Pharmaceutical manufacturers are operating in a highly competitive, complex and regulated market where the effective management of contracts, pricing, and rebates is vital to the overall health of their business. Without the right contracting infrastructure and processes in place, companies risk losing visibility and control over the contract lifecycle management, which can ultimately lead to revenue loss and non-compliance with government regulations.
Currently, the economic environment is challenging pharmaceutical manufacturers to grow amidst the reality of budget cuts and staff reductions. As contract scenarios become more complex, and companies lack the resources they once had, greater visibility into contract performance is even more critical. Administrative costs for pharmaceutical manufacturers are also increasing. A study conducted in 2012 by Deloitte confirmed that the cost for managing chargebacks and the rebate process is targeted to increase approximately 54% over the next five years.
Challenges such as these are driving organizations to adopt alternative contract lifecycle management (CLM) operating models that address not only financial and regulatory hurdles, but also increase return on investment (ROI) and operational efficiency.
Historically, contracts have been negotiated and managed using manual, labor-intensive processes that are inflexible and require in-house expert manpower. These processes are costly, time consuming, and drain internal resources, including legal departments that deal with an abundance of ad hoc requests. In addition, organizational policies tend to include lenient contract terms and conditions (T&C), plus customer segment and/or product team silos.
Some other contract lifecycle trends have included poor cross-team collaboration and communications, inefficient process execution, insufficient support for internal and external customers, and suboptimal use of resources. Finally, many organizations don't have systems in place to acquire the contract knowledge of employees who leave the company.
As contractual commitments become increasingly complex, many times in the billions of dollars range, pharmaceutical manufacturer cannot rely on inefficient contract and pricing processes driven by out-of-date or incomplete solutions.
The main marching order for pharmaceutical manufacturers today is to grow the business. All of the challenges that exist in growing the business are driving pharmaceutical manufacturers toward more complex contract scenarios such as bundling, multi-tier pricing incentives, and Health Economics & Outcomes Research (HEOR) information that need to be taken into account. All of these contract scenarios require more advanced management technologies, but must be managed manually until upgrades are made.
These challenges, coupled with budget constraints and the risk of losing revenue from poorly managed contracts, are driving organizations to look for a partner who can help drive value, performance, and operational efficiency. Plus, organizations need a contract lifecycle managment partner who can provide flexible collaboration with clients' own processes, technologies, and vendors.
There are three main pieces in the new operating model differentiating it from current models: 1) access to strong resources, including virtual team capability, which gives you the ability to ramp staff up and down as demand dictates; 2) a full revenue management and recognition technical solution, giving you access to software without having the increasing cost of implementation or upgrades; 3) industry insights with a stable budget, providing better visibility into contract performance and accrual allocations.
This unified approach can turn challenges into opportunities for maximizing profit and profitability. However, to make this "new normal" service a reality, service organizations must invest not only in systems and technology, but also in people, processes, and automation. This entails an investment into a training platform requiring entire staffs (junior to senior level) to progress through various levels of expertise so they are optimally versed on all aspects of industry challenges and solutions.
The Covance Managed Markets Services group, which supports pharmaceutical manufacturers commercial and government contracts, offers our clients a flexible, alternative operating model for CLM. We take a holistic approach by combining our contract management, contract administration, government programs, compliance management, and evaluation and performance services, to help clients with economies of scale to drive down costs.
Overall, the most important aspect of a new operating model is flexibility because every organization is at a different point within the need for a new model. There are several options we provide our clients, including: 1) staff support to participate as needed to help clients on their systems; 2) operational services resources to perform clients' processes on their systems; 3) use of the Covance system on a subscription basis, enabling our clients to use our system according to their needs; and 4) operational services to clients via Covance systems and resources.
Overall, by utilizing an alternative operating model you can avoid hiring additional people while workload is being increased. You also can gain flexibility and scalability of service levels that are driven by demands of the business. Plus, it gives you the ability to transition highly skilled employees from administrative activities to more value-added work.
The new operating model provides many additional intangible benefits. Working with a partner enables you to leverage what you both do well and gives you overall peace of mind with increased visibility into your contract performance. The tangible benefits include revenue growth, cost savings, cost avoidance, and return on assets. Cost savings are realized through economies of scale via strong partnerships, while costs are avoided by not having to engage in costly upgrades. Furthermore, avoiding under-accrued or over-accrued expenses from chargebacks or rebates provides a better return on your assets.
So, how do you know if a new operating model is right for your organization? We encourage our clients to consider a readiness assessment, which provides a clear understanding of your company's goals and objectives. The assessment also provides a comprehensive view of your current operating environment, culminating in an action plan for implanting change and closing gaps.
Contracting, pricing and rebates are all core functions and key business drivers for pharmaceutical manufacturers. Now more than ever, companies must effectively manage these drivers to remain competitive in an ever-changing, extremely complex, and highly-regulated industry. The "New Normal" for CLM provides organizations with the flexibility to take advantage of a new operating model, personalized for their particular needs and objectives to re-capture revenue and maintain compliance with government regulations.