let alone since the beginning of many of these pricing programs – illustrates the persistent adaptation to change that pharmaceutical manufacturers have to endure and adapt to. Since 2004, dramatic new legislation has been passed and clarifying guidance on existing legislation has been published in the areas of Medicaid, Medicare, FSS, and 340B pricing calculations and administration.

Introduction: Adapting to Change

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White Paper: Beyond SystemsPharma

Figure 1: A timeline of the evolving regulatory landscape in the US over the past decade

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The increasing need for rock solid government reporting and Medicaid invoice processing systems has become more evident than ever in the past decade. Manufacturers large and small have taken the prudent action of implementing systems that can scale, and that are now supported by third party vendors who are committed to high quality, regular system updates to allow manufacturers to continuously adapt to regulatory change. This is a welcome development as few in the industry would advocate a spreadsheet or home-grown approach to government processing over a systematic one.

Systems are a critical component to adapting to change. However, it is important to note that systems — while a large piece of the puzzle – are not the entire finished picture.

Several ways manufacturers can still face difficulty in complying with government requirements despite having a system or multiple systems in place, include:

• Several disparate system sources, whose data is not integrated• User error• Poor quality data going into the system• Lack of user training and/or underlying understanding

The case of a manufacturer having too many systems is becoming ever more prevalent. This is typically the result of repeated acquisitions in which the government reporting function is centralized but where there is a long delay in combining the different systems used by the merged companies.

Merger and acquisition activity among pharmaceutical companies has risen dramatically and will likely continue to do so. According to data collected by Bloomberg, over 670 takeovers of biotechnology and pharmaceutical companies have occurred in the past three years.

The “too many systems” phenomenon is particularly pronounced in the increasingly common David-acquires-Goliath scenarios where smaller manufacturers with no systems or limited ones, are quickly faced with far more complex reporting requirements for far more products than they ever had before. How will a manufacturer used to using spreadsheets to manage a handful of products adapt when the product portfolio and source systems double overnight?

A system is only as good as the data that goes into it. Accurate government reporting requires massive amounts of data of all different types: direct sales, chargeback payments, tracings from wholesalers, rebate payments, and much more.

Even if a government pricing system is rock solid, stable, and bug-free, poor quality data can render it useless. Manufacturers with poor data stewardship, whether in extracts from upstream systems or monitoring of interfaces between systems, face difficulties when adapting to new reporting requirements.

Systems Are Critical – But They Are Not the Entire Solution

Over 670 pharmaceutical and biotechnology mergers and acquisitions over the past three years have resulted in many manufacturers struggling to integrate several disparate

source systems for government reporting

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If much of a manufacturer’s time each month is spent manually “scrubbing” data and re-running interfaces, this is a symptom of poor data stewardship and a great opportunity for improvement. If a manufacturer is spending weeks each filing period scrubbing and cleansing data in order to report on time with existing policies, how will it react quickly to new regulations?

A manufacturer should be proud when it reaches a point of system stability and data stewardship where government reporting happens with greater ease. When this status is reached, there must be continued diligence in training so that complacency does not set in.

An analyst at a manufacturer was once asked during a policy review, how his manufacturer established Best Price (BP) for the purpose of eventually calculating Medicaid rebate liability. The analyst’s response was purely systematic: “At the beginning of each quarter we go into this screen in our system, click this button, wait a period of time – and it then displays our BP.” When pressed for further information regarding what actual math and data practices the system was performing, it was clear that the analyst did not know. How will this manufacturer adapt to inevitable changes to BP requirements without a clear understanding of the current policy and methodology?

Most manufacturers at this point have not only implemented systems to support government operations, but have upgraded them — perhaps even upgraded them several times. Newer versions of systems include newer features for improved performance and support of recent government requirements. When going through an upgrade, a manufacturer must be sure to carefully analyze and take advantage of these new features.

All too often, a manufacturer will struggle with a recent regulatory requirement when their existing system is already equipped to handle the new requirement, which the manufacturer is simply not aware of. If a manufacturer is not taking full advantage of the systems they have today, how will they effectively use it when the rules change tomorrow?Though solid systems are imperative, it is clear that having a great system cannot run an effective government operations organization in a vacuum.

“The very first step, when adapting to a new guidance or a new rule is to approach it from a methodology perspective and to get on the same page across your various groups — including legal. This takes a lot of discussion and trial and error before an interpretation is agreed upon that makes everyone comfortable. Subsequently we determine manually

and conceptually how to apply it to our data. Only then do we investigate how to integrate our interpretation into our system.”

— Senior Director, Top 20 US Pharmaceutical Company

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Many manufacturers do not have their policy documents updated or written down. The policy and methodology too often is stored either in back-end system code, front-end system screens, or even in the head of key team members. Additionally, many manufactures do not have a cross functional team, such as a pricing committee, to ensure proper communication and operationalizing of policies, programs, and strategies.

Government calculation policies should be clearly defined, consistently updated, and able to be produced immediately. Whether a new employee, auditor, consultant, or executive asks to see a manufacturer’s policy for an AMP calculation, the information should be able to be immediately accessed and introduced. Immediate data accessibility provides manufacturers with clear operational advantages when it comes to adaptation to change.

When the DRA and ACA were passed in 2005 and 2010, respectively, CMS provisions led to fundamental changes in price calculations. Manufacturers who already had a rock solid, documented, and updated stack of policy documents were able to more quickly assess the effect of the new regulation and approve updates to adapt.

Policy must also be capable of being easily applied to data. For example, policy documents may include references to “direct sale transactions.” It is important that the documents refer to where these transactions are coming from, and which specific fields from these transactions are paramount to the calculation. Simple policy decisions can result in signification variations in calculation methodologies, and can have significant impact on data requirements. Having to include rebate payments to a specific type of customer may result in entire new interfaces to new source systems for the purpose of gathering those transactions.

Finally, the government operations, commercial, finance, and legal teams should all be involved in approving and understanding the policy and methodology of the manufacturer. They should understand the impact of pricing initiatives and commercial programs as they relate to government reporting both from a compliance as well as a financial impact standpoint.

A well-trained team can recall details of a pricing methodology with limited need for follow up.

“A collaborative cross-functional organization ensures that policies and methodologies are in sync — both vertically and horizontally —

and they create and nourish an environment of informed team members that are equipped to respond quickly and efficiently to change.“

— Former Executive Director, US Pharmaceutical Company

Policy and Methodology

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Data stewardship is critical for a well-tuned government operations group. Many people in this industry refer to the government pricing arena as “standing at the bottom of a waterfall.” Analysts have little to no control over any of the data flowing down at them, yet have to collect and make sense of it all or risk penalties and non-compliance.

Extraction from source systems should be simplified, standardized, and streamlined. Additionally, data should be consistent across source systems (typically systems of record) and government contracting systems. Too many manufacturers rely on “scrubbing” and manual manipulation of data in order to meet government reporting timelines. These manual practices are largely considered error prone and risky. For example, if the ERP system thinks a customer is a retail pharmacy, but the government pricing system is referring to that same customer as an outpatient clinic, then there is a potential audit and compliance risk. It is worth a manufacturer’s time and investment to create processes and controls for transactional and exception processing that extract clean data from source systems and manage all data changes in systems of record to promote consistency and reduce audit risk.

Often government reporting will require more granular-level data than commercial operations. The commercial practice at a manufacturer may care only about the total rebate paid to a specific GPO or PBM. The government practice at that same organization needs much more detail.

For example, government reporting may require the following granular information:

• How is the payment broken out?• How was each dollar of the payment allocated to the GPO members or plans administered by the PBM?• Which contracts and discounts were referenced when calculating the payment?• When was the payment actually paid, and what periods were evaluated to come up with the payment due?

For this reason, it is important that government operations not “piggy back” on reports and extracts meant for othergroups. Manufacturers must invest in systems and reports that systematically generate the data needed for government operations with minimal to no manual manipulation. This will help ensure the correct level of granularity is attained.

Lastly, manufacturers should leverage government pricing software to its full capability, but have a backup plan and not lose sight of what the system is doing with — and to — the data behind the scenes. If the network crashes on the last day of a filing period and there is no longer access to the system, then clean, granular, raw data and well understood methodology will help the government reporting function at the manufacturer still meet the reporting deadline.

“We have a tie-out methodology that starts soon after the beginning of each month. Our process is very structured and there is a dedicated analyst to do data tie-outs to the general ledger, and from one system to the other. Each tie-out must be to the penny, and

we aim to have it done by the 12th through 15th calendar day of each month.”


Data Strategies

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The size of a manufacturer, surprisingly, does not have a high correlation with the size of its contracting and government operations team. There are small manufacturers with fewer than 10 products that have government pricing teams of 6 or more people. There are also Top 20 manufacturers who have government pricing teams of fewer than 4 people. It all boils down to the level of communication, automation, and data streamlining available at the manufacturer.

An informal survey of 11 pharmaceutical manufacturers illustrates this observation:

Figure 2: Results from an informal survey illustrate the lack of correlation between the number of products and the size of the government pricing team at manufacturers

Staffing Strategies

A commonly structured team is separated along pricing and rebating functions. Analysts “major” in Medicaid pricing (AMP, BP etc.), other analysts focus on VA and 340B pricing (NFAMP, PHS etc.), while others specialize in rebate processing and payment (Medicaid, Tricare, Coverage Gap). This is an effective method and is proven across many manufacturers; however there are other structures that should be considered, particularly if the organization has specific attributes.

In the increasingly diversified word of pharmaceutical companies, many manufacturers are diversifying their product portfolios rather than specializing. While companies once focused primarily on oncology or diabetes, manufacturers today boast larger portfolios, addressing much wider therapeutic classes and varied methods of drug delivery. It is common for a single manufacturer to have to administer pricing and contracts for branded, generic, 5i, non-5i, vaccines, and biological compounds, all at the same time in the same system.


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Though AMP is required to be reported for both a generic consumable product as well as a branded physician- administered product, each has very different data requirements, policy rules, and therefore, calculation challenges. Because of this, some organizations are choosing to split responsibility among analysts by product portfolio rather than by price type.

Lastly, manufacturers must retain data management as its own specific function in order to run a well-performing government pricing team. If multiple analysts from multiple work streams all uncover the same data issue, inefficiencies persist. Well-formed teams have analysts specifically focused on data each month and quarter. These analysts verify the data in the system, remediate any data or interface issues, and perform tie-outs to the ERP and General Ledger prior to giving an “all clear” for pricing analysts to begin their calculations.

“It’s most important to train people on the policy, methodology concept, and processes before you train them on the details of the system functionality and formula details.

For example, an analyst should be able to answer questions regarding how commercial rebates directionally affect our Medicaid liability, before they can answer questions about

how to complete certain functions in our system or the formula calculations.”


Training and Standard Operating Procedures

In addition to clear, documented, and approved policy documentation, effective companies have standard operating procedures (SOPs) and in-depth training built around their systems. Clear and thorough SOPs contain detailed cadences for each monthly and quarterly filing or rebate. Check points and gates built into each SOP improve their quality and decrease the risk of errors.

Effective training is comprehensive. Training should cover the manufacturer’s:• Policy• Data• System• Detailed SOPs, including step-by-step screenshot instructions

When an analyst learns a manufacturer’s government operation procedures, it is important for the analyst to review and understand the manufacturer’s entire ecosystem, rather than mere portions or slices of the business environment. This will mitigate the risk to the organization as a whole, in case key, knowledgeable, team leaders move on.


Pharmaceutical manufacturers face ever more complex regulatory environments, with increased cost and complexity of compliance. In order for manufacturers to maintain compliance, decrease audit risk, and reduce revenue leakage, it is imperative that manufacturers cultivate a full and harmonious ecosystem of integrated processes, policies, and systems.

Systems are only as good as the people who run them and the data that is fed to them. Methodology is only effective when it is applied evenly, consistently, and is well understood. A manufacturer with good balance between their systems and methodology will benefit from solid government contracting operations and a profitable relationship with US government pharmaceutical purchasing programs.

Author: Jesse Mendelsohn, Director, Global Customer Services & Support, Model N

Find out how you can optimize your government pricing business practice further:

• Reducing Risk in Government Pricing and Programs Compliance (white paper)• Best Practices for Managing 340B Chargebacks (white paper)• Handling Health Care Reform with Confidence (video)

Learn more at www.modeln.com to download insightful business solutions for free.

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