The FDA identifies more than 20,000 prescription drug products as approved for marketing, and there are approximately 900,000 active physicians in the US who can prescribe those drugs. Accounting for all of the pharmaceutical products that ultimately reach patients requires a massive effort, and this complexity directly impacts pharmaceutical manufacturers who contract with, and sell to, middlemen and prescriber organizations.
The key to untangling the web of complexity between drug companies, wholesalers and prescribers is effective master data management (MDM). For pharmaceutical companies, “master data” goes well beyond clean and up-to-date records of products, prices and customers. In order to effectively and profitably contract with prescribers, pharmaceutical manufacturers must maintain complicated sets of master data, including ever-changing group membership rosters. They must track group purchasing organizations (GPOs), integrated delivery networks (IDNs) and health systems and ascertain their eligibility across highly regulated government health insurance programs such as the 340B drug pricing program, Department of Defense (Tricare) and the Veteran’s Administration (VA).
Mismanaging master data can mean lost revenue for companies, incorrectly calculated rebates and government prices and even legal non-compliance. In other words, the consequences are significant and can directly affect the success of an organization.
Complexity drives the need for master data management
For the purposes of this article, master data management (MDM) means a true understanding of the parties a company is doing business with, what it sells and what price is charged. This “master data” information is also sometimes referred to as the “material master,” and there are also associated “masters” for identifying and tracking related data, including customer and pricing masters.
However, for pharmaceutical manufacturers, things are much more complicated, because basic customer or product information reflects only “ground-level,” or baseline, information required to manage complex prescriber and payment data.
This complexity is driven by the numerous different entities that purchase drugs, including independent and community pharmacies, large chains, hospitals, independent doctor’s offices and clinics, VA facilities, long-term care facilities and even military bases. And given the regulations that govern pharma companies, the way each of these discrete customers purchases drugs can be very different. As for government customers, regulations are even more strict and, therefore, complex.
Today’s drug sales environment
When it comes to drug purchasing, larger entities obviously have more power, and, for that reason, many medical practices will join with others to obtain group and volume discounts. A common example is GPOs, which leverage the buying power of multiple entities to obtain better pricing, as well as relevant and legally-appropriate discounts. However, keeping track of which purchasers are eligible for what discounts, as well as ensuring they’re correctly enrolled in various discount programs, requires an incredible amount of tracking and management. Many pharma companies try— and fail—to manage their master data using manual methods like spreadsheets, and this critical business function often gets deprioritized.
In addition, manufacturers must keep track of wholesalers and their relationships with various provider organizations. For example, a long-term care facility might be working with a wholesaler that is unaware of the discounts that the facility is entitled to, or that wholesaler might be giving the facility an excessive and/or incorrect discount based on incorrect data.
Unfortunately, the onus is on the manufacturer to manage customer data and appropriate discounts, because there is little financial incentive for wholesalers to carefully track class of trade and other master data; their prime motivation is to make sales. Their lack of concern for the financial consequences that manufacturers face is because, in cases where manufacturers do not have strong MDM, these middlemen are made financially whole, whether they sell a given drug at full price or discount it and recover costs via chargeback.
Ultimately, pharma companies must deal more effectively with MDM. This is because mismanaging master data can lead to unhappy customers, as well as lost revenue, a result of incorrectly calculated rebates and government prices. In addition, failure to manage master data creates compliance risk and potential legal liability. What’s more, drug pricing has become a politically-charged issue, and the need for highly-scrutinized pharma companies to “get it right” has never been more important from a public relations standpoint.
Best practices and technology: Taming master data
Effective management of master data is critical to mitigating business risk, and, most important to manufacturers, to capturing maximum revenue. Given the complexity of the overall system of prescribers and payers, the most effective way to handle MDM and capture all of a company’s rightfully-earned revenue is by leveraging best practices and technology.
Comprehensive master data is far more than basic customer names, addresses and billing information. Proper master data is built on accurate and up-to-date visibility into products and what pricing and discount terms a provider organization should receive, taking into account factors such as relevant memberships and government regulations. Beyond a basic grasp of “what pills we sell,” firms must have visibility into the solutions they offer, as well as the critical details associated with those products, such as their size, shape, dimensions and weight. Comprehensive master data must also capture which regulatory processes those products have gone through, including their availability or lack thereof.
While it might sound counterintuitive, one of the most important best practices around MDM is to “start at the end.” What this means is that companies should establish a solid understanding of their customer base and then leverage technology to create a program of extremely solid data management built around the right pricing and privileges that each customer enjoys.
Systems should understand, for example, what providers and facilities are eligible for which pricing and discounts, based on specific criteria such as membership in a given GPO, as well as geography and other factors. Digital tools that manage this information also empower pharma companies to make discounting decisions using software that enhances speed and accuracy. These better-informed decisions, based on shared information, can then be used to drive wholesaler compliance while ensuring that customers get the right pricing and that sales are reported properly, ultimately reducing revenue leakage.
Effective oversight of master data can trigger early warnings that prevent losses. Technology solutions can provide manufacturers with an early warning system that can help ensure contract compliance. For example, a manufacturer might observe a transaction with a new or unknown customer who claims eligibility for VA or 340B pricing or one who might be attempting to incorrectly use a GPO discount. This transaction would then be automatically flagged in the system, giving the company the opportunity to adjust pricing, notify the impacted parties, and possibly reject an inappropriate chargeback request. The benefit of today’s revenue management solutions that integrate master data is that these pricing interventions can be done at scale, and in near real time, given the capabilities of cloud computing and data analysis.
Tech can facilitate proactive management of pricing and discounts through tight integration with membership organizations such as GPOs and wholesalers.
Driven by technology, more accurate reporting means that pharmas can leverage master data for increased sales. For example, if a company is reviewing a “heat map” of its sales and subsequently learns that a given geography is falling behind when compared to other regions of similar populations, it can rapidly implement new sales incentives and direct account management teams to extend special pricing that can lead to market share gains.
Manufacturers may have strong customer categorization and discount strategy, but if they are not in lockstep with their wholesalers regarding which entities should receive which pricing, they aren’t reaping the benefits. Data exchange with wholesalers and membership organizations is another area where systems and processes can drive increased contract compliance, while potentially recapturing lost or missed revenue opportunities. Optimizing data exchange with wholesalers means ensuring its absolute accuracy.
In addition, technology can improve support for membership practices, enabling companies to not only manage their membership but also to manage offices, subgroups and classes of trade. Tight synchronization gives companies better visibility into what providers they are reaching and serve as an effective roadmap for sales management efforts—enabling master data to become a tool not only for reducing revenue leakage but also for driving incremental revenue.
In the end, it is understandable that drug purchasers wish to gain every possible discount, and it is similarly understandable that pharma companies want to collect as much money as possible for their products. And through effective management of master data that integrates accurate and timely information, companies can ensure that their industry trading partners receive the pricing and compensation that they deserve in a fair, ethical and legally-compliant manner, ultimately mitigating business risk for all parties.
About the author
Jesse Mendelsohn is Vice President at Model N