Complex Challenges Arising from Pricing Reforms: Q&A with Jesse Mendelsohn

Pharmaceutical Executive recently spoke with Jesse Mendelsohn, SVP at Model N, about the complications that can arise from companies entering into drug pricing agreements with the government. This comes as major pharma companies work directly with the government to provide discounts on select medications.

Pharmaceutical Executive: Where does lost revenue occur after price reforms?
Jesse Mendelsohn: Most recent price reforms, including TrumpRx, include making the Most Favored Nation (MFN) price available to Medicaid, Medicare, and/or cash payers in the United States. This presents a delicate revenue game for manufacturers. When a government sets a new price, it triggers change requirements across rebates, chargebacks, and contracts in multiple programs – Medicare, Medicaid, 340B, and commercial alike. Revenue increases from cash purchases can be offset by increasing rebates in Medicaid. Also, due to International Reference Pricing (IRP) rules, changes to prices abroad may now decrease the MFN price and bleed into US revenue operations. Teams across pricing (domestic and global) and commercial strategy, contracts, finance (rebates and chargebacks), compliance, and IT all need to implement these changes correctly. If any process falls out of sync – contracts aren’t updated, rebates miscalculated, or systems not aligned – revenue can be missed, even when the list price looks correct on paper.

PE: Why is compliance and gross-to-net price the biggest operational risk in drug pricing?
Mendelsohn: Gross-to-net sits at the heart of almost everything that affects a drug’s revenue, including rebates, chargebacks, and government pricing, all of which flow through those numbers. Research shows the gap between list and net prices for brand-name drugs recently hit around $356 billion, and Model N’s latest State of Revenue Report found that 99% of life science leaders say that GTN has become more complex to manage. Even small mistakes can quickly eat into revenue or cause compliance headaches. For pharma manufacturers, making sure these calculations are accurate every day is a huge operational challenge. Even minor mistakes - an overpaid rebate here or an incorrectly priced order there - can have profound downstream impacts on GTN and eventual government rebate liability.

Keep in mind that most pharmaceutical manufacturers are public companies. Mistakes in GTN can lead to restatement of earnings, which is likely to have implications for share prices and company reputations.

PE: What are the hidden operational costs of pharmaceutical companies making deals with the government?
Mendelsohn: A government-negotiated price isn’t just a number - it’s largely calculated based on millions of transactions in the commercial market. A price change creates significant work behind the scenes to calculate, validate, and report. Teams have to update contracts, recalculate rebates, file additional reports, and validate compliance. They must also assess downstream effects across other channels, such as Medicaid best price, 340B exposure, and commercial agreements. Without well-coordinated systems and processes, even routine updates can take significant time and resources.

PE: How will negotiated prices set off chain reactions?
Mendelsohn: Negotiated prices don’t move in isolation. Once a new price is set, it has to be reflected in contracts, eligibility rules, and reporting logic that were built on the old assumptions. If those updates don’t happen in the right order or on the same timeline, inconsistencies emerge, leading to incorrect rebates, reporting errors, or downstream pricing conflicts.Teams then have to unwind those issues manually, often months later.

Because pricing is interconnected across markets and now even countries, changes in government programs can also affect the commercial side. When one channel resets, other contracts may be rebalanced to keep pricing structures aligned, which could result in increased commercial prices.

PE: How can affordable drug policies succeed?
Mendelsohn: The drug pricing process itself has to change. Most legacy pricing models are built around setting a list price first and managing affordability later through confidential rebates and discounts to purchasers. The benefits of those price reductions may or may not reach patients. More sustainable affordability policies will require transparent pricing processes that account for access, patient cost, and policy constraints earlier. This will help align manufacturer pricing, payer incentives, and policy goals so affordability improvements actually reach patients at the pharmacy counter.