How Pricing & Contract Management looks—from the inside

Pharmaceutical CommercePharmaceutical Commerce - July/August 2017

Addressing the demands of

customers—payers, PBM managers and others—remains the No. 1 priority of Pricing and Contract Management leaders, according to

Future Issues in Contract Management: 2016–2019

, a landscape study conducted by TGaS Advisors. Calls for outcomes-based or risk-based contracting was the No. 2 priority. Changing legislation, access restrictions, new types of customers and calls for pricing transparency are among other high-level concerns.

By comparison, the top issue two years ago was “maintaining optimal/profitable access,” which indicates that the pendulum has swung to a point where manufacturers have much less leverage now with payers than in the past. This is primarily because manufacturers are still in the process of figuring out how to address the multiple demands. A second priority from two years ago was “increasing analytical capabilities.”

The landscape analysis is based on data and information from interviews with 17 leaders of PCM organizations. They report taking a number of key steps to address these priorities. After customer demands, the most critical action items for the next few years include (in order of number of mentions):

  • Keeping on top of legislative developments; monitoring market changes; and attending training, seminars, webinars and conferences
  • Adjusting contracting strategies and exploring innovating contracting offerings (outcomes-based or risk-based contracting)
  • Integrating pricing and contracting strategies to create alignment; working with internal stakeholders to assess pricing change impact and transparency
  • Increasing analytical capabilities (both pre-deal and post-deal) to assess the marketplace and target/segment customers
  • Maximizing resource efficiencies by exploring outsourcing or alternative resourcing models to handle increases in contract volume and complexity
  • Creating formal modeling scenarios of political change impact
  • Spending more time with account teams and internal stakeholders to help them understand the marketplace
  • Integrating pharmacy and medical claims.

Regarding outsourcing, a recent TGaS study indicates that 16 of 25 responding companies (large-, mid-tier and small) have outsourced at least one contracting function. The most common include data validation, rebate processing, chargeback processing, coverage gap/donut hole processing and Medicaid rebate processing. The pre-signature contract functions of pricing/contract strategy and proposal development, however, are rarely outsourced.

Respondents to the landscape analysis were asked to force-rank 15 pre-determined internal PCM functions in terms of their importance. The top seven include 1) creating innovative contracting strategies; 2) preparing for product launches; 3) ensuring compliance for government price (GP) calculations and reporting; 4) upgrading current systems; 5) successfully completing required audits and SOP creation; 6) reducing revenue leakage; and 7) predicting contract value.

It’s worth noting that “innovative contracting strategies” finished either first or second on each of the three individual rankings: Top Priorities, Most Critical Action Items and Most Important Internal PCM Functions. While skeptical views of the current and future prevalence of innovative contracting certainly exist within the pharmaceutical space, primarily due to poor data, lack of system support and many other reasons, there is no doubt that PCM leaders currently have this topic very high on their radar.

A few additional insights:

  • PCM budgets (does not include the rebate line) in general have decreased in 2017 as compared to 2016.
  • Access-based contracts continue to dominate the industry, and price protection is almost universal.
  • If resources are increasing within PCM teams, the most common function to receive additional resources is Pricing/Contract Strategy. Contract Administration (i.e., data and formulary validation) is the No. 2 area of resource expansion.
  • PCM leaders are looking to hire individuals with higher level skills, such as strategic thinking, marketplace knowledge, business acumen, analytics, stakeholder management and communication.


Brian Deppen

For more information on the Future Issues in Contract Management: 2016–2019 landscape analysis, please contact Brian Deppen, [email protected]. Deppen is VP, Pricing & Contract Management at TGaS Advisors, (, a benchmarking and advisory services firm for commercial organizations in the life sciences industry.

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