covance: contracts lifecycle management

Contracts Lifecycle Management Strategy-Compliance-Analysis

January 24, 2013

Presenters:

CONFIDENTIAL

Steven Medina, Vice President Managed Markets Service, Covance Market Access Services Inc.

Joseph Coppola, Director Deloitte Consulting - Contracting Strategy and Revenue Optimization Practice Leader

Introductions

Steven Medina Vice President,

Managed Markets Service Covance Market Access Services Inc.

Joseph Coppola Director,

Deloitte Consulting - Contracting Strategy and Revenue Optimization Practice Leader

2 Proprietary & Confidential

Agenda

3

Introductions

Market Dynamics

Common Observations

Why Now for an Alternative Operating Model

What You Need from an Alternative Operating Model

New Model

Benefits

Industry Forces such as these are Influencing the Need for Change….

Nearly 90% of all retail prescriptions are covered by 3rd

party payers…both private and public sectors

On average, 15-25% of gross sales is paid to Payers in

the form of rebates

Shrinking budgets and resources – mantra – ‘do more

with less’

Rapidly increasing generic competition

Continued cost-shifting to patients – co-pays rising


These industry forces are causing companies to focus on opportunities

beyond Financial and Regulatory Risk Mitigation…

1. Contracting

Strategy

Formulation

3. Contract T&C Compliance

Management

4. Performance Monitoring &

Analysis

2. Contract Creation

Contract ROI / Effectiveness

More Impactful Customer Interactions

Risk Mitigation

Financial

Contract Compliance

Visibility

Regulatory Compliance

Sarbanes-Oxley

Gov’t Price Calculations & Reporting

Operational Efficiency

Speed

Productivity

Scalability

TCO


Sample Value Propositions Opportunity

Low Est. High Est. Basis

Cost Reduction/Avoidance

Reduction of invalid chargeback claims 0.5% 11.0% Chargeback Claims

Reduction of incorrectly calculated admin fees 0.5% 5.0% Admin. Fees

Reduction of invalid rebate claims 1.0% 12.0% MCO Rebates

Reduction of Contracts Admin. operating costs 8.0% 27.0% Dept. Costs

Avoidance of BP exposure and risk NA NA Medicaid Rebates

Revenue Enhancements:

Improved Pricing & Contracting ROI 0.5% 5.0% MCO Rebates

Improved targeting of the 'right customers' 0.6% 7.5% Total Sales

Quicker response to bid and contract requests 1.0% 4.0% Contract Sales

NA = not available; dependent upon company interpretation of Medicaid Legislation.

NA = not available; dependent upon company interpretation

of Medicaid Legislation.

Source: project experience, software vendors, and trade literature.

Benefits of Contract Management Automation (Aberdeen benchmarks based on more than 300 companies): IMPROVEMENT AREA PERFORMANCE IMPACT Compliance management Improve compliance 55% Rebate/discount mgmt. Improve 25 - 30% Contract renewal rates Improve 25% Revenues Improve 1 - 2% Contracting cycles Cut contracting cycles in half Admin costs Reduce 25 - 30%

Looking to Realize Incremental Benefits Such as These…


Common Observations

What We Typically Find…Processes, Policies, and Systems

►Manually Intensive Processes

►Lenient Contract T&C

Compliance Policies

►Information Constraints

Reliability and Accuracy

Accessibility

Time Consuming

►Limited Workflow Automation

►Inflexible Systems

►Limited Validation of Contract

Claims Data

►Inadequate Management of Master Data

Membership, Eligibility, and Plan Affiliations

Market Baskets

Formulary Status

Templates/Clauses


Common Observations

What We Typically Find…Organization

►Customer Segment or Product Team Silos

►Poor Cross Team Collaboration/ Communications

►Inefficient Process Execution

“Everyone does Everything”

Roles/Responsibilities Not Clearly

Defined

►Inconsistent Support for Internal/External Customers

►Sub Optimal Use of Resources

►“Bombarded” with Ad Hoc Information Requests

E.g., Legal Requests


►Knowledge ‘walking out the door’ as people leave

Resource are dedicated to

customer segment and/or product

teams and not shared across

teams

Why are Companies Considering Alternative Operating Models for CLM?

Contracting organizations are faced with challenges such as:

Increased workloads with limited resources; static headcount

Many cycles being spent on low-value, repetitive, administrative activities such as Rx

claims validation, membership maintenance, etc.

Limited ability to develop resources and focus them on more value-added work

e.g., customer-facing tasks, analytics, etc.

By utilizing an alternative operating model, the following can be realized:

Avoidance of hiring additional people while workload continues to increase

Flexibility and scalability of service levels that are driven by the demands of the

business

Ability to transition employees with advanced skills from executing administrative

activities to more valued-added work

Accounting for services as an ‘expense item’ vs. capital expenditure (headcount)


Candidate Processes to Consider …

Data

Management

Reporting &

Analytics

Rebate

Forecasting

Performance

Analytics

Membership

Maintenance

Operational

Reporting

Rebate

Processing

Eligibility

Maintenance

Chargeback

Claims

Processing

Contract

Setup

Payment

Processing

Product

Maintenance

Market Basket

Maintenance

Customer

Maintenance

Chargeback

Forecasting

Rx Claims

Data

Validation

Government

Pricing

Contract

Archiving

Compliance

Mgmt &

Administration

Typical Desired Level of Ownership

Low

H

igh

Mediu

m

Medicaid

Claims

Processing

Leve

l o

f A

dm

inis

trati

ve

Ac

tivit

y

Good candidate processes are those that typically require a lower level of ‘ownership’

and are discrete and highly administrative by nature


Low High Medium

Copyright © 2013 Deloitte Development LLC. All rights reserved.

11

Why is there a need for an Alternative Operating Model for Contracts Lifecycle Management

Visibility into

Contract

Performance

Government

Audits

Limited System

Functionality Shrinking

Budgets

Missed Financial Opportunity

Revenue Leakage (overpaid: Medicaid rebates ~1-4.5%, Managed care rebates ~1-5.5%, Chargeback claims error: ~1-4%,) Cost saving by leveraging economy of scale partnerships ~ 12% - 21% Cost avoidances by leveraging a subscription based solutions ~ 22% to 43% (avoiding and implementation) Potential revenue growth by creating contract criteria and evaluate contracts ~ 2% - 4% Return on assets by not over allocating funds for rebates and chargebacks but investing it.


Marching Orders


Grow the Business

Driving the need for more Complex Contracts

Need for Great System Functionality

Manually Managing Contracts

Visibility into Contract Performance and Accruals

Ensuring Compliance to reduce penalties

Reduce Cost

Reduction in Staff and Resource Availability

Technology Investments need to gain the Functionality

Increased cost of doing Business

Missed Financial Opportunity

What You Need from an Alternative Operating Model

Industry Insights with a stable budget that provide better financial awareness

Driving business value, optimizing performance, and increasing efficiencies

Better Visibility into Contract Performance and Accrual Allocations

Partner that will invests in developing capabilities for the industry needs

Virtual Team Capability

Expand your base team with trained professionals

Adaptable, flexible, and agile to ramp staff up and down as demand dictates

Connecting client’s operational capabilities to its business aspirations

A Full Revenue Management and Recognition

Technical Solution

Access to software without having the increasing

cost of implementation or upgrades to keep up with

an ever changing industry

Get just what you need, grow as you go

Proprietary & Confidential

SURVEY



New Model

Invests in industry

With a client-centric approach and a commitment to offering clients the best people, processes,

and systems today and in the future. An investment into a training platform that ensures it’s

entire staff (junior to senior level) must progress through various levels of expertise so they are

optimally versed on all aspects of industry challenges and solutions. Because of the complexity

of today’s contracts and the rapid pace of change, clients want to work with an expert to bring

about insight to the business and processes necessary for making sound decisions

With budget challenges and potential impact to revenue, clients

need to work with a partner that can help them drive value,

performance, and providing flexible collaboration with clients

processes, technologies, and vendors. With minimal up-front

investment and long term predictable budget for the services

they need.

Client-focused solutions that provide selective solutions

to address their challenges.

Committed to operational and service excellence.

With a strategic and service-based culture that drives operational consistency and

repeatable by using a set of products that contain primary, custodial, and governing

processes that represent a core set of best practices.

Contract & Strategy Pricing

Managed Markets Brand Strategy

Contracting and Pricing Strategy

Market Sensitivity Evaluation

Planning & Development

Managed Market Forecasting

Formulary Approach

Contract Offer Management

Account Management Optimization

Contract Authoring & Drafting

Offer Development

Evaluation & Performance

Track contract performance by contract

Evaluate accruals for Rebates and Chargebacks and forecast.

Reports on findings.

“What happen”

Determine cause of the findings. “Why did it happen”

Technology & Software

Managed C

are

Hospital / G

PO

Reta

il

Govern

ment

Valid

ation a

nd

S

cru

bbin

g

Rebate

s

Cha

rge

ba

cks

Cla

ims

Settle

ments

Go

ve

rnm

en

t P

rog

ram

s

Co

mp

lia

nc

e M

an

ag

em

en

t

Claims Adjudication

Contract Management Contract Administration

17

Managed Markets Services Differentiation Framework

Distributor

Process

Commercial

Utilization

Rebate

Chargebacks

Accrual

Tracking

for Rebates

and

Chargebacks

Government

Compliance

Admin Fees

&

Sales Based

Rebates

Membership &

Eligibility Government

Pricing

Government

Rebates Contract

Compliance

Contract Load &

Maintenance

Contract

Management

Contract

Administration

Government

Programs

Evaluation &

Performance

Compliance

Management

Contract

Performance


Managed Markets Services

Provide operational services

resources to Perform clients

processes on their systems

Covance system to provide

solutions to our clients on a

subscription basis and enable our

client’s resources to use the

system according to their needs.

Provide operational services to

client utilizing Covance‘s system

and resources

Provide staff support to Participate

as needed to support clients

process on their systems

Flexible Delivery Model


Benefits


Intangible Benefits

Strong Partnership

Trained professionals

Scalability

Economies of Scale

Peace of Mind

Tangible and intangible benefits.

Tangible Benefits

Revenue Growth

Cost Saving

Cost Avoidance

Return on Assets

Manufacturer‘s Focus

Cost Avoidance Cost Saving Revenue Growth

Return on Assets

Increased cost of

doing Business

Revenue

Leakage

Cost Pressures

Shrinking

Budgets

Regulatory

Pressures

Complex

Contracts

Reduced

Resource

Availability

Technology

Investments

Ensuring

Contract

Compliance

Government

Audits

Increasingly scrutiny by

auditors and regulators

Limited System

Functionality Methodology

Manually

managing

Contracts

Loss of Content

Knowledge

Accrual Forecast

Visibility into

Accruals

Communication

across managed

markets

Visibility into

Contract

Performance

Strategic

Governance


Benefits

1. Savings compared to Implementation & Ongoing Support of 43-49%

2. Savings compared to Current State Operational Model of 17-26%

Reduce

implementation

staff expense

Reduce hardware

expense

Reduce resources

for business and

IT processes

Reduce software

expense

Reduce ongoing

maintenance &

support costs

Reduce ongoing

maintenance &

support costs

Eliminate system

upgrade & patch

fees

Reduce resources

for business and

IT processes


Benefits

SURVEY

Question: Please select your most

critical concern regarding this

alternative operating model?

1. Loss of Control

2. Quality of Services

3. Staff/team Morale

4. Regulatory Risk

5. Costs


Collaboration

Models

Gain clear understanding of

company/department goals and

objectives

Obtain a comprehensive view of

current operating environment

Create a gap assessment of goals

and objectives against current

environment

Identify areas for improvement

Develop budgets to implement

measurable solutions

Create specific action plans for

implementing change and closing

gaps

Consider a readiness assessment to:

25

www.covance.com/marketaccess

Contact our presenters:

Steven Medina Vice President

Managed Markets Services

Covance Market Access Services

Ph: (609) 273-7973

Email: [email protected]

Joseph Coppola Director

Deloitte Consulting - Contracting Strategy and

Revenue Optimization Practice Leader

Phone: (215) 275-6979

Email: [email protected]

covance: contracts lifecycle management

Health & Medicine

contract requests

contract salesna

contract renewal ratesimprove

operating costs

alternative operating

administrative activities

membership maintenance

limited ability