Robert Matsuk, HighPoint Solutions

Fig. 1. Parallels in US/non-US price controls

		Drug pricing continues to rise in importance as a matter of healthcare policy and the financial well being of the biopharma industry. Nationally and globally, both public and private sector initiatives are being brought forward to limit drug expenditures, improve the quality per dollar spent on pharmaceuticals, or both. Within the US, some of these initiatives have included the start of group purchasing organizations to better leverage collective purchasing power, the continual evolution of managed care controls, the initiation of the Medicaid drug benefit discounts, and the impending Obamacare legislation with Accountable Care Organizations (ACOs).

		Internationally, these initiatives have historically included tenders (i.e. bids), reference-based pricing, allowance of parallel imports, and direct government mandates that dictate the prices a pharmaceutical company can charge. While there are differences in the “tactics” utilized by individual countries, when the US is compared with the international community, the types of pricing constraints tend to take on a similar look and feel in many situations. Moreover, international (or external) reference pricing demands that pharmaceutical companies manage pricing on a more global basis.

		This article first summarizes some of the more common attempts to control pricing or at least slow down its growth including those not common in the US, compares international initiatives to those in the US, and suggests some different approaches for manufacturers to take for better revenue management in terms of both optimizing price and eliminating revenue leakage while ensuring compliance with an ever growing complex pricing environment. It then asserts that in the future there will be several keys to success given the changing pricing landscape both within the US and internationally.

US parallels to international pricing mechanisms

		Although many countries outside the US manage drug pricing and negotiations in patterns radically different from the US, there are valuable parallels to be found in these mechanisms. Cases in point:

 — Internal (or domestic) reference pricing is pricing in which the government sets a “reference price” for reimbursement for all products that are similar chemically or within the same therapeutic class. EU countries have used the approach for multisource products. Similarly, while not called reference pricing per se, the US has a similar concept for generic products, reimbursing them based on Average Manufacturer Price (AMP). In addition, one could argue that similar products within major therapeutic classes within the US are being driven to a de facto reference price to the extent that managed care organizations are looking to limit reimbursement for certain classes and make companies compete for favorable formulary placement through price negotiations.

		Within Germany, internal reference pricing has been taken one step further for at least one therapeutic class, the statins. In 2005, the entire class was subject to a reference price (i.e. simvastatin, fluvastatin, lovastatin, pravastatin, atorvastatin) since there were multiple generics available within the class. Pfizer, the makers of atorvastatin, decided to keep the price higher and its market share subsequently decreased from approximately 40% to 5%. [1] Pfizer challenged the decision of the Federal Joint Committee to group atorvastatin with other statins, but in 2011, the German Social Court upheld the Committee decision.

		More recently in 2011, Germany enacted the “Law on the Reorganization of the Pharmaceutical Market” (known as AMNOG), which instructs governing bodies to compare a new product to what it deems to be its best comparator. This has often resulted in new products being compared to generics or lower-priced products that dramatically decrease the ability of the manufacturer to have a higher price. According to the Financial Times, “Germany’s new system has led to rejections of a series of other medicines including Eli Lilly’s Linagliptin for diabetes, GlaxoSmithKline’s Retigabine for epilepsy, Pfizer’s Collagenase for Dupuytren’s contracture, and Novartis’s Aliskiren/Amlodipine therapy for hypertension.” [2]

Fig. 2. A closed-loop model for revenue management

 — External (or international) Reference Pricing is pricing in which the government sets a price for reimbursement based on the price established in other countries. For example, many European countries use the UK as a “reference” country for reimbursement within their own countries. France, for example, uses four countries as its reference countries; UK, Germany, Italy, and Spain. Currently, no such concept exists for the US, however, could it be on the horizon given that the US has the highest drug prices in the world?

 — Also known as drug re-importation or parallel trade, parallel imports are essentially taking advantage of differential pricing among nations in the European Union. The practice continues to garner much attention within the EU where significant gaps or arbitrage opportunities exist because of varying levels of restrictions on prices. Within the US, so-called “re-importation” (mostly from Canada) continues to be discussed as a potential opportunity to lower drug costs for US citizens.

 — Some of these pricing structures have included capitated pricing (per member/per month for a product), management of orphan drugs, clinical outcomes-based reimbursement, and refunds for adverse events. [3] Within the EU, there have been numerous innovative pricing programs developed that either establish a clinical outcome basis for reimbursement or some other form of risk sharing.

		Perhaps one of the most interesting price controls is the projected move to value-based pricing in the UK in 2014. Previously within the UK, the Pharmaceutical Price Regulation Scheme (PPRS), agreed to by the British Department of Health and the Association of British Pharmaceutical Industry (ABPI), regulates the prices of branded medications. This agreement gets renegotiated every five years. The British Department of Health (DOH) has proposed replacing the existing agreement with a process that aligns the value of drugs with the health improvement of patients. [4].

		Within the US, there have been a couple of publicly discussed value-based pricing programs brought to the market. One of these is the sanofi-aventis/Procter & Gamble and Health Alliance agreement for Actonel, in which sanofi-aventis/Procter & Gamble will pay for any non-spinal fractures of Health Alliance’s members who are taking Actonel. Another is between Merck and the insurer Cigna, in which the Januvia/Janumet diabetes treatment is reimbursed based on overall blood-sugar control for all its members, not just those taking the Merck drugs.

		These value-based pricing programs, despite being only small in nature currently, represent dramatic shifts in the way prices and individual contracts will need to be managed in the future. Instead of price discounts based on volume or market share, entirely new quality metrics will need to be managed by Contract Operations groups within the industry. Equally challenging will be calculating and forecasting key government pricing calculations such as AMP and BP, given the unknown final prices customers could ultimately receive.

		While a number of these controls such as value-based pricing are currently small and will take time to evolve, others are already here and require the attention of manufacturers today to optimize pricing and minimize revenue leakage. Fig. 1 summarizes these price controls with examples from the US and internationally.

Fig. 3. Strategy, operations and technology support provide a holistic approach.

Keys to global revenue management success

		With external reference pricing already here, the price decisions made in one country will impact the ability of manufacturers to raise prices in other countries. What global pricing strategies optimize revenue and profit globally? The answer is becoming more and more complex. For example, with international reference pricing, Germany serves as a reference price for both the Netherlands and Austria. However, Austria also uses the Netherlands as a reference price country. [5]

		Therefore, Germany’s price exerts both a direct and indirect influence on the price in Austria. With the aggressive price controls being implemented in Germany, if an unfavorable price is determined because it’s deemed to have a low price comparator, then manufacturers are forced to rethink their global pricing strategies as well as into which countries they should actually market their products. Some software vendors specializing in revenue management have responded to this need with applications that facilitate these pricing decisions by country and globally.

		Within the US, managed markets customers have already for years demanded pharmacoeconomic value propositions for products to be approved on formulary and regulatory bodies are increasingly examining the cost-benefit of new pharmaceuticals. Now, with public payers having increasingly constrained budgets as well as financial incentives and penalties for Medicare providers in the new Accountable Care Act, the landscape seems to be ready for more innovative, value-based pricing programs. When this situation is broadened to consider differential value globally, new competencies for effective and efficient revenue management will be demanded.

Global revenue management as a closed loop process

		While best-in-class companies already have revenue management processes that are closed-loop to provide constant learnings based on past experience, this model will need to be extended globally. This closed loop model (Fig. 2) includes a robust analytic and scenario modeling capability that starts with improved quantitative modeling of strategic options, translates those strategies into winning deals, monitors their progress through compliance analytics and finally feeds results into consideration for development of future pricing strategies.

		The concept of revenue management as an end-to-end process that optimizes price, executes price, and enforces price is still relatively new. From an organizational perspective, potential changes are needed in the organizational structure of companies to better address this challenge. Specifically, global pricing committees need to be more active and to have a broader market perspective. From a skill set perspective, organizations will need to develop people to have more global expertise in revenue management and also better understand the pharmacoeconomics of their products. There also needs to be a higher awareness of revenue leakage—costs incurred by sloppy practices in inventory management, product returns, diversion from one distribution channel to another and similar problems.

		Coupled with the need for better external reference pricing solutions is the need for integrated, global technology solutions. While a few companies have deployed global solutions, the majority of manufacturers still operate their revenue management solutions locally. Similar to the evolution of integrated global ERP solutions in which these solutions were once not integrated, leading companies will deploy their revenue management systems globally. The development of cloud-based solutions makes this capability more cost-effective.

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New approaches, and new skill sets are necessary for meeting the challenges of global drug reimbursement policies

The convergence of international and US pricing controls

As today’s sales and marketing channels becoming increasingly complex, so do the structure of contract terms with customers. Enter gross-to-net management, a regulatory obligation for manufacturers to accrue for discounts and other financial elements and properly state these liabilities on income statements. Excellence in gross-to-net management, however, can have much broader implications, as companies that can more accurately forecast discount liabilities can also apply these principles to understand the potential impact of contract decisions on their business. 

For example, a company that can predict with more certainty that paying a greater rebate for “preferred” status on a formulary that has little impact on its sales volume and market share will be in an advantageous position to minimize rebates and thus improve its net selling price. Through improved gross-to-net management, a company that can achieve merely a 1% percent change in net price can often have a 5-10% impact on its profit. Industry studies have also found over and over again that operational revenue leakage within Pricing & Contracting can be 4% of total revenues. Well-defined and -implemented gross-to-net analytics including benchmarking analyses, identification of outliers, and executive dashboards can identify overpayments of customer obligations that significantly improve bottom lines. 

To understand and best address this complex area, we first define the scope and complexities for understanding gross-to-net management which extends well beyond the forecasting of rebates, chargebacks, and administrative fees within managed markets. From an accounting perspective, any deduction to gross sales needs to be accounted for and reported and thus is a part of gross-to-net management. With this understanding, we take a much more detailed look at the gross-to-net components within managed markets to understand forecasting of related transactions that impact gross-to-net. It is this understanding that’s the key to transforming gross-to-net management from merely a back-office accounting function to a strategic management tool that improves contract decisionmaking across a company’s product portfolio. 

	Accurate forecasting and management of gross-to-net encompasses much more than purely creating a trend line or benchmarking deductions against historical averages. Specifically, gross-to-net involves expertise in a number of areas for any product you’re managing: 

1. The product and therapeutic class: Key differences in the type and amount of deductions required by a company will be driven by whether or not the product is brand or generic, the degree of competitiveness within the therapeutic class, stage of the product lifecycle, whether or not the product is retail- or hospital-based, and finally the type of distribution model the company will utilize for the product (e.g. direct, indirect, specialty). 

2. The potential types of discounts/credits that are going to be offered: Some of these discounts/credits will be applicable to almost every product while others will be more specific to different types of products. These discounts/credits fall into one of three categories: 

Supply Chain Discounts: Discounts that are paid to customers related to the physical distribution of a company’s products. These discounts include wholesaler discounts and pharmacy discounts along with related returns, prompt pay discounts, and promotional allowances

	Commercial Managed Markets Discounts: Rebates, administrative fees, upfront off-invoice pricing, and chargebacks to commercial customers including PBMs, managed care organizations, GPOs, private hospitals, and Medicare Part D plans

	Government Discounts: Those same discounts as described above but to government entities such as DOD, PHS, Medicaid and state supplemental plans. 

3. Forecasting Methodologies: The tools and techniques used to forecast the actual liabilities for the above discounts described. Some of the simpler forecasting tools include extrapolation of historical averages such as a percentage of sales (in the case of estimating chargeback liabilities), rolling averages, and weighted rolling averages. Some of the more complex techniques include leveraging analog models and advanced quantitative models including multiple regression models. Many times, simpler models will suffice; however, in the managed markets area forecasting of contract utilization under “contract” or “no contract” scenarios has been challenging. In these cases, more sophisticated forecasting of the maximum utilization that can be achieved as well as how fast it will be achieved (e.g. adoption) should be undertaken. This maximum not only drives more accurate gross-to-net calculations but forms the foundation for optimal pricing and contracting decisions. Given that commercial managed markets typically represent one of the largest gross-to-net discounts, greater forecasting precision in this area will drive less variance in overall gross-to-net. 

Integrating gross-to-net with contracting strategies 

	While gross-to-net from an Accounting perspective has historically been more focused on broadly forecast product liabilities, Pricing & Contracting organizations are increasingly conducting more sophisticated analyses to increase the accuracy of their forecasts for individual contracts. In essence, Accounting looks “top-down” to ensure liabilities are accurately forecast, while Pricing & Contracting looks “bottom up” to assess the profitability of individual deals and ensure that pricing floors are not violated. Therein lies the opportunity: harmonization between different internal forecasting and management approaches to have one forecasting “standard” that serves the needs of both groups. 

To be successful, managed-markets pre-deal analyses and forecasting efforts need to be much more quantitatively based, with well defined methodologies in place for objectively assessing individual deal potential. For example, it’s simply not enough in today’s increasingly cost constrained environment for an Account Manager to aggressively forecast increases in market share and/or revenue if a favorable formulary positioning is achieved through a contract, or alternatively, dramatic losses if the product is left off the formulary. The question becomes, what is the quantitative basis for such predictions? One relatively straightforward method is to use analog models for the potential contracted customer being analyzed to understand historical abilities to drive market share and/or revenue for products on formulary. Just as important, in situations with mature therapeutic areas and well defined competition, is to have a forecasting model that takes into consideration existing national market shares when forecasting changes of all products under new contract scenarios. 

For example, a contract could be negotiated that creates “preferred” status on formulary as a “1 of 2”, “1 of 3”, or “1 of 4”. How will market shares shift to formulary products in each of these scenarios? Quantitative, objective methodologies that can reallocate market share to formulary products based on existing national market share and a customer’s ability to convert non-formulary products to formulary products are keys to accurate forecasting. 

One such methodology, called a Conversion Effectiveness Index methodology (CEI), assigns a value of between 0 and 100% based on a customer’s historical ability to drive formulary utilization. When combined with a Conversion Efficiency Model which forecasts the rate of conversion to formulary products, the CEI provides an overall forecast against the life of the contract for incremental revenue and/or market share. Other methodologies that have been used for different product situations include multiple regression models based on utilization controls of plans as well as elasticity models based on differential co-pays, just to name a few. 

The other challenges in bringing harmonization to the process are organizational and technological. From an organizational perspective, those responsible for gross-to-net management have not been typically involved in working with Account Managers and others to set Pricing & Contracting strategies other than as a control to ensure that pricing floors have not been violated or a new Medicaid Best Price has not been set. A gross-to-net analytical model requires these individuals have much more in-depth knowledge of the dynamics of managed care and therapeutic areas in which the company participates. 

Finally, from a technological perspective, such a process can become overwhelming if the right IT infrastructure is not in place, especially for companies that have high numbers of contracts or sophisticated contract structures. New package software systems as well as custom solutions have greatly enhanced the capabilities of companies to implement this type of model. 

	Whether someone is forecasting contract utilization or more broadly gross-to-net, it should be viewed as the first step of a continuous quality improvement process. For contract management, there are four distinct categories of analytics that link to each stage of the contract lifecycle (Fig. 2): 

Within this closed-loop process, post-deal analytics should provide insights into the reasons why there was over- or underperformance. To the extent the original forecast models did not include relevant variables (e.g. sale force share of voice, early introduction of a competitor) or did not accurately assess their impact on utilization, these analytics can be leveraged to enhance upcoming forecast models from a continuous quality improvement perspective for both contract forecasting and ultimately gross-to-net forecasting. In addition, by capturing pre-deal forecasts on a systematic basis, incentive compensation programs can be developed based on actuals vs. forecasts. 

	The management of gross-to-net continues to be challenging given the diverse array of line items and individual transactions that impact it. In addition, industry dynamics such as the introduction of new legislation, new channels of distribution, and more complex contract structures will continue to present ongoing operational challenges. Because of these dynamics, one of the most challenging areas for accurate gross-to-net management is commercial managed care forecasting and accruals. 

However, despite these challenges, there is a great opportunity to integrate gross-to-net management with Pricing & Contracting strategies for competitive advantage. This integration will enable manufacturers to better forecast their financial exposure for reporting purposes, more quantitatively assess the amount of discounts to contractually offer individual customers, and evaluate customer contract performance based on more objective benchmarks that compare other similar contracts and customers. It is this movement from more subjective-based decision making to more fact-based decision making that will ultimately drive more efficient discounting and also create competitive advantage for those that can achieve it. PC 

Robert Matsuk is Chief Strategy Officer at HighPoint Solutions, where he has overall responsibility for corporate strategy, including corporate business development, solution development, and alliance partner development. Prior to HighPoint, he was a Partner in CSC’s Global Health Solutions organization and the Solution Director for the Life Sciences Pricing & Contracting practice. His academic credentials include a BS in Pharmacy from the Philadelphia College of Pharmacy and Science and an MBA in Finance, Marketing, and Health Services Management from Northwestern University. 

Small changes in contract terms can have large consequences in net revenue

Getting a Better Business Picture Through Gross-to-Net Analytics

	Over the past 20 years, pharmaceutical contracting has been transformed from being a small incremental part of the typical pharmaceutical manufacturer’s business to one that is integral to almost every market segment. In many cases, filling a conventional prescription invokes multiple contractual agreements between the manufacturer and other parties. For example, sales within the institutional segment of the business can require a manufacturer to honor its fee-for-service contracts with wholesalers, the payment of administration fees to group purchasing organizations (GPOs), and submission of performance-based rebates to individual hospitals.

For retail managed-care sales, manufacturers will still need to honor those same wholesaler fee-for-service agreements and likely pay rebates to pharmacy benefit managers (PBMs) or other managed care plans. Government-funded programs including the Federal Supply Schedule (FSS) program, Medicare Part D, and State Medicaid have only served to further complicate the contracting landscape. Despite the amount of discounts currently being paid, which can exceed 90% of list price, there still remains significant challenges within the industry to better manage contracting from both a strategic and operational perspective. 

The benefits of both improved pricing and improved operations are highly significant when you consider that the vast majority of sales within the industry are impacted by one or more contracts. From a strategic perspective, offering discounts that are too low can result in the loss of a contract and subsequent revenue erosion of greater than 50% compared to being “on contract.” On the other hand companies can offer steep discounts to customers that have little ability to control business. The result is a direct negative impact on the product’s gross profit without any increase in sales. 

Let’s take as an example a retail-based product with sales of $250 million per year that competes in a therapeutic class with three other competitors. In today’s environment, let’s also assume 80% of sales involves some sort of contract in which discounts are required to be on formulary. If $50 million of sales (25% of the contracted total) are discounted too aggressively by 10%, then there is already a $5-million opportunity for improvement. On the other hand, if the product could have received favorable formulary placement but did not at high control accounts with additional volume of just $10 million, the revenue opportunity lost could be $5 million. The challenge for manufacturers is to develop more quantitative methods to forecast these benefits and risks so the trade-off between sales and gross profit is managed optimally. 

From an operational perspective, it is not uncommon to identify a number of factors affecting contract performance, including the following:

Poor compliance management: The inability of Contract Operations personnel to have the time and/or technology tools to monitor how closely contract customers are complying with their contractual obligations. 

Overpayment of contractual obligations: The overpayment of rebates, administrative fees, and chargebacks due to, among other things, the inability to effectively track group membership eligibility, duplicate claim submissions, and automated analytics to identify outliers in claims submissions. 

Operational inefficiencies: These inefficiencies include manual workarounds due to poor processes and a lack of automated tools to more efficiently manage key administrative processes. 

Within the industry, it is common to identify improvement opportunities that represent 1-4% of a product’s contracted sales. Using the example of the $250 million product above, there could be an opportunity to decrease operational revenue leakage by $2-$8 million.

	The next sections provide more detail regarding the challenges in improving both strategic and operational revenue leakage, and discuss some industry practices being adopted to address them. 

	Effective Process Integration Between Strategy and Operations

	One of the most important challenges is the effective integration of contract strategy with contract operations. It is one thing to be able to think creatively about contract strategy that drive business goals, however, the ability to effectively and efficiently administer these contracts can be overly burdensome. For example, one strategy could be to implement performance-incentive contracts with customers based on a market share baseline that is adjusted quarterly as measured by actual performance. At the end of the year, certain total dollar volumes will trigger another rebate based on the dollar volume tier. For instance, a customer who achieves a higher market share in the first quarter is then eligible for a higher rebate in subsequent quarters. The dollar volume from each contract is then mapped to an overall dollar volume tier and an additional yearly rebate is paid. 

While such contracts may achieve the business objectives of preferred formulary placement, the operational implications are significant since it will be difficult to automate such complex calculations for rebate purposes. Therefore, manual intervention will be required and will be extremely labor intensive. To the extent such complex strategies are executed across both the institutional and retail managed care markets where potentially hundreds to thousands of individual contracts will have to be administered, the effort to manage these contracts will potentially be overwhelming. What other types of contract structures could achieve the same business objectives without such complexity? 

As a starting point, many companies have set-up cross-functional committees to set overall strategies, define business rules for approvals of pricing exceptions, and meet on an ad-hoc basis to address customer specific issues. Nevertheless, there need to be at least six key outputs from this committee to appropriately define contract strategies along with contract templates for individual contract proposals that support the Account Managers in the field who are negotiating these contracts:

	1. Goals and objectives: Identification of the specific goals should include both financial (e.g. gross-to-net) and non-financial objectives (e.g. customer satisfaction).

	2. Customer segments and targets: Identification of the contracted segments as well as specific customers within these segments with whom the company should contract.

	3. Brand positioning: The appropriate positioning for the product within managed markets given the overall marketing strategy for the product or portfolio.

	4. Discount types: Definition of whether discounts will be guaranteed, performance-based, or a combination of both as well as whether discounts will be based on market share or sales volume.

	5. Discount amounts: Although discount types define how discounts will be offered, discount amounts define the specific percentage or dollar amount of the discount.

	6. Customer obligations: These are the specific criteria that the contracted entity needs to fulfill to be paid the discount. They range from being relatively simple (e.g. requirement that the contracted product be one of three products on the preferred formulary, specific market share to be attained) to very complex (submission of quarterly data in NCPDP (National Council for Prescription Drug Programs) format at the plan level for both the contracted product(s) and each competitor within the market basket). 

	Accurate Forecasting of “Contract” vs. “No Contract” Sales Scenarios

	As a part of the strategic planning process, accurate scenario analysis of being on formulary versus off is critical. For that matter, probably multiple scenarios are needed given today’s more complex pharmacy benefit designs such as those with multi-tier formularies. Too many times, upside and downside potential is inaccurately forecast leading senior executives to question the rationale for paying such high discounts—especially in the slowing market environment today. A more quantitative approach that leverages increasingly sophisticated statistical methodologies for forecasting rebates and liabilities is needed, along with better information technology tools and data to automate the process. Implicit in this approach is that not only can individual contracts be forecast more accurately, but entire books of business (e.g., Medicare Part D) can be better forecast to assess opportunities and risks in terms of sales and market share for entire customer segments over the course of quarters to years. 

Some emerging practices include determining the consumer behavior to increasing co-pay differentials as a driver of share shift; multiple-regression of analysis of key customer attributes that are correlated with the ability to drive share, and customer based P&Ls.

One limitation to all these approaches is data availability. For instance, accurate and comprehensive co-pay data are difficult to get in many, if not most, cases. In addition, if Company A does not have a contract with a specific customer or the customer is unable to provide it, Company A is forced to rely on third-party data versus actual contract data from its customer. In any case, leveraging a combination of third-party data and actual customer data can yield powerful insights for scenario analysis to make better contracting decisions.

	Effective and Efficient Contract Development

	Once the contract strategy and the supporting templates are developed, individual contracts need to be negotiated. In today’s environment, the standard tends to be simple text documents and the communication vehicle tends to be e-mail rather than paper with hard edits. To the extent there are a relatively small number of contracts that an organization writes, these tools are probably okay. As the number and complexity of contracts continue to grow, however, these tools will increasingly slow down the process.

Technology can greatly help with this process through the use of automated work flow and approvals systems. As mentioned earlier, a step in the planning process should be to establish clear policies regarding who can approve different levels of discounts and how exceptions will be managed. Some of today’s automated tools can ensure that these policies are not only followed but also maintained through electronic audit trails of changes to contracts and their subsequent approvals. 

During contract development the quality of the process will also be helped by developing improved forecast models and even contract profit-and-loss scenarios. A better understanding of the customer’s ability to favorably or unfavorably influence market share will drive more rational negotiations and ultimately a more profitable contract for the manufacturer. 

	Once the contract is signed, it can get “thrown over the wall” to a contract administration department for execution and monitoring. To begin with, unless there’s a document management system that can be leveraged, the contract will need to be entered from scratch into a contracting system. As an improved practice, the finalized negotiated contract could be directly imported into the contracting systems for administration.

Compliance is the next challenge in contract administration. Often, the contract administration department is actively monitoring compliance with only a small subset of the volume of contracts—and sometimes not at all. Again, a number of companies offer automated solutions to manage compliance through reporting and analytics solutions. One of the primary benefits is to gain insights more quickly and be proactive in identifying potential problems in meeting contract terms. Instead of waiting for a manual report six weeks after the end of a quarter or a year, variance from expectation can be identified much more quickly and corrective actions developed to improve the situation. 

Additional opportunities to improve analytics within the organization include the following:

	Payment trending reports: These reports provide longitudinal views by customer to identify outliers in rebate liabilities compared to historical norms. 

Chargeback rejection reports: These reports should provide metrics regarding percentage of line items that are processed without error, number of line items outstanding segmented by appropriate timelines (e.g., seven days versus 30+ days outstanding)

Cycle time reports: The average total time it takes from the submission of a claim (e.g. rebate, chargeback) 

Contracting increasingly continues to be a differentiator in the Managed Markets space for pharmaceutical companies as they look to increase profitability. The need for effective strategies, policies, processes, data, and technology support is stronger than ever. Contracting excellence leverages a closed-loop model that starts with strategy and drives through all aspects of contracting processes including analytics to support each area.

	In an era of slow growth and weaker pipelines for many pharmaceutical companies, contracting is not only a tactic to improve profitability. It is a strategic lever that differentiates high-quality, high-performance organizations from their competition. PC

	Robert Matsuk is Chief Strategy Officer at HighPoint Solutions, a specialized IT services company with vertically focused solutions for Pharmaceutical, Healthcare, and Financial Services companies. It is headquartered in King of Prussia, PA, with additional offices in New Jersey, Chicago, and California. For more information, visit www.highpoint-solutions.com. 

Effective integration of a company’s contract strategy with operations can have a big impact on financial performance