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Billions of dollars are at stake with analyzing and optimizing GTN decisions
For the past decade or so, Model N, a software and services company, has been toiling away on a financial management practice that it created, revenue management. Specific to life sciences and a few other industries, where price and contracting terms vary across commercial channels, and where other factors like government pricing policies come into play, the company has had success with a significant number of Big Pharma companies. Now, through a collaboration with another software and consulting firm, BPI Technologies, the two are targeting the gross-to-net (GTN) puzzle.
Model N provides its expertise in accurately measuring (and forecasting) revenues from commercial channels, factoring in sales, after-the-fact discounts, volume-based rebates, chargebacks and the like; “clean” accrual data is one of the outputs. BPI’s solutions are tailored to GTN analysis, factoring in wholesaler and payer contracting programs. In practice, Model N provides clean, accurate data, and BPI provides a deep level of GTN analysis, according to Nate Taninecz, VP, life sciences, at Model N.
“Manufacturers of brand-name drugs in 2017 reduced list price revenues by an astonishing $153 billion—a new high and twice what it was only five years ago,” said Richard Burcham, CEO at BPI. “Our combined solution will help our customers achieve higher net revenue and reduce the risk associated with gross-to-net forecasting, accrual management and reporting.” Burcham adds that in BPI’s experience, up to 25% of the effort involved in GTN analysis is just in lining up the financial data; working with Model N, that task will be substantially reduced.
In speaking of “risk” in GTN analysis, Burcham is not only referring to poor business decisions, but also quarterly or annual restatements of earnings, caused by errors in the accrual and reporting process. Some of these errors run into the tens or even hundreds of millions of dollars, which can have Wall Street investor implications (let alone putting the CFO in an uncomfortable spot).
GTN and the GTN “bubble” is increasingly a topic of debate in Washington, where various legislative efforts are under way to corral escalating drug prices, and bring some order to the chaotic pricing and reimbursement picture in the US. A similar dynamic is developing in the related topic of international reference pricing (whereby a pricing decision in one country affects pricing in others), a practice that President Trump has mentioned as a possible approach the US might take. Model N has recently upgraded its tools for reference pricing, along with a number of related enhancements to its Revenue Execution Cloud, the basic Model N platform.