You know the saying, “You only get one chance to make a first impression”? Well, here is a similar one for pharmaceutical manufacturers: “You only get one chance to set a product’s launch price.”
Formulating an effective pricing strategy is critical to help ensure that a new product is accessible to patients and fulfills business objectives. The process is complex—the manufacturer must set both list and contract prices, being thoughtful about the long-term price trajectory inclusive of business objectives, competitive market dynamics, government pricing requirements, and price adjustments to reflect growing intrinsic value and potential indications.
Current deal constructs within the “volume/market share” archetype are relatively alike, so the contracts lifecycle management (CLM) processes and systems that companies have been using for the last 25+ years may suffice for the time being. That being said, a new environment is emerging that may upend pharmaceutical product pricing/contracting and require a new generation of CLM solutions. Among the driving forces:
A company’s challenge doesn’t end once a new product’s pricing strategy is formulated and customer-specific pricing (given negotiations with the payers/pharmacy benefit managers (PBMs)/integrated delivery systems) is agreed to. Pricing and contracting strategy formulation and execution processes are intrinsically linked and should be governed/managed “end-to-end” over the life of the agreement to effectively balance patient access, affordability, and financial business objectives.
Unfortunately, within most pharmaceutical companies today, no single role/individual is ultimately accountable for the business performance of the entire pricing and contracting lifecycle (Figure 1), the process of creating, managing, and analyzing public and private sector customer contracts. Brand teams and/or payor marketing teams typically own Step 1, strategy formulation; the market access and/or finance function typically models deals and creates contracts in Step 2; and finance and/or market access manage Step 3, administration and terms and conditions (T&C) compliance management. A formal oversight role for Step 4, business performance monitoring and analysis, usually does not exist in a systematic way. As a result, this important performance data (during and after the contract’s “life”) does not routinely and systematically feed back into Step 1. In short, there is limited accountability to ensure that the pricing/contracting strategies formulated in Step 1 are performing as planned (modeled) in Step 2. The time has come to make the process, technology, and operating model changes needed to realize the business benefits of effectively orchestrating the end-to-end pricing and contracting lifecycle.
We also have often seen effective CLM stymied by the legacy systems and processes a company uses to create, manage, and analyze most contract types. These processes/systems are typically inefficient and slow, poorly controlled, non-standard, labor-intensive, not integrated, and plagued with untimely and inaccurate information. In addition, if the legacy systems and processes are not set up properly (incorporating the right affiliations, eligibility of different customer types, etc.), companies may experience financial and regulatory risks, revenue leakage, and difficulty measuring pricing/contract business performance.
Pharmaceutical companies looking to improve and modernize their legacy pricing and contract management systems should consider an integrated solution with capabilities that enable effective CLM for all types of contracts (volume-based and outcomes-based) from initial contract creation and deal modeling through ongoing T&C compliance management and contracts business performance monitoring and analysis.
Such a solution can provide tangible benefits at each of the four CLM process steps by helping companies:
Pricing/contracting is among the top business issues that pharmaceutical company leaders face today and should be addressed throughout the entire product lifecycle, with an emphasis during launch planning and execution. A good way to begin is by answering the following questions:
In a world where pharmaceutical manufacturers continue to seek to innovate around ways to improve patient access and demonstrate product value, advancing innovative pricing and contracting approaches is of growing importance to product launch planning and execution. Companies that designate one owner with responsibility and accountability to make the necessary process, technology, and operating model changes are more likely to realize the full business benefits of effectively orchestrating the end-to-end pricing and contracting lifecycle.
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